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New Jersey Passes Budget With Tax Increase on Millionaires

Posted on Sep. 25, 2020

The New Jersey State Legislature has passed a $32.7 billion budget and several accompanying revenue-raising measures, including the governor’s proposal to increase taxes on millionaires.

S. 2021, substituted for A. 4720, passed both chambers September 24. It is headed to the desk of Gov. Phil Murphy (D), who is expected to sign it into law. 

The bill would appropriate $32.7 billion in state funds and about $13.8 billion in federal funds for fiscal 2021, which begins October 1. It would also authorize borrowing of up to $4.5 billion, which Democrats have said is necessary to help the state address budget issues caused by the COVID-19 pandemic.

Sen. Paul A. Sarlo (D), chair of the Senate Budget and Appropriations Committee, in a release said, "This is a COVID budget that we have to do to contend with the crisis conditions created by the pandemic’s impact on the state’s economy and public finances."

“I look at it with a two-year perspective, aware of the fact that the economic consequences are likely to extend beyond this fiscal year. It is a spending plan that will help address problems created directly or indirectly by the coronavirus shutdown and allow us to be prepared for a potential second wave. This crisis should be taken as a tipping point that will spur action on cost-cutting reforms," Sarlo added.

The Legislature also approved three revenue-raising measures, which are also headed to the governor.

A. 10 would increase the gross income tax rate from 8.97 percent to 10.75 percent on income between $1 million and $5 million. The tax increase is expected to generate $390 million each year. 

However, it would 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 program would cost the state approximately $300 million each year, beginning in fiscal 2022, according to estimates from the state Office of Legislative Services. The millionaire’s tax expansion and rebate checks were announced September 17 as part of a budget deal. 

A. 4721 would 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.

Extending the 2.5 percent rate is expected to generate $210 million, according to the governor’s fiscal 2021 revised budget proposal

A. 4722, which was also proposed by the governor, would increase the HMO assessment from 3 percent to 5 percent on net written premiums of health maintenance organizations, starting in fiscal 2021. The governor's budget proposal anticipates it would generate about $103 million. 

The budget was decried by New Jersey Business and Industry Association President and CEO Michele Siekerka as irresponsible. “This budget will cost taxpayers for generations to come, as it exacerbates an already insurmountable debt load. And all this under the guise of providing tax relief,” she said in a September 24 release.

And Tom Bracken, president and CEO of the New Jersey Chamber of Commerce, slammed the budget as “more proof that the budget is about politics and not responsible fiscal management."

Bracken said, “The Legislature took what was already a bad budget and made it worse by weighing it down with hundreds of millions of dollars in additional and last-minute spending allocated to fund pet political projects, while still not addressing the economic realities of our state," Bracken said in a September 24 release.

“Businesses across New Jersey have expressed outrage that they will have this budget strapped on their backs while they are trying to deal with an uncertain economic environment and an administration coming at them for more tax revenue,” Bracken added.

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