Gov. Chris Christie’s administration and the nonpartisan Office of Legislative Services have different views of how New Jersey businesses will fare over the next year.
While OLS projected that corporation business tax revenue would be $64 million less than budgeted this fiscal year, state Treasury officials project that the corporate tax revenue will be $53 million more than budgeted.
Overall, OLS projected that revenue this year and next will be $1.3 billion less than the administration had projected in February, while the administration sees a much lower shortfall of $676 million. In comments earlier today, Christie said OLS has a history of missing the mark on its projections, adding that “anybody with a functioning brain” wouldn’t believe those numbers.
Treasurer Andrew Sidamon-Eristoff said taking the first step toward a 10 percent income tax cut should remain a top priority, and that the revenue shortfall should be offset by other adjustments to the budget. He said there are positive economic trends that are not showing up in state revenue figures, partly due to a progressive income tax structure that relies on high-income residents.
“In sum, 2011 appears to have been an unusual year in which the growth of the incomes earned, and taxes paid, by typical taxpayers were both noticeable and stronger than the growth and taxes paid at the very, very top,” Sidamon-Eristoff said.
The treasurer also noted employment in April rose to its highest level in three years, while personal income in the state reached an all-time high in April.
Legislative fiscal and budget officer David Rosen described his office’s projections as positive, although they are lower than Treasury’s projections.
“The more optimistic you are, the greater risk you run,” Rosen said.
For the current fiscal year, revenue from the corporation business tax, or CBT, has increased only 0.7 percent, contrasted with a budget target of 3.9 percent through April, Rosen noted.
Rosen also said the state’s tax structure is sensitive to economic growth, since both the CBT and the income tax structure tend to grow more quickly than overall state economic growth when the economy improves. This is due to the CBT being based on corporate profits and the income tax being progressive, with much higher rates for residents with higher wages.
OLS is projecting revenue will grow by 5.5 percent for the fiscal year starting July 1. Rosen added that the revenue forecast would be $900 million if the state grows at the same rate over the next year as it has so far this year.
Rosen also said that this state’s economy will continue to be shaped by forces outside the state, including the national economy as well as economic performance in Europe and China.
Assembly Budget Committee Chairman Vincent Prieto (D-Secaucus) said he expected Rosen to be delivering a “doom and gloom” message, but instead found his testimony to be realistic and positive.
Assemblyman Anthony Bucco (R-Randolph) pointed out that if business owners expand in line with predictions in a new survey by the New Jersey Business & Industry Association, revenues should increase more swiftly. Rosen said the OLS revenue forecast reflected that optimism.
Rosen noted that forecasting is imprecise, and that the state’s revenue could be at least billion dollars higher or lower than the OLS forecast.
One key area where there has been lower revenue, but which may not reflect economic weakness is a drop in energy tax revenue, with both Sidamon-Eristoff and Rosen pointing to low natural gas prices and an unusually warm winter.
Assemblyman Jay Webber (R-Whippany) said it has been good for residents and businesses that they paid less for natural gas last winter.