The latest budget figures from the Murphy administration show soaring corporate business tax revenue and strong income tax collections for the current fiscal year, prompting lawmakers to question whether the state actually needs the governor’s controversial millionaire’s tax proposal.
Administration officials cautioned against any sort of celebration, arguing that most of the CBT increase will come from one-time revenue sources which will dry up in July.
Figures State Treasurer Elizabeth Maher Muoio presented May 14 to the Senate Budget and Appropriations Committee for fiscal year 2019 project that the state will see $3.8 billion from the CBT, out of the total $38.115 billion of total revenues for 2019.
The state revenue will include $15.91 billion from the gross income tax and $9.954 billion from the sales tax, according to Tuesday’s budget documents.
The state collected $3.6 billion of income taxes in April, which proved the Treasury Department’s predictions that lagging revenue was the result of taxpayer changes as a result of the $10,000 federal cap on state and local property tax deductions.
Many of those taxpayers delayed their payments until April, whereas before the SALT cap they would have filed by January.
“While we correctly anticipated the taxpayer behavior that played out, we not only met our robust April tax collection targets, but we encountered somewhat of a surprise when Gross Income Tax collections set a new April record,” Muoio said.
Income tax collections were still much higher than the Treasury prediction, $377 million specifically.
“As a result, we expect to close out FY19 with a surplus balance of $1.139 billion, up from the $1.098 we projected at the time of the Governor’s Budget Message,” Muoio said.
The overall budget initially called for just over $3 billion from the CBT increase, but that was increased by nearly $800 million based on the numbers that the state treasury reported.
Murphy proposed a millionaire’s tax that would increase the rate from 8.97 percent to 10.75 percent for every dollar earned above $1 million, which would earn the state roughly $448 million.
“Clearly the pressure to do a millionaire’s tax is gone, the pressure is now off, whether you want to use it for other spending priorities, that’s a policy decision,” Senate Budget Chair Paul Sarlo, D-36th District, told reporters following the budget hearing.
Muoio maintained that the millionaire’s tax would be a long-term source of funding to help the state’s ongoing needs, such as pension and benefits, NJ Transit and public education – despite the administration’s promise that it would have the means to put $250 million of the millionaire’s tax revenues toward property tax relief.
Murphy’s 2020 spending plan calls for $283 million for the Homestead property tax credit program and $202 million for the Senior Freeze program; the $250 million from the millionaire’s tax would represent an additional amount of relief for those two programs.
But the proposal was shot down by Senate President Stephen Sweeney, D-3rd District and Assembly Speaker Craig Coughlin, D-19th District.
“For this governor, a millionaire’s tax is just a talking point,” Sweeney said last week in a statement. “We need a real budget with long-term, sustainable property tax savings, not gimmicks.”
Murphy argued that the strong revenue performance would “sweeten the pot” for lawmakers and build a stronger case for the millionaire’s tax.
Sweeney shot back that the increased revenue came from the CBT, which he said Murphy opposed.
“The unexpected surge in revenues the Governor is now claiming is the surge the Legislature expected when we imposed a 2.5 percent surcharge on the millionaire and billionaire corporations that benefited directly from the Republican Congress’ tax cut,” Sweeney added.
“The treasurer and administration did not back down today, and I don’t think the Senate president and the speaker either are backing away from their positions,” Sarlo said.
It would be up to the Sweeney, Coughlin and Murphy camps to come to a compromise on a spending plan before the end of the fiscal year, including how they want to move forward with the millionaire’s tax.
The governor signed a budget last July with an increased corporate business tax rate of 2.5 percent for two years and then 1.5 percent for another two years, before dropping back to the original 9 percent.
Muoio said that because over half of the CBT increased revenue – $721 million – will not be available next year, the state needs the millionaire’s tax.
Muoio testified that those one-time sources included $200 million from “deemed repatriated dividends,” $82 million from the tax amnesty program, $100 million from an “unexpected, one-time single taxpayer payment,” $35 million from “one-time tax planning behavior,” and $304 million from the “surtax enacted last July being applied retroactively to the beginning of last year.”
“This is an important point to underscore because these catch-up payments mean FY19 will essentially include 18 months of CBT surtax payments in a 12-month period,” Muoio testified.
“Overall, about half the FY19 CBT growth is due to statutory state and federal tax law changes, while the other half is from temporary, one-year enhancements,” she added.
During budget talks last year, the Murphy administration lambasted the CBT increase as a “gimmick” and “short-term trick,” arguing that an increased millionaire’s tax would better serve the state.
“FY2019 benefitted from substantial non-recurring revenues, but the loss of these funds curtails growth in FY2020 and increases structural budget pressures,” Muoio told lawmakers. “As the CBT surtax expires over the next couple of years, recurring revenue growth will continue to be restricted.”
“The governor’s continued push for reliable, recurring revenues, such as the true millionaire’s tax, are crucial to boosting our credit rating and providing the critical resources to fund the policies that will help grow our middle class,” she added.