Gov. Phil Murphy and the Democratic-controlled state Legislature agreed to a deal to enact a millionaire’s tax as part of a fiscal year 2021 budget that must be signed by Sept. 1, according to media reports and a source familiar with the situation.
The Wednesday evening deal would see Murphy’s twice-blocked millionaire’s tax go through in exchange for a $500 rebate on middle-class families – those with incomes below $150,000 a year – according to the source.
The New Jersey Globe was the first to report on the agreement between Murphy, Assembly Speaker Craig Coughlin, D-19th District, and Senate President Stephen Sweeney, D-3rd District.
All three are scheduled to hold a press conference at the Trenton War Memorial at 10 a.m. Thursday, along with Assembly Budget Chair Eliana Pintor-Marin, D-29th District, and Lt. Gov. Sheila Oliver, according to an update to the governor’s public schedule for that day, though it is not immediately clear what will be announced.
Coughlin – often considered a mediator between the Murphy and Sweeney factions – allegedly put the proposed compromise on the table and pushed it through on Wednesday, according to the source.
Murphy’s proposal calls for raising the tax on income between $1 million and $5 million, resulting in an increase from 8.97 percent to 10.75 percent for every dollar earned above $1 million.
New Jerseyans earning above $5 million already pay this tax rate, as part of a budget deal from June 2018.
The Murphy administration estimates the tax on high-earners would bring in $390 million from 16,491 New Jerseyans and 19,128 nonresidents who work in the state.
But with the proposed rebate’s price tag of $325 million, that means the state would ultimately net just $65 million.
Murphy put forward the levy as part of $1 billion in tax increases and other new sources of revenue –such as an extension of an increased tax rate for the state’s highest-earning corporations, taxes on yacht and boat sales, an increased cigarette tax, and $4 billion of new debt, which could be acquired without voter approval thanks to wartime powers granted to the governor by the state constitution – as part of a nine-month spending plan. This $32.4 billion budget runs from Oct. 1 to June 30, 2021, and is meant to account for a multibillion dollar hit that the COVID-19 pandemic wielded to state tax revenue.
Top financial analysts from the state Treasury and the state Legislature are at odds over what kind of budget hole the state is looking at come the end of that plan in June 2021—with a difference of $1.4 billion.
Murphy’s budget also calls for levying a 5 percent tax on a deduction created by the 2017 federal tax cuts, known as the qualified business income deduction, for any such income over $1 million.
“Building a stronger New Jersey requires us to ask those who, in some cases, continued to prosper as this pandemic raged around us – and most certainly were hurt less – to do more so we can strengthen the middle-class families who are the backbone of our state,” Murphy said at his Aug. 25 budget address at SHI Stadium at Rutgers University in Piscataway.
“We are asking you to sacrifice pennies on your top dollar to ensure that every New Jerseyan has the same opportunity to succeed that you did.”
But that nine-month spending plan, combined with the $7.7 billion stopgap budget spanning July 1 and Sept. 30 of this year to keep the lights spells out a record-high $40.1 billion for the whole 12 month period.
Editor’s note: This story was updated at 8:28 a.m. EST on Sept. 17, 2020; a previous version indicated the proposed middle-class rebate would cost $350 million—it would be $325 million.