Economists and academics in New Jersey have called on top state lawmakers to extend the state's corporation business tax surcharge and raise taxes on high-income earners to achieve a balanced budget without cutting spending.
In an August 18 letter to Gov. Phil Murphy (D), Assembly Speaker Craig Coughlin (D), and Senate President Stephen Sweeney (D), more than 90 economists and academics from universities and colleges in New Jersey said that increasing the personal income tax and corporate tax, rather than imposing spending cuts, is a fair way to balance the budget.
“In a recession, balancing the budget by cutting vital spending has a more negative impact on our citizens than balancing the budget by raising taxes,” according to the letter. “Modest adjustments to income tax rates on those earning $250,000 and more would raise approximately $1.5 billion in new revenue each year while making the overall tax code fairer,” the letter continued.
The letter appears to refer to a plan proposed June 9 by Sheila Reynertson of New Jersey Policy Perspective, which calls for creating two new individual income tax brackets at $250,000 and $1 million and increasing the tax rate at the existing $500,000 and $5 million brackets.
The letter also says, “extending the temporary corporate tax surcharge of 2.5 percent on businesses with profits of $1 million or more would provide $425 million in additional annual revenue to invest in critical assets and services.”
Legislation adopted in 2018 imposed a temporary surtax on companies with over $1 million in net income at a rate of 2.5 percent for tax years beginning on or after January 1, 2018, through December 31, 2019; and 1.5 percent for tax years beginning on or after January 1, 2020, through December 31, 2021.
Noting that the pandemic has “caused an unexpected increase in state and local spending at the same time that revenues, especially from income and sales taxes, are falling,” the letter said “now is an appropriate time for the federal government to provide relief to states,” as it did during the Great Recession.
But because New Jersey only has about $400 million in its rainy day fund, the signatories said they are “concerned that the state will pursue counterproductive budget cuts.”
The governor recently signed a bill into law that would allow state officials to borrow up to $9.9 billion to address budget shortfalls caused by the economic impact of the pandemic. The state supreme court ruled August 12 that the bill is constitutional.
One of the letter's signatories — Yana van der Meulen Rodgers, a professor in the Department of Women’s and Gender Studies at Rutgers University — told Tax Notes August 18 that “at this point . . . borrowing in the short term to address this crisis makes a lot of sense."
“I know it’s not an easy choice, but the federal government is borrowing — I think states need to follow suit,” Rodgers added.
Rodgers said the pandemic is exacerbating fault lines across the country in divisions of race, class, gender, and disability status. “Some of these gaps can only be addressed with spending and more equitable policies,” she said.
However, Bob Considine, spokesman for the New Jersey Business and Industry Association, said that including new taxes in the state's fiscal 2021 budget would be “completely inappropriate and unnecessary in the short term with the potential infusion of $9.9 billion.”
“The businesses that would pay any new tax imposed by the state have either been extremely limited or closed for months under orders imposed by the state,” he added.