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Murphy's first budget draws business backlash

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Governor Phil Murphy delivers his Fiscal Year 2019 Budget Address on March 13 in Trenton.
Governor Phil Murphy delivers his Fiscal Year 2019 Budget Address on March 13 in Trenton. - ()

Gov. Phil Murphy's call for raising taxes and closing tax loopholes in his first budget address predictably raised the ire of state Republicans.

In what he called “a realistic and responsible budget that makes sense and is fair for all New Jerseyans,” Murphy on March 13 unveiled a $34.7 billion budget, which includes a projected surplus of $742 million, but also $2.7 billion in increased spending over last year’s budget.

The proposed budget raises the state sales tax to 7 percent from 6.625 percent, and Murphy predicted the state could see a $765 million boost from his proposed 10.75 percent millionaires tax. Other proposals include an estimated $60 million in additional excise and sales tax revenue to be collected from the sale of legalized marijuana. The money would be used to help war veterans in the state.

“Less than 1 percent of the budget will rely on nonrecurring revenues,” he said. “Everything in this budget will make New Jersey a good value than other states.”

Murphy vowed school districts will get $283 million in new funding and reallocation of funds, with $57 million for districts seeking to expand their pre-K programs. The governor also reiterated his intent to make community colleges tuition free.

“Education funding is something that the previous administration failed to address for over 10 years,” he said.

He also proposed raising the cap on property tax deductions to 15 percent and investing more in New Jersey Transit. The sales tax will also hit ride-sharing services such as Uber and Lyft, and home-sharing services like Airbnb. Murphy also wants to target online sales in which the seller is not based in New Jersey.

Another controversial proposal he made is to reinvest tax incentives with less of an emphasis on new companies to those that already exist in the state.

LEFT: State Senate GOP leader Tom Kean, Jr. said Murphy’s budget proposals could deter Amazon from moving into the state.
LEFT: State Senate GOP leader Tom Kean, Jr. said Murphy’s budget proposals could deter Amazon from moving into the state. - ()

Among specific pledges, the governor proposed:

  • $242 million to improve New Jersey Transit;
  • $3.2 billion in contributions to the state’s heavily underfunded pension plan from increased lottery revenue;
  • Raising state and local tax deductions to $15,000 from the current cap of $10,000;
  • $283 million for K-12 education;
  • $50 million to for tuition-free community colleges;
  • $100 million to continue fighting the opioid crisis, and launching a new research center on gun violence at a major university; and
  • Increasing the minimum wage of state employees to $15 per hour.

Murphy also vowed to reform the state’s tax incentive program, and he heavily criticized the roughly $8 billion in tax incentives the state has granted to new companies to move into New Jersey over the past four years.

“Even with these heralded gifts, we have trailed almost every other state in the nation in literally every category when it comes to attracting new businesses,” he said. “Massachusetts awards only $22,000 per job created, yet New Jersey is up $60,000. Yet Massachusetts has a job growth rate seven times greater than we do. That has to change.”

In order to pay for the new spending, Murphy said the state could pull in $60 million in new revenue from the legalization of “adult, recreational marijuana use,” adding money could be saved by not incarcerating adults for “nonviolent marijuana possession.” He also noted the inequity of the ratio of minorities to white people being jailed for these crimes, which he said was 3 to 1.

The governor added $100 million or more could be added to the state budget by closing the carry-forward interest tax loopholes used by investment managers when calculating capital gains taxes; $765 million can be derived through the proposed “millionaires tax”; and an additional $100 million can be gained by closing the tax loophole for S corporations. These are typically small corporations with 100 or fewer shareholders that get the benefit of being incorporated while only being taxed as a partnership.

Chamber criticism

Tom Bracken, president of the New Jersey Chamber of Commerce, said most of the points Murphy made during the speech were ones he promised during his campaign.

“There were really no surprises, except for his promise of funding New Jersey Transit — that’s badly needed,” Bracken said. “The question is, how will all of this stuff be paid for? He talked about taxing businesses and closing loopholes, and all of that stuff is bad. We need to be more affordable, and taxing businesses won’t do that.”

He agreed the state needs to audit its tax-incentives program but said Murphy exaggerated those given to companies to move in to the state.

“He talked about $8 billion as if the state has paid corporations that amount, and that’s simply wrong,” Bracken said. “Of that $8 billion, only about $180 million has been realized. Companies have to meet a certain criteria for growth and employment in order to realize that, and we hope they do because that would mean that they are growing and therefore the state is growing.”

State Republicans, as expected, panned Murphy’s speech, and called the additional $2.7 billion in spending irresponsible.

“The governor’s proposed budget represents a very bad value for taxpayers. Proposing income tax increases by nearly $800 million on businesses will only drive more employers out of the state. It’s not a good tactic when we’re trying to attract major job creators such as Amazon,” said state Senate Minority Leader Tom Kean Jr., R-21st District, in a rebuttal speech.

Kean also said he doubted recreational marijuana would be legalized and produce the revenue projected by Murphy.

“Some of the revenue raisers in Gov. Murphy’s address today gave us pause,” said Michele Siekerka, president of the New Jersey Business & Industry Association, in a prepared statement.

Among the NJBIA’s biggest objections is the millionaires tax.

“New Jersey now has a net loss of nearly $25 billion in adjusted gross income over the last 12 years as businesses and residents gravitate to states that are more tax-friendly such as Pennsylvania and New York, our top two outmigration states. We would expect the enactment of a millionaires tax to further this negative trend,” she said.

Anthony Russo, president of the Commerce and Industry Association of New Jersey, also expressed some concerns over Murphy’s proposals.

“Gov. Murphy is increasing the state budget by $2.7 billion over last year. CIANJ is concerned about the impact this will have on New Jersey’s economy when it is unclear if he can raise the revenue necessary to balance that kind of an increase,” he said.

One group that was bullish about the Murphy speech was the New Jersey Education Association, which said his budget proposals “invest in our future and the working families who make our state strong.”

“Gov. Murphy is keeping his promises to New Jersey residents,” said NJEA President Marie Blistan. “That’s the vision that New Jersey voters supported in November, and it’s the budget he delivered today.”

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Vince Calio

Vince Calio

Vince Calio covers health care and manufacturing for NJBIZ. You can contact him at vcalio@njbiz.com.

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