The passage of the governor’s proposed millionaire’s tax, even now a long-shot, could be a “volatile” source of revenue for the state, especially with the potential looming for an economic downturn in the next few years, a top budget lawmaker said Tuesday.
“The revenue generated from high-income earners… as the market becomes very volatile, solely relying on that millionaire’s surcharge during a recession may not be the best solution compared to some sustainable savings,” Sen. Budget Chair Paul Sarlo, D-36th District, said at a Senate budget hearing Tuesday.
Gov. Phil Murphy’s proposed “millionaire’s tax” would raise the tax rate from 8.97 to 10.75 percent on every dollar earned above $1 million, which is expected to add $447 million into the proposed $38.6 billion budget for the 2020 fiscal year, which starts in July.
Although both Murphy and the state Legislature’s leadership are all Democrats, lawmakers have said the millionaire’s tax is a non-starter.
Sarlo, as well as the Legislature’s top Democrat, Senate President Stephen Sweeney, D-3rd District, said that revenue could easily be found through savings on top of what Murphy proposed for his 2020 spending plan.
“Let’s explore every opportunity, every avenue to find cost-saving measures, especially in the area of health care, that will negate the need for the millionaire’s tax,” Sarlo told reporters following the hearing. “I don’t think anybody disagrees that there is going to be some type of recession in the future, a slight recession. Is the millionaire’s tax really a sustainable revenue, if you were to hit a slight [or] moderate recession?”
Sarlo said the proposed merger of the state worker and school employee health care plans would generate some of those savings for the state but did not offer any other details. He also would not say that he was flat out opposed to the millionaire’s tax nor did he suggest it was completely off the table.
“We need a balance of sustainable revenues and savings,” State Treasurer Elizabeth Maher Muoio said in response to similar sentiments from Sarlo earlier in the day. “That is what this budget is proposing, and it proposes an increased surplus so that we could get through times where we may experience volatility.”
To date, a small handful of lawmakers have come out in support of the millionaire’s tax, including Assemblyman Gary Schaer, D-36th District, and Assemblyman Jon McKeon, D-27th District.
Frank Haines, a budget and finance officer for the Office of Legislative Services – an arm of the state Legislature which puts a price tag on legislation – disagreed on the volatility of income tax and said it was far less volatile than the stock market and “non-wage,” capital gains tax revenue, both of which tanked during the Great Recession a decade ago, even though the state relied much more heavily on the income tax.
At a similar hearing on Monday with the Assembly Budget Committee, Haines suggested Murphy’s 2020 state budget was ill-equipped to handle an economic recession.
He said he did not want to specify what lawmakers should enact with the budget, but reiterated that “more in the bank is better when it comes to the budget surplus.”
Murphy’s budget calls for $1 billion surpluses in both the 2019 fiscal year, ending June 30, and the 2020 fiscal year, but those amounts “arent’ a significant improvement,” Haines said.
Sarlo’s reasoning on the volatility of the income tax was based on the grounds that given the state budget’s dependence on high-income earners, many of which could lose their jobs during a recession, the state could lose that stream of revenue.
That much was true during the Great Recession 10 years ago, Haines said Monday. Residents making less money also led to a downward trend in sales tax, and spikes in how they were utilizing unemployment insurance and Medicaid. Generally, the surplus is used to finance the state’s rainy day fund in the event of economic downturns.
The state burned through a considerable amount of its budget surplus during the Great Recession a decade ago, Haines said. And, the state has struggled to rebuild in the decade following the recession.
Sarlo said Tuesday that overall he was happy that there was such a minuscule difference – a fourth of a percent – between the amount of money the Murphy administration and OLS think the state will have in its coffers by the end of the fiscal year.
The OLS predicted the state will have $109.2 million less in its end-of-year balance than the administration, and $182.6 million less than the administration projected for the end of the 2020 fiscal year in 15 months.
“[For] many years we sat here and we had the OLS and treasury far apart, which makes our job a lot more difficult,” Sarlo said, pointing to oftentimes enormous differences between what the OLS and the Christie administration projected for the end-of-year balances.
Both the state treasury and OLS agreed that a lag in income tax collection was due to changes in tax payment habits stemming from the 2017 federal tax cuts, which capped the state and local property tax deductions at $10,000.
Treasury and OLS officials both also said that slow growth will be made up for in a so-called “April surprise” by the end of tax season, during which the state will make up for any tax money it has not yet received.