Slight drop in NJ sales tax takes effect January. Will you notice?
The first of the tax cuts adopted along with the nearly 23-cent increase in the gas tax take effect on Sunday. But while everyone benefits, few may notice.
The sales tax is dropping by one-eighth of a percentage point – from 7 percent to 6.875 percent. If you spend $10 on a taxable item, the difference at the cash register will be a penny. The total reduction for consumers is estimated to be around $185 million in 2017; the tax then drops a quarter-percent in 2018.
Assemblyman Declan O’Scanlon, R-Monmouth, says it’s not insignificant, particularly combined with additional tax cuts being phased in for estates and retirement income.
“You’re going to see many, many households will have $100 a year savings, in that ballpark. Some will have hundreds of dollars a year. Some will have somewhat less than that,” O’Scanlon said. “But it’s not insignificant if you want to compare it to the impact of the tax increase that we did.”
The individual impact of the gas tax hike depends on the kind of car a person drives and how far he or she travels. General figures of $150 to $200 a year are often cited.
O’Scanlon said people will also benefit from avoiding increases in property taxes as municipal and county road projects are funded through state aid via the Transportation Trust Fund, rather than property taxes. He says that will be around $100 to $150 per household.
“Whether people get excited about it or not, the monetary reality it makes – it’s a big offset,” O’Scanlon said of the sales-tax cut.
Other tax cuts also begin to be phased in Sunday. The amount of retirement income that’s free of state taxes doubles to $40,000. Estates worth $675,000 to $2 million won’t be taxed in 2017. And the earned income tax credit paid to the working poor increases with this year’s tax filings.
“We’re going to start to realize the good of this whole discussion that was had between the Legislature and the governor and the bill that was ultimately passed,” said Greg Lalevee, business manager for the International Union of Operating Engineers Local 825. “We’re going to just start seeing good things come out of it."
A $3,000 income-tax exemption for veterans is also part of the law, but that doesn’t take effect until 2017 tax returns are filed in early 2018.
The tax cuts will have an impact on the state budget, which is already strained. Revenues for the state’s current budget are expected to drop by around $170 million. By 2022, when the cuts are fully phased in, the loss to the state is projected at $1.4 billion or more.
O’Scanlon said the tax cuts will stimulate the economy and that growth is the only way to fix the state’s chronic budget problems.
“You can’t both say that we need to do things that increase growth and then bitch every time we do just that,” O’Scanlon said. “We have to do it and then do the hard budget work to account for it.”
Assemblyman Gary Schaer, D-Passaic, who chairs the Assembly Budget Committee, voted for the bill but said the impact on the budget can’t be shrugged off.
“I think everyone applauds those pieces of legislation. It will give the state an effective and robust transportation system, which is vital to our economic growth and development,” Schaer said. “But on the other hand, our well-meaning attempt to do such also carried with it loss of revenue. That loss of revenue has got to be compensated somewhere. We’re spending more than we’re collecting.”