Over $2.2B in tax hikes under Murphy so far. More coming Tuesday?
Gov. Phil Murphy’s first budget counted on around $1.5 billion in tax increases, though it’s on track to fall significantly out of balance unless a lot of income tax payments are being held back until April.
Factoring in other laws not directly adopted for the 2019 budget – such as for nuclear subsidies and paid family leave – Murphy approved more than $2.25 billion in new and higher taxes and fees in his first year in office. That doesn’t include the impact on electricity bills of new renewable energy subsidies, which is still to be determined.
On Tuesday, Murphy proposes the state’s 2020 budget. He told a New Jersey Chamber of Commerce dinner Thursday that “perhaps more than any other in recent memory, it will put forward significant and sustainable savings” – but also, that he “will speak once again to my commitment to tax fairness.”
That latter point could mean a renewed push for higher taxes on income over $1 million, which the Legislature refused to approve when he sought it a year ago. Lawmakers also rebuffed his request to increase the sales tax rate to 7 percent from the current 6.625 percent.
Assembly Minority Leader Jon Bramnick, R-Union, said Murphy doesn’t realize the tax increases are counterproductive.
“I believe he lives in an alternate universe where he believes that he’s going to move forward with his policies, regardless of the consequences to the average taxpayer in this state,” Bramnick said.
Most of the big tax increases from Murphy’s first budget didn’t directly impact most taxpayers, as they increased corporate taxes or taxes on income over $5 million. But some more targeted tax changes did, on things like online sales, Airbnb rentals and ridesharing services.
Plus, collections are running behind expectations.
Through the first seven months of the fiscal year, tax collections were 3 percent higher than a year earlier, while the budget counts on 7.5 percent growth. Excluding the $282 million received through a tax amnesty offer, major tax revenues have grown 1.3 percent.
Higher taxes on income over $5 million were expected to yield $280 million. The state hasn’t released data with enough detail to know if that worked – but overall income tax collections are down 6 percent, rather than rising 5 percent as forecast.
“We’re concerned about just to see where we’re at in April, when we’re talking about the income tax piece,” said Assemblywoman Eliana Pintor Marin, D-Essex, who heads the budget committee. “That’s I think the one that we saw a lower trend last year. We’ve heard that it’s pretty much nationally, and I think it has to do a lot with the Trump tax changes.”
The thinking goes as follows: High-income taxpayers have historically accelerated tax payments into December to claim a larger tax deduction. But the state and local tax deduction is capped at $10,000, rather than being unlimited, so they’re more likely to wait until April to reconcile what they owe.
Maybe. It might not really be clear until April revenues are announced in May.
Bramnick said tax hikes don’t work for the state budget or the politicians who impose them.
“You just can’t go back to the past and follow the Corzine/Florio proposals because that’s what they’re doing. Actually, I think it’s Corzine and Florio on steroids,” Bramnick said.
Other tax increases may be yielding more money than anticipated. For instance, changes made to corporation business taxes – including a temporary surcharge and new reporting rules – had been expected to increase state revenues $890 million, helping fuel a 47 percent increase from that tax. Instead, it has been up nearly 75 percent.
Pintor Marin noted sports betting is off to a strong start – already at $12.7 million, when the state budget counted on $12 million for the entire fiscal year.
She said the state is still waiting to see how putting the sales tax on online purchases, which took effect in November, will deliver. That’s expected to add $212 million to the state’s collections this fiscal year. To date, overall growth in sales tax revenue is about half of what’s forecast in the budget.
If revenues don’t rebound, steps may need to be taken to balance the 2019 budget – even before the inevitable debates over the 2020 spending plan. Last summer, when Murphy’s first budget was adopted, a government shutdown was averted by mere hours.
“Obviously we’re going to have some difficult decisions potentially to make this year,” Pintor Marin said. “Last year, obviously, we had a tough year. And I think that each year as we’re making our pension payments, that’s been neglected for so long, we’re getting a little tighter and tighter when we’re talking about the general fund.”