New Jersey Democrats have reached an agreement to include an expanded millionaire’s tax in the state’s revised budget to help address the economic fallout from the COVID-19 pandemic.
Gov. Phil Murphy (D) and legislative leaders announced September 17 that the state’s nine-month budget, which covers October 2020 through June 2021, will include the governor’s proposal to expand the 10.75 percent marginal tax rate on income over $5 million to include income above $1 million. It is expected to generate $390 million in fiscal 2021.
According to the governor's office, the income tax rate will increase from the existing rate of 8.97 percent to 10.75 percent “for every dollar earned between $1 million and $5 million annually, bringing it in line with the rate for income earned over $5 million annually and back to the rate paid in 2010.”
“In this unprecedented time, when so many middle-class families and others have sacrificed a great deal, now is the time to ensure that the wealthiest among us are also called to make a modest sacrifice by paying pennies on the dollar more for any income over $1 million,” Murphy said.
As part of the agreement, the revised budget will also include a nonrefundable rebate of up to $500 for families with income of less than $150,000 per couple ($75,000 for individuals) and at least one dependent child, according to the governor's office. The rebate checks would be issued automatically in the summer of 2021, Murphy said.
Murphy also said that the definition of “dependent” in the state tax code will be changed to match the definition in the federal code.
The governor called for an expanded millionaire’s tax in his fiscal 2021 budget proposal released in February. It was his third budget proposal to include the tax.
An expansion of the millionaire’s tax was the major sticking point in 2019 budget negotiations. Murphy signed the fiscal 2020 budget without it after Senate President Stephen Sweeney (D) declined to hold a vote on the plan.
During a September 17 news conference, Sweeney said that he resisted the tax for years. “But the pandemic hit and things have changed. We have to face the reality that a lot of families are hurting,” he stated.
Still, the fiscal 2018 budget created the 10.75 percent gross income tax rate on income over $5 million as part of a budget compromise.
Murphy's revised fiscal 2021 budget proposed other tax policy changes, including extending the corporation business tax surtax adopted by lawmakers in 2018. 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. “Restoring the 2.5 percent rate for tax years 2020 and 2021 and beyond would yield an estimated $210 million during FY 2021,” according to the governor's plan.
The governor's proposal called for a 5 percent surcharge “applied to certain federally qualified business income” for individuals with income exceeding $1 million, which would take effect starting with tax year 2021. It also called for increasing taxes on cigarettes; increasing registration fees and penalties and imposing new assessments on opioid drug manufacturers and wholesalers; restoring sales and use tax on limousine services; eliminating an exemption and cap on sales and use tax for boat sales; increasing firearm fees; and implementing excise taxes on firearms and ammunition.
Murphy declined to provide additional details on what else will be included in the state budget, but said legislative leaders are close to finalizing it.
“We will all be collectively shocked if we don’t have an agreement well in advance of the September 30 deadline,” Murphy said.
In response to the announcement, Michele Siekerka, president and CEO of the New Jersey Business and Industry Association, slammed the millionaire's tax and rebate checks as a “gimmick that further verifies what we have said all along — increased taxes were always completely unnecessary as part of the fiscal 2021 budget that already includes billions in bonding.”
“We note that the relief tied to this tax increase is undermined by other non-budget hikes for tolls and gas and other proposed taxes in the budget. Our taxpayers need real tax reform that includes property tax relief, while this does not really improve our overall affordability crisis or remove us from the edge of our fiscal cliff," Siekerka said in a release.