State financial analysts from both the legislative and executive branches are eyeing massive surges in across-the-board tax revenue once a full economic picture for the state is presented on June 9.
The weeks-long delay is due to the federal Internal Revenue Service’s decision to extend the income tax filing deadline until May 17. New Jersey in turn followed suit for state income tax. Both the New Jersey State Treasury and the nonpartisan Office of Legislative Services on that day presented their projections for the state’s balance at the end of the fiscal year, which occurs on June 30.
“I think we are looking at a higher forecast than our forecast from a few weeks ago,” David Drescher, who heads revenue, finance and appropriations at the OLS, told budget lawmakers during a remotely-held hearing on May 17.
New Jersey State Treasurer Elizabeth Maher Muoio agreed, telling lawmakers that her agency is “confident that the overall revenue forecasts will increase by hundreds of millions of dollars due to the federally-induced surge in consumer spending.”
Sales tax revenue for example could “rise by several hundred million,” she said. It were up 11% from April 2019–a comparison with April 2020 would not be accurate given last year’s pandemic business closures, she noted.
“[T]hese consumer-driven revenues are also well above pre-pandemic levels from two years ago,” she added.
And realty transfer fees – a source of state income generated by home sales – is up 26.3% over “the same 10 months last year,” she said, as buyers flock from New York City to the more spacious New Jersey suburbs. She estimated that new listings in March amid “the peak home-buying season” were 8.5% higher than last March while pending sales were 37.9% higher.
State tax revenue for New Jersey performed better than expected by billions of dollars, defying expectations of an economic meltdown and drawn out COVID-19 economic recovery.
Public officials in the state contend that the new numbers are thanks in no small part to federal aid from the Trump era, billions of dollars in new debt, and pent up consumer demand driving soaring gains.
“Some of this growth is due to the temporary effect of federal stimulus checks. Some part might reflect a longer-lasting effect of the reopening,” Drescher said.
As a result, the state is slated to start its next budget on July 1 with a $6.3 billion surplus, amid a record-high $44.8 billion proposed spending plan.
New Jersey Republicans in turn are questioning whether the state even needed the $4 billion of borrowing, a stance also taken by top Democrats like Senate President Stephen Sweeney, D-3rd District.
Gov. Phil Murphy and state treasury officials contend that the borrowing was vital given the economic uncertainty at the time.
Right now, state lawmakers and officials will need to wait several weeks to gain a full picture of corporate business and income tax filings given the IRS’ May 17 filing deadline.
Gross income tax revenue is “far below where it was by this time two years ago,” Drescher said, given the extension. And a workaround for the federal cap on state and local property tax deductions is upending the timeline of when tax collections and filings come in, even though it will ultimately have no effect on how much money is going to the state.
“The deadline was extended this year for individual taxpayers for this very day, so revenue performance will unfold by the end of this month,” Drescher said. This new SALT cap workaround, called the Pass-Through Business Alternative Tax, or PT-BAIT, ultimately yielded a “strange timing” for the state’s tax season deadline.