Murphy Renews Rich-Tax Push in $38.6 Billion N.J. Budget

Governor Phil Murphy is taking another stab at a higher tax on New Jersey millionaires, part of his proposed $38.6 billion budget that includes a record pension payment and health-care savings negotiated with the public workers union that helped elect him.

The spending plan is a shot at redemption for Murphy, whose proposal last year for a millionaires’ tax led to a deadlock with fellow Democrats and brought New Jersey to the brink of a government shutdown.

Murphy, 61, a former Goldman Sachs Group Inc. senior director, said his priorities for the fiscal year that starts July 1 are savings, fiscal responsibility, more money for education and “tax fairness” — his phrase for taking a larger share of income from the wealthiest to benefit the middle class.

“Let’s work together to apply the millionaire’s tax to every millionaire,” Murphy said in prepared remarks to lawmakers. “By doing so, we can do more to relieve the burden on middle-class taxpayers and senior citizens.”

Democrats, the majority in both houses of the legislature, have signaled a reluctance to raise income taxes. Senate President Steve Sweeney, a Democrat from West Deptford, said Murphy’s progressive agenda is out of step with the more-moderate New Jersey party majority. Lawmakers who support higher taxes will be punished on Election Day in November, Sweeney said.

Murphy came away from last year’s budget negotiations with a higher levy on incomes above $5 million, affecting about 6,700 people in and out of the state. In his budget speech in Trenton today, he said he could raise another $447 million on those earning at least $1 million. Of the 37,123 people who would pay, a little more than half are non-residents — typically professional athletes and performers or those with links to New Jersey-based partnerships or limited-liability and S corporations, according to budget documents and treasury officials.

Murphy didn’t repeat his call for a higher sales tax, another initiative turned down by lawmakers last year. The fight on the millionaires’ tax alone will be ferocious enough: Murphy is channeling growing national resentment of the super-rich, while New Jersey lawmakers — most facing re-election — are calling tax increases untenable for anyone in a state with some of the highest U.S. living costs.

“I remain convinced that we can achieve added substantial savings through reforms and that our fiscal solutions should not include any broad-based tax increase, including sales and income tax,” said Assembly Speaker Craig Coughlin, a Democrat from Middlesex.

The governor will meet on March 7 with Wall Street credit-rating companies, administration officials said, to highlight how his budgeting differs from that of his predecessor, Chris Christie. The Republican’s thin surpluses, spending cuts and bloated revenue projections led to 11 downgrades, a New Jersey record, by the three major ratings companies. S&P ranks New Jersey A-, seventh-highest. Only Illinois has a worse rating among U.S. states.

Senator Joe Pennacchio, a Morris Plains Republican, said Murphy’s budget will “push even more job creators out of state.”

“Last year, Governor Murphy’s proposed tax hikes were so egregious, that even his fellow Democrats couldn’t stomach them,” Pennacchio said in a statement. “Nothing has changed. Don’t be surprised if the government shuts down.”

Transit Woes

For New Jersey Transit, the nation’s second-biggest commuter railroad that suffered amid eight years of budget cuts under Republican Chris Christie, Murphy pledged to boost the state subsidy, keep fares level and stop diverting money from the NJ Turnpike Authority and the agency’s own capital budget toward operating costs. The state general fund now would kick in $75 million to replace those diversions and add $25 million for operations, according to budget documents. The agency needs billions of dollars for capital improvements.

Spending for the new fiscal year is supported in part by $1.1 billion saved in employee benefits and departmental accounts. Health expenses alone are expected to drop to $2.7 billion, the lowest since at least 2013 and 16 percent less than the current year.

Union Help

At least $200 million of those savings are expected in state-worker agreements, including a five-year contract negotiated by Murphy and the Communications Workers of America, the state’s largest public-employees union, which announced the tentative deal on its website on March 3. Union support was crucial to Murphy’s win over Republican Kim Guadagno in November 2017.

The administration is counting on such efficiencies to help make a record $3.8 billion pension payment, almost one-fifth higher than planned for fiscal 2019. Local school budgets — a prime driver of property taxes that hit a record average of $8,767 in 2018 — would get 3 percent more state aid, for a total of $10 billion.

New Jersey must devote $14.2 billion, more than one-third of fiscal 2020 spending, to pension and health benefits, debt service and Medicaid. That leaves little money for other priorities.

S&P Warning

For the current fiscal year, gross income-tax collections– the largest share of the budget — are $415 million off estimates, according to the governor’s revised figures released today. Though the treasurer’s office is counting on a surge after the April tax deadline, S&P Global Ratings on Feb. 25 warned that a shortfall could cause current fiscal-year cuts.

Murphy is forecasting 6.9 percent income-tax revenue growth for the new fiscal year. But in the current fiscal year through January, growth was down 6 percent rather than up an expected 5.4 percent.

He also will lack a one-shot tax amnesty program that collected $282 million. So the pressure will be on to find the money elsewhere — the downside of his fiscal-soundness pledge to wean New Jersey from such non-recurring revenue sources. His plan to use one-shots for just 1.7 percent of next year’s budget is the second-lowest percentage since at least 2010, when such sources made up 13 percent of spending.

Likewise, he’s reducing diversions from the Clean Energy Fund, with $87 million for next year, compared with a $146 million shift this fiscal year.

Another challenge: Corporate tax revenue is expected to drop 13 percent, to $3.2 billion, because some of this fiscal year’s one-time enhancers won’t exist next year. And his budget assumes revenue of just $39 million from yet-to-be-legalized cannabis, if sales were to start Jan. 1, 2020.

He’s also calling for a new $150-per-employee fee for businesses that don’t offer health insurance, and have at least 50 workers enrolled in Medicaid. That would raise $30 million — the same amount he’s spending to fund higher tax credits for the working poor.

Murphy is budgeting a $1.1 billion surplus for this fiscal year, the most since 2009, to hedge against a potential national recession. For the year that starts July 1, Murphy has a $1.16 billion target, about 3 percent of the budget. The national average is about 10 percent, according to state budget documents.

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