Even with the COVID-19 pandemic cratering or at least stalling how much revenue is going to New Jersey’s wallet, the state is at least seeing some relief through the increased gas tax, and a millionaire’s tax approved in September.
New Jersey’s current budget took effect on Oct. 1, after it was delayed for three months as lawmakers and state treasury officials grappled to gauge the exact scope of what the pandemic’s impact would be on the state finances.
The budget includes a so-called “millionaire’s tax” – long-championed by Gov. Phil Murphy – which raises the income tax from 8.97% to 10.75% for every dollar earned above $1 million.
On that same day, an increase of the gas tax went into effect, as the stay-at-home orders, mass business closures and overall anxiety about exposure to COVID-19 dragged automotive travel and by extension, gasoline consumption.
As gas consumption goes down, the tax goes up to make up for the losses, and vice versa. On Oct. 1, the tax rose from 41.4 cents per gallon to 50.7 cents per gallon.
According to numbers from the New Jersey Department of the Treasury, released on Dec 15, collections from the income tax between November 2019 and November 2020 were up $65.2 million year-over-year, or 7.3%.
Beginning Nov. 1, the state treasury began withholding a tax rate of 21.3% from New Jerseyans who they believed would still need to catch up with payments on the millionaire’s tax, since it is retroactive to Jan. 1 of this year.
Treasury officials said that might have brought in up to $100 million this December, but cautioned that a “higher withholding rate could result in refunds next year.”
Gas tax collections were up $18 million between November 2019 and November 2020, or 14.1%, according to official state numbers.
And with a COVID-19 second wave crashing into the state, treasury officials warned that New Jersey could expect “2021 collections to remain weak into the winter months followed by a return to sustainable collections growth next spring and summer.”
Overall, tax collections among the state’s major revenue sources – the sales, income and corporate business tax – brought in nearly $125 million more in November 2020 than in November 2019, or 5.8%.
Murphy has warned that state tax collections could be hammered by the pandemic, loss of consumer spending and ensuing business closures, as well as the current state restrictions.
“[T]his is about continuing to employ the very frontline essential workers that we desperately need in our hour of need… fire, police, educators, health care workers, EMS,” the governor said on Monday.
Steep losses in tax money for the state, combined with the mounting costs of responding to the pandemic and administering the COVID-19 vaccine to millions of New Jerseyans in the next six months, mean the state could need up to $20 billion in federal relief over the next year.
Congress and the White House are attempting to rush through a new COVID-19 relief package, but talks have stalled over providing more aid to state and local governments, and whether to provide businesses with liability protection against COVID-19 lawsuits.
New Jersey is borrowing $4.3 billion to make up for the tax losses and uncertain prospects of more federal aid. But that led to a credit downgrade by S&P Global last month.