In a budget address at SHI Stadium in Piscataway, New Jersey, Gov. Phil Murphy unveiled a spending plan that would raise the income tax rate on those making over $1 million a year from 8.97% to 10.75%, the rate now paid by those making more than $5 million annually. (AP)
Beginning in tax year 2021, the budget would also impose a 5% surcharge on federally qualified business income for owners of pass-through businesses with income greater than $1 million who are eligible for a 20% deduction under the 2017 Tax Cuts and Jobs Act
. Additionally, the budget seeks to increase taxes on cigarettes, impose an excise tax on firearms, restore a sales tax on limousine services and remove a 50% sales tax cap on boats.Murphy, a first-term governor who has pushed a millionaires' tax multiple times, including in his initial budget address in February, said raising taxes on the wealthiest businesses and corporations in the state would be the fairest way for New Jersey to address a $5.7 billion shortfall amid the pandemic.
"I would urge those who would pay this tax to see it this way: We are asking you to sacrifice pennies on your top dollar to ensure that every New Jerseyan has the same opportunity to succeed that you did," Murphy said during his address from SHI Stadium at Rutgers University. "You have the wherewithal that millions of families don't at this extraordinary time in our shared history."
The budget would span Oct. 1 to June 30, 2021, and would raise taxes by about $863 million in the upcoming fiscal year, according to a summary of the spending plan. New Jersey's fiscal year normally begins July 1, but the state pushed the start date back three months to give officials time to assess the financial downturn the state is facing from the spread of COVID-19, the respiratory illness caused by the novel coronavirus.
Murphy's plan would also reduce spending by $1.2 billion across state agencies and borrow about $4 billion. The state Supreme Court earlier this month upheld a law that allowed the state to borrow up to $9.9 billion to balance the budget without voter approval, ruling that the state constitution allowed an exception for debt created "to meet an emergency caused by disaster."
Whether Murphy's proposed tax increases have enough support in the state Legislature is uncertain. Democratic leadership in both houses expressed support for certain elements of the governor's package but stopped short of fully endorsing the budget.
"We will keep an open mind as we understand every option and proposal must be thoroughly reviewed and vetted," Assembly Speaker Craig Coughlin, D-Woodbridge, said in a statement.
Senate President Steve Sweeney, D-West Deptford, who had opposed raising personal income taxes on millionaires after Murphy assumed office in 2018 but softened his opposition to it this year, indicated before the budget address that he'd be open to considering the proposal.
When reached for comment, Sweeney spokesman Richard McGrath shared a Politico story with Law360 that quoted the Senate president telling reporters before Murphy's address that taking any proposal off the table would be "very irresponsible."
However, Sweeney also told reporters that he supported increasing the business surtax back to 2.5%, saying that was the Legislature's idea.
Murphy's budget was met with swift opposition from Republicans, who are in the minority of both legislative chambers.
Sen. Steve Oroho, R-Sparta, the Republican budget officer, said in a statement that he would rather see New Jersey pursue "tax fairness with New York," by changing the way that New Jersey residents' income is taxed in the Empire State while working from home for a New York business.
Oroho has argued that instead of providing a credit for income taxes paid to New York, New Jersey should instead find a way to ensure those wages would be sourced to New Jersey for tax purposes. Oroho has said that would increase the Garden State's tax revenue while giving workers a break from New York's higher tax rates.
"As an alternative to the borrowing and tax increases the administration has proposed for increasing spending in the state budget, this would seem to be a no-brainer," he said.
Assembly Minority Leader Jon Bramnick, R-Westfield, told reporters after the address that the "tax-and-spend" policies in the budget would drive residents out of the Garden State and into friendlier tax climates.
"Take a picture of the stands," Bramnick said, referring to the empty seats in SHI Stadium. "This is what New Jersey is going to look like."
When asked how much support Murphy's office believes the Legislature has for the millionaires' tax increase and the reversal of the corporate surtax cut, his spokesman Darryl Isherwood told Law360 that the governor hopes lawmakers will support all the measures that are designed to fill the budget gap.
"The governor remains committed to tax fairness, and ensuring that most fortunate among us — millionaires and large corporations — pay their fair share," Isherwood said. "With the financial devastation wrought by the pandemic disproportionately affecting low-income communities and communities of color, fairness becomes even more important."
But Ralph Albert Thomas, CEO and executive director of the New Jersey Society of Certified Public Accountants, expressed concern about the spending plan, saying in a statement that it would further New Jersey's reputation as having the least competitive business tax climate in its area of the country. Compared with the other states in the region, New Jersey already has the highest top income tax rate, corporate tax rate and state sales tax rate, he said.
"A reliance on higher taxes to finance unsustainable spending levels will sentence New Jersey for decades to remain last in business climate and first in outmigration," Thomas said.
--Additional reporting by James Nani and Bill Wichert. Editing by Neil Cohen.
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