New Jersey Gov. Phil Murphy (D) has signed a budget for revised fiscal 2021 along with his long-sought tax increase on millionaires.
On September 29, Murphy signed S. 2021, which will appropriate $32.7 billion in state funds and about $13.8 billion in federal funds for revised fiscal 2021, which begins October 1.
The nine-month budget addresses spending from October 1, 2020, through June 30, 2021; fiscal 2021 was shortened after fiscal 2020 was extended from June 30 to September 30 because of economic issues facing the state as a result of the COVID-19 pandemic.
“As we continue to grapple with the effects of the pandemic, building a stronger New Jersey requires us to continue to bolster the middle-class families who are the backbone of our state,” Murphy said during the bill signing. “This revised budget not only recognizes the realities of the pandemic, offering much-needed tax fairness, including tax relief to the middle class, but also maintains our core principles so that we can emerge from this crisis stronger, fairer, and more resilient.”
The governor also signed three revenue-raising measures that were included as part of a budget deal reached by Murphy and Democratic legislative leaders. The tax policy changes are expected to generate a total of $750 million in fiscal 2021, according to the governor's office.
A. 10 will expand the existing 10.75 percent gross income tax rate on income over $5 million to income earned over $1 million. The tax increase is expected to generate $390 million in fiscal 2021.
The governor called for an expanded millionaire’s tax in his fiscal 2021 budget proposal released in February. It was his third budget proposal to include the tax.
A. 10 will also provide a tax rebate of $500 to taxpayers with at least one dependent child and a gross income tax liability of greater than zero. To qualify, taxpayers would need to have gross income of no more than $150,000 for married taxpayers filing jointly, heads of household, and surviving spouses or $75,000 for married taxpayers filing separately and individual filers. The rebates would be issued between July 1 and July 31, or between July 1 and the end of the year for taxpayers who were granted income tax extensions.
The rebate provisions of A. 10 are expected to cost the state at least $300 million annually starting in fiscal 2022, according to the bill's fiscal note.
A. 4721 will extend the 2.5 percent business corporation tax surcharge until December 31, 2023. The four-year surtax was imposed on companies with over $1 million in allocated net income at a rate of 2.5 percent for tax years beginning on or after January 1, 2018, through December 31, 2019, and was reduced to 1.5 percent for tax years beginning on or after January 1, 2020, through December 31, 2021.
Under A. 4721, if the federal corporate income tax rate is increased “to a rate of at least 35 percent of taxable income, the imposition of the surtax imposed pursuant to this section shall be suspended following the conclusion of a taxpayer’s privilege period corresponding with the increase to the federal corporate income tax rate,” the bill says.
The federal Tax Cuts and Jobs Act reduced the top corporate income tax rate from 35 percent to 21 percent.
A. 4722 will increase the assessment on net written premiums of HMOs from 3 percent to 5 percent, starting in fiscal 2021.
The appropriations bill relies on the state's ability to issue up to $4.5 billion in general obligation bonds, which has faced criticism from the New Jersey Business and Industry Association and Republicans, who filed suit against the governor in an effort to prevent the borrowing plan.
The association has argued that the borrowing is unnecessary because the state's Office of Legislative Services projected at least $1.4 billion more in revenues than the Murphy administration, the surplus was increased by more than $1 billion from the beginning of fiscal 2020, and some new spending in the budget is not related to the coronavirus.
Murphy explained that the borrowing is needed as a result of the lack of COVID-19 relief funds from the federal government. The National Governors Association has called on Congress to provide $500 billion in federal aid to help states stabilize budgets amid the ongoing public health crisis. However, Congress has yet to reach a deal on another COVID-19 relief package.
If the federal funds come through, Murphy said, "one of our . . . top priorities is going to be to try to pay down some of our debt and get our fiscal house in order."