N.J. Legislature passes $34B budget with tax hikes Christie has vowed to veto

Posted: June 28, 2014

TRENTON - In party-line votes, Democratic lawmakers on Thursday approved a $34.1 billion budget for the fiscal year beginning Tuesday, funded in part by two tax increases Gov. Christie has pledged to veto.

The plan - which includes a three-year tax increase on income over $1 million and a one-year surcharge on the corporation business tax - cleared the Senate and Assembly, both controlled by Democrats. Debate centered on the tax increases, with Republicans arguing that the state would drive out its most successful.

Democrats said the increases would allow the state to meet its commitments, including fulfilling a pension deal reached during Christie's first term requiring the state to make escalating payments into the pension system.

But the debate was overshadowed by Christie's vow, repeated in Haddon Heights on Wednesday, that he would veto the key elements of the plan.

"We have ended up with a document that in mere hours will become totally irrelevant," said Assemblyman Declan O'Scanlon (R., Monmouth), the Republican budget officer in the lower house.

Both sides agreed there were few good options to clean up New Jersey's fiscal mess - which became worse in April after tax collections failed to meet Christie's projections.

The Democrats' plan would make a $2.25 billion payment into the state pension system, as opposed to the $681 million payment Christie has proposed in his $32.7 billion plan.

Christie, who earlier this year pledged to make the $2.25 billion payment, in May announced he would make a smaller payment - and slash the current fiscal year's contribution - to compensate for a projected two-year $2.7 billion revenue shortfall.

A Superior Court judge ruled Wednesday that Christie had the authority to make the cut in the current year, but left open the door for unions to challenge cuts going forward.

"Many alternatives were shared with the administration. Unfortunately, many of them were rejected," Sen. Paul Sarlo (D., Bergen), chairman of the Budget Committee, said on the Senate floor. "So today, the majority party is left with no option as we stand here in a very, very difficult time in our state finances, a watershed moment where we can either propose real solutions to the tough problems or we can continue to point fingers at past governors, past legislatures, and continue to dig a financial hole that one day might be too deep to climb out."

Republicans contended that the economic record of the decade preceding Christie's arrival in 2010 provided ample evidence of failed Democratic-backed tax increases.

Since 2004, the state has lost $12 billion in taxable income, said Sen. Steven Oroho (R., Sussex), some of that to Pennsylvania. And given that 10 percent of the state's gross income tax revenue comes from its highest 400 earners, the tax hikes could cause shocks to the state's revenue stream if the wealthy decide to move elsewhere, Republicans said.

"Florida eats our lunch. But I know the weather in Pennsylvania is about the same as it is here. Guess what, they clean our clock, too," Oroho said. "Right behind Florida is Pennsylvania. I think it has to do with the fact they have lower taxes. We're chasing our taxable income across the river and down south."

The hike passed Thursday would tax income over $1 million at a rate of 10.75 percent. That rate was last in place for one year under Democratic Gov. Jon S. Corzine.

A 2011 study by sociologists at Princeton and Stanford Universities found that a 2004 tax increase creating New Jersey's current top tax rate of 8.97 percent for people making $500,000 a year had "minimal impact" on migration of millionaires. Separately, the same year, New Jersey Department of Treasury economists concluded that a "meaningful share" of revenues gained by higher taxes would be offset over time by losses from people moving out of state.

The budget also includes items on Democrats' wish list: $7.4 million cut by Christie for family planning services; increasing the earned-income tax credit for low-income individuals from 20 percent to 25 percent of the federal credit; and language that would give undocumented immigrant college students access to state financial aid.

Christie had refused to support that provision when he agreed in December to let undocumented students pay in-state tuition rates at public colleges and universities.

The budget also would nix Christie's proposed taxes on businesses in Urban Enterprise Zones and on electronic cigarettes, which Republicans in the Legislature also opposed.

Democrats said the tax increase on income over $1 million would produce an additional $723 million in revenues annually. The nonpartisan Office of Legislative Services said the increase would net between $550 million and $627 million annually.

Of 2.7 million income tax returns submitted to the state in 2011 - the year for which the most recent Treasury Department data are available - 15,000 were filed by those who made $1 million or more.

The 15 percent surcharge on the state's corporation business tax - paid by businesses registered as corporations; most small businesses are registered as limited liability companies - would raise an additional $390 million next year, according to the Office of Legislative Services.

Republicans said the tax would do more damage than good. "Businesses are our solution to our problems," said Assemblyman Christopher J. Brown (R., Burlington). "We are taxing our solution."


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