Later this month, the legislative budget committees will get an update from state officials on April’s income tax collections and find out whether the Murphy administration’s revenue estimates are on target.
Then legislators must decide if the next state budget that takes effect July 1 will include Gov. Phil Murphy’s plan to expand the top state income tax bracket so that more New Jersey residents and small business owners are paying the highest income tax rate in the region.
This has been a troubling budget process because too much focus has been on raising revenues instead of reducing spending. The governor’s $38.8 billion budget proposal represents an 11 percent increase from FY 2018 and continues a disturbing tax-and-spend trend.
Ironically, state Treasurer Elizabeth Maher Muoio’s legislative testimony only served to validate the need for structural reforms, instead of more taxes and spending.
In Muoio’s own words, the revenue performance of the Corporation Business Tax in fiscal year 2019 has been compelling. The revised CBT forecast has been increased by $662 million, to a total of $3.7 billion for FY 2019 – a record revenue number for that tax.
But that stands to reason when you own the second-highest CBT rate in the nation, and when changes to the CBT included other tax provisions that we predicted would eclipse the scored numbers that policymakers had projected. The result is a windfall of money to the general fund from New Jersey’s job creators.
However, because more than $500 million of this corporate revenue growth is nonrecurring, the administration’s new solution is to – what else? – increase taxes somewhere else; all while New Jersey’s current jobs numbers suggest a stagnation in job growth as we stare down a national recession within the next two years.
Rather than do what is needed – structural reforms that will put New Jersey on track to a fiscally sound budget and pathway to a sustainable budget for the future – the call is to increase the state’s top Gross Income Tax rate for those making more than $1 million annually. (Currently only incomes over $5 million pay the top rate).
Expanding state income tax brackets so that more taxpayers, including many small business owners, are paying the top 10.75 percent rate will exacerbate our struggles in regional competitiveness, impacting New Jersey’s job creators who drive the state’s economy. And let’s not forget that these same job creators are already coping with a barrage of additional costly workplace mandates put in place by this administration.
Our wealthy residents are the ones who fortify our overall AGI, which impacts our state budget and ability to fund needed government programs. They are the ones who make key investments in our state through business and job creation. Further penalizing them for their success is not the definition of “tax fairness.”
A fairer concept would be to enact the structural reforms, like those included in the Path to Progress report, to address the state’s $151 billion in pension liability and post-employment benefit obligation. These proposed reforms include the transfer of state and local government employees from the current platinum-level health coverage to gold coverage, comparable to what most of the best private-sector companies offer their employees; and to shift all new public workers at the state and local levels, along with not-yet-vested workers, from the defined retirement benefit plan to a cash-benefit plan, or hybrid retirement benefit.
Reforms aimed at reducing New Jersey’s long-term debt obligations, which have grown 382 percent over 10 years, are the only alternative to the ineffective pattern of remedying budget imbalances with increased or new taxes on overburdened businesses and residents.
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