Why lawmakers say you should be thrilled about plan to hike the gas tax
Lawmakers backing a plan to more than double New Jersey’s gas tax to pay for transportation projects would really rather that you not dwell on how gas could cost you almost a quarter more per gallon.
Sure, a variety of changes to fuel taxes could amount to a $1.4 billion tax hike, affecting not only gasoline but also jet fuel. But there’s a flip side, they insist: They’re cutting other taxes in ways they believe will make the state more economically competitive as the changes get phased in.
New Jersey would gradually eliminate the nation’s most aggressive tax on wealthy estates. It would adopt a fivefold increase in the amount of tax-free retirement income. It would give an income-tax deduction for donations to New Jersey charities. It would boost a tax credit for the working poor.
“This is a good thing for New Jersey, probably one of the most significant adjustment of certain state taxes to ever come out of this Legislature in many, many decades,” said Sen. Paul Sarlo, D-Bergen.
“If this gets done, one of the most significant, maybe the most significant legislative package that has happened here in 15 or maybe 20 years,” said Sen. Joseph Kyrillos, R-Monmouth, who endorsed the proposal as “a productivity, prosperity and quality of life package for New Jersey.”
“This isn’t about what is publicized as a quote-unquote tax increase. That’s not what this is today,” said Assembly Majority Leader Louis Greenwald, D-Camden. “This is about an economic stimulus package for New Jersey that is a byproduct of legislation that has been worked on for years.”
Gov. Chris Christie, speaking to the Morris County Chamber of Commerce, said “of course” the plan announced Friday is “a proposal worthy of consideration” – but he also indicated he’s not on board.
Christie said the plan doesn’t cut taxes enough to create the ‘tax fairness’ he says is needed before the gas tax could be hiked. For instance, he says the estate tax should be phased out by the end of 2017, while the bipartisan compromise doesn’t phase it out completely until the end of 2019.
“Why would Democrats advocate for a four-year phase out, rather than a 2-year phase out? Because I’ll be gone, right?” Christie said. “And I am willing to bet you every dollar I have in my pocket right now that when I leave, they will delay the phase out. And then they will cancel the phase out.”
“It has to be gone by the time I leave because quite frankly, I don’t trust them,” he said.
Senate President Stephen Sweeney, D-Gloucester, invited Christie to make his own proposal. The governor has been waiting for lawmakers to offer a plan but hasn’t put forth his own ideas, unlike how he handled the previous Transportation Trust Fund reauthorization five years ago.
“Listen, he should offer up a plan,” Sweeney said. “We’re not playing politics. You see it’s Republican/Democrats here. We’ve put forward a plan that we think is the best that we can do at this time. If the governor wants to jump in, we would honestly love to have his participation in it.”
Here are the gas tax changes being envisioned in the bipartisan plan:
A 10-cent per gallon tax would be added to the existing 14.5 cent per gallon gas tax. Additionally, a 7 percent tax would be added on petroleum products at the refinery. At the current cost, that amounts to around 13 cents a gallon but will fluctuate with prices.
Starting in a year, drivers of electric, hydrogen-powered and other non-gas powered vehicles would pay a mileage tax of $150 a year.
New Jersey’s tax on jet fuel would go from 0.4 cents a gallon, which is levied only on the fuel used in taxiing and takeoffs, to 7 percent on all jet fuel.
Sen. Steve Oroho, R-Sussex, said the changes would shift the costs for more than 30 percent of the Transportation Trust Fund fix to out-of-state drivers and airport users. He said it would also let the state keep $346 million more in sales tax revenues in the general fund that’s currently moved the TTF.
“I don’t think it’s an intentional sham, but it’s been a sham and a fallacy as to who’s really paying,” Oroho said. “To get a little bit of candy in one hand with the low gas tax and being pickpocketed with the next.”
Five tax cuts are envisioned as part of the TTF plan:
The estate tax, which is currently paid by estates worth $675,000 or more, would be phased out by January 2020. It would become an exclusion of $1 million at the end of 2016, $2 million at the end of 2017, $3 million at the end of 2018 and then disappear at the end of 2019. This would cost the state $540 million a year when fully phased in.
The earned income tax credit for working-poor families would be increased from 30 percent of the federal benefit to 40 percent. More than 550,000 taxpayers claimed a credit for 2014. The increase would boost the average benefit by $255 and cost the state $120 million a year.
The amount of pension and retirement income excluded from state income taxes would be gradually increased over four years – from $20,000 for joint filers and $15,000 for individuals today to $100,000 for joint filers and $75,000 for individuals. This would cost the state $100 million a year.
People who pay income taxes to New Jersey would be allowed to deduct contributions made to any of more than 1,100 New Jersey charities that already participate in the annual New Jersey Employees Charitable Campaign. Deductions would be limited to $500 in 2017 and grow gradually to $2,000 starting in 2020. This would eventually cost the state $80 million a year.
People would start to deduct their gas taxes from their income taxes. It would only apply when gas taxes exceed 1 percent of income, so primarily it would benefit those with smaller incomes. The budget impact of this plan wasn’t estimated.
The proposal calls for spending $2 billion a year, up from the current $1.6 billion, in each of the next 10 years. Three-fourths of that would be borrowed, amounting to $15 billion in additional debt, backed by revenues from the tax hike that would also allow for $500 million a year in pay-as-you-go spending.
Of the additional $400 million a year in spending, around half would go toward aid to counties and municipalities. Sweeney said that would restore local aid to 20 percent of the TTF, as it once had been before declining to its currently level of around 11 percent.
Christie mocked the increase in local aid as politically calculated.
“You know what that is? It is a payoff to protect their political backsides. Pay off the local mayors, pay off the local council, so they’ll endorse the local assemblyman and senator,” Christie said. “And don’t let them fool you that it’s property tax relief. Please, they’ll just pave more.”
Sweeney said there is a direct property tax implication. He said the plan would restore local aid to 20 percent of the TTF, as it once was before declining to around 11 percent now.
“I don’t know why the governor wouldn’t be supportive of reducing property taxes,” Sweeney said.
“There are no free roads. You bond them at the local level. So freeholders have a tendency and mayors and councils have a tendency to go out and bond. And those bonds are paid for not by a gas tax but paid for by property taxes,” he said.