To take inventory of Gov. Murphy’s first and arguably most important budget of his term, one must first put things into blunt perspective.
New Jersey is in a pickle of epic proportions. The Garden State continues to be financially bogged down by its most pressing obligations: pension payments, health care benefits for retired public employees and debt service. And due to a sluggish economic recovery, the state has yet to regain revenue levels last seen before the Great Recession.
Eight years of trickle-down economic policies — including tax breaks for millionaires and businesses and a runaway tax subsidy program — were a gamble that has failed to deliver favorable results. In response, credit rating agencies have issued New Jersey 11 credit downgrades leading to higher borrowing costs. Meanwhile, the cost of running government programs continues to rise while their funding remains chronically flat.
With billions of dollars less in state coffers, those rising costs have been passed on in ways that are hidden in plain sight: less state aid for K-12 education, higher New Jersey Transit ticket prices, higher tuition fees and more student debt, shrinking options for affordable housing and skyrocketing child care costs. It all adds up to a burden inherited by New Jersey families whether they like it or not. It’s a formula that is fundamentally unfair and ultimately unsustainable.
A course correction has long been overdue. The call for new revenue led by Gov. Murphy was the right path to help New Jersey meet its current needs and responsibly anticipate future ones.
After a last-minute round of negotiations with the state Legislature, the 2019 budget represents a mix of long- and short-term revenue raisers. Though not a bold overhaul of an outdated tax code, there are notable changes nonetheless — changes that allow the state to invest in some of New Jersey’s neglected assets, address ongoing financial obligations and wisely put aside a little extra in a surplus fund.
These new revenue sources include a new income tax bracket of 10.75 percent, though it only applies to earnings over $5 million. With $280 million more in income tax revenue, the state can bolster the property-tax relief programs that suffered from repeated cuts and delayed payments in recent years. However, this compromised policy spared thousands of wealthy households from a state income tax increase, households that also received unexpected federal tax breaks on top of making outsized income gains since the end of the Great Recession.
The budget also addresses the generous federal tax breaks given to corporations with an average 2 percent corporate business tax surcharge at the state level. The new tax is expected to raise $425 million the first year, bolstering the state’s ability to adequately fund the kinds of things that all businesses operating in the Garden State depend on: an educated workforce, public safety and reliable transportation networks. However, the tax policy has one fatal flaw: the surcharge expires in four years, opening the state to another large budget hole at a time it will be paying off its tax subsidy program to the tune of $1 billion a year.
The other new revenue sources in the 2019 budget are a mixed bag of one-off sources like tax amnesty, a jump in revenue from remote sales and new taxes from e-cigarettes, recreational marijuana and sports betting — certainly not the bold changes the state needs and its families deserve.
In other words, there is more work to be done to create a tax code that reflects an ever-changing economic landscape, helps the state continue its long road to recovery and solvency and creates a cushion for uncertain times ahead.
Despite these fiscal challenges, New Jersey is still a great place to live, do business, raise a family, take a vacation, even retire. But that sentiment is a precarious one. The state can only maintain its appeal if it prioritizes the needs of all those who live and work here, not just those with close ties to the state house. That means taking a stand for New Jersey’s greatest assets that have been left on the vine to wither in the name of small government. It means proactively building a cushion so that the state can better weather another recession or the next devastating superstorm. It means supporting families struggling to put food on the table so their children can have a chance to build a better future. It means making hard decisions that speak to New Jersey’s most pressing needs, not lawmakers’ most preferred ones.
Sheila Reynerston is senior policy analyst with New Jersey Policy Perspective.