NJ.com- Gov. Phil Murphy, so far unsuccessful but undeterred in his persistent campaign to raise taxes on New Jersey’s well-to-do, will unveil his third state budget Tuesday, with renewed hope to make good on his progressive vision.
The Democratic governor is expected to once again propose a higher tax rate on those with income over $1 million, and he may have an unlikely supporter. State Senate President Stephen Sweeney told NJ Advance Media this weekend he would consider supporting the tax in exchange for an extra $1 billion payment to the state’s public-worker pension fund.
Sweeney’s olive branch proposal after two years of opposing Murphy’s plan sets the stage for what could be the duo’s most amicable budget talks yet. But even if the millionaires tax is the defining issue of the budget, there are plenty of other needs for Murphy to address.
“I think you should expect more of a continuation of a lot of what you’ve seen in our first two budgets: big investments in the middle class, education, transportation,” Murphy said last week. “You’ll see commuters won’t be paying more to ride NJ Transit. You’ll see more fiscal responsibility.”
Murphy has set an ambitious progressive agenda and will be challenged to please everyone. The public employee pension system remains underfunded, just like the state’s public schools, and Murphy has clashed with his own party over how to raise more tax revenue.
The governor has made strides, however, in his past budgets, sending more money to K-12 schools, boosting pension contributions, offering tuition-free community college and bringing in more tax revenue through a tax hike on the highest earners, a temporary increase in a tax on corporate profits and new taxes on internet commerce, Airbnb stays and ride-hailing apps.
He’ll likely make more deposits on his agenda, proposing new funding for pensions, schools and transit, while trying to sock away more cash in a rainy-day fund to gird against an economic downturn.
He made clear in remarks last week he intends to revive the millionaires tax, as well as a tax on opioid manufacturers and a per-head fee corporations must pay if their employees are enrolled in Medicaid.
The Democratic-controlled Legislature snubbed all three of those tax changes in Murphy’s budget proposal last year, as well as increased fees for gun owners and bear hunters.
His administration projected the “corporate responsibility fee,” the penalty on businesses that don’t offer health benefits and whose employees are on Medicaid, would bring in $30 million and the opioid manufacturer fee would raise $21.5 million.
“If you’re a big company and you refuse to offer health care for your employees and you give them no choice other than to go on Medicaid, we want that corporation to help us foot … the bill,” Murphy said last week, in telegraphing his budget.
Likewise, he said opioid manufacturers should contribute to the state’s $100 million fight to “break the back of the opioid scourge.”
“Those are two areas where I think it’s only fair that we get help from the corporate community,” he said.
Just days before the governor’s address, Sweeney also proposed extending a 2.5 percent surtax on corporate income that is scheduled to drop to 1.5 percent this year as part of a gradual phase out. He announced Friday he wants to constitutionally dedicate $500 million in state support to NJ Transit that would be partially funded through the 1 percent corporate business tax surtax.
Murphy initially opposed the 2.5 percentage point hike on corporate income over $1 million, which lifted the tax rate to 11.5 percent — one of the highest rates in the nation. And he signaled this week he may not favor efforts to extend the higher rate.
For the most part, he said, New Jersey’s corporations are paying their fair share.
“I want to make sure that we remain competitive, particularly given all the craziness of tax incentives that we’ve lived through over the past, now, over a year,” he said.
According to the Treasury Department, the drop in the rate from 11.5 percent to 10.5 percent will cost the state $145 million in the next fiscal year.
Whether or not Murphy agrees to Sweeney’s plan, he’ll have to come up with cash to close a projected $138 million deficit in NJ Transit’s operating budget. And he’s already promised not to raise fares next fiscal year.
On the other hand, the millionaires tax — an increase in the top marginal tax rate from 8.97 percent to 10.75 percent on income between $1 million and $5 million — would generate about half a billion dollars for his spending plan. As part of a deal struck on his first budget, income over $5 million is already taxed at 10.75 percent.
He proposed the tax hike in his first two budgets but Democratic lawmakers — who voted in favor of its five times under former Republican Gov. Chris Christie — blocked it.
“It’s the right thing to do. It’s the smart thing to do, particularly, who knows where the economy in our country or the world is headed over the next couple of years, that will give us a reliable, sustainable source of revenue. For all those reasons it makes sense,” Murphy said.
“The offer I make is a combination of continuing to invest in what is now the No. 1-rated public education system in America, to continue to invest in fixing NJ Transit, to continue to invest in workforce development apprenticeship programs, to continue to invest in health care affordability, quality of life, infrastructure,” he said. “That’s what I offer in return. Because a millionaires tax funds all of the above.”
Perhaps because of future economic uncertainty or evolving political dynamics, Sweeney, D-Gloucester, has moved off his two-year, steadfast opposition to the tax hike.
NJ Advance Media reported Sunday that Sweeney is offering the governor a deal: he will sign off on a millionaires tax if Murphy pumps an extra $1 billion to the public-employee pension fund — a feat that would require big spending cuts elsewhere.
That’s $1 billion beyond what will already be the largest-single payment in state history and an amount that likely exceeds $5.6 billion.
Even without that deal, the governor, in keeping with a plan to raise the annual contribution by one-tenth of what’s recommended by actuaries until it’s making a full payment, is expected to propose a contribution of at least $4.6 billion.
Murphy is also working toward fully funding the formula that determines how much state aid each school district needs. A law passed early in his tenure requires the gradual redistribution of state aid, shifting money away from districts considered to be getting too much state funding. So even though Murphy is almost certain to boost overall K-12 school funding, some districts will get less, setting the stage for another year of controversy.
Each of his first two budgets kicked in hundreds of millions more in education aid, and his third budget proposal likely will continue that course.