New Jersey Governor Phil Murphy proposed taxing online-room booking, ride-sharing, marijuana, e-cigarettes and internet transactions along with raising taxes on millionaires and retail sales to fund a record $37.4 billion budget that would boost spending on schools, pensions and mass transit.
The proposal, 4.2 percent higher than the current fiscal year’s, relies on a tax for the wealthiest that has yet to be approved and lacks support from key Democrats in the legislature. It also reverses pledges from Murphy’s predecessor, Republican Chris Christie, to lower taxes in a state where living costs are among the nation’s highest.
Murphy, a Democrat who replaced term-limited Christie on Jan. 16, said his goal is to give New Jerseyans more value for their tax dollars. He has promised additional spending on underfunded schools and transportation in a credit-battered state with an estimated $8.7 billion structural deficit for the fiscal year that starts July 1.
“If we enact another budget like the one our administration inherited, our middle class will continue to be the ones shouldering the burden, while seeing little in return,” Murphy said Tuesday in his budget address to lawmakers. “A millionaire’s tax is the right thing to do—and now is the time to do it.”
The budget counts on total revenue growth of 5.7 percent, the most since at least 2013, when it fell short. Murphy would increase the tax rate applied to income above $1 million to 10.75 percent from 8.97 percent, generating $765 million; and restore the state’s sales tax to 7 percent from 6.625 percent, raising $581 million. The state would gain $100 million by closing a carried-interest loophole on hedge-fund income.
“He must be kidding,” Senate Minority Leader Tom Kean Jr., a Republican from Westfield, said after the speech. “I don’t think anybody could have anticipated this level of tax increases.”
Murphy’s proposal would almost triple the direct state subsidy for New Jersey Transit, which has been plagued by safety and financial issues. Including funding for the agency from the state’s Turnpike Authority and an energy fund, he boosts money for New Jersey Transit by about a third.
His plan also includes a move to raise the state property-tax deduction to $15,000, which would benefit about one-third of homeowners, according to a budget summary. It also would create a child-care tax credit and increase the earned-income tax credit.
The budget plans for four-year phase-ins of a $15 minimum wage and full school funding as mandated by the state Supreme Court, and a three-year path to make community college tuition-free. It includes a record $3.2 billion pension payment, putting the state on course to resume full funding by 2023, according to budget officials.
“You kept hearing the same word: investment, investment, investment,” said Assembly Republican Leader Jon Bramnick, from Westfield. “Let me interpret that for you: It’s taxes, taxes, taxes.”
Christie, in his final speech before lawmakers a week before he left office, warned that inaction on pensions during and before his administration amounted to “the sword of Damocles that hangs over the head of every New Jerseyan.” Murphy, having led an appointed panel to propose pension solutions in 2005, said then and now that the state must make full payments after more than a decade of skipped or reduced contributions.
On March 1 his acting treasurer, Elizabeth Muoio, raised the assumed pension-return rate temporarily to 7.5 percent, a break for local governments that had faced hundreds of dollars in added payments when Christie lowered the rate to 7 percent last year. Though the short-term effect may be positive, it won’t fix a system with a combined unfunded payments and medical-benefits liability that reached $184.3 billion in 2017, according to a March 5 commentary by S&P Global Ratings. The two biggest funds are forecast to be broke in 2024 and 2027.
Murphy met with the major ratings companies in New York earlier this month to outline his financial plan. New Jersey’s credit rating is the second-worst among U.S. states, trailing only Illinois.
Senate President Steve Sweeney, a Democrat from West Deptford and the highest-ranking state lawmaker, was a perennial sponsor of a millionaire’s tax during the Christie years, only to see the governor veto it seven times. In the wake of President Donald Trump’s $10,000 limit on state and local property-tax deductions, though, Sweeney says the extra charge would drive more wealth from a state that already has the nation’s highest property taxes.
He and Murphy now disagree on how to fatten state coffers. Last week Sweeney outlined a proposal for a 3 percent surcharge on corporations earning more than $1 million annually, for an estimated $657 million. Murphy said he wouldn’t accept it as an alternative to his plan.
Sweeney, in a joint statement with other Senate Democratic leaders, said Murphy’s budget “includes many ambitious proposals that are appealing, but will require thorough review and consideration to determine if they are achievable. We will maintain an open mind throughout the budget process.”
Murphy’s plan for the fiscal year that starts July 1 counts on $80 million of revenue from a plan to legalize recreational marijuana by January 2019. He also intends to expand access to medical marijuana.
The governor is receiving push-back on recreational marijuana from Republicans and some members of the Black Legislative Caucus. Though polls show majority public support to make New Jersey the 10th state to allow the drug—and Murphy says its taxation would generate hundreds of millions of dollars—opponents say it would harm youngsters in poor communities and lead to increased use of outlawed substances.
Murphy’s plan to raise the sales tax likely will be a tough sell. The last two New Jersey governors to do so, Democrats Jon Corzine and James Florio, were ousted after one term.
Florio and former Governor Jim McGreevey, also a Democrat, sat alongside Lieutenant Governor Sheila Oliver as Murphy gave his budget address. Neither Christie nor Kim Guadagno, the lieutenant governor whom Murphy defeated in November, was present.