Budget fight looms over tax on rich

Gov. Christie has said his budget calls for shared sacrifice, but liberal critics and some Democrats say one group is getting off easy: the rich.

Christie, who came to office promising to rein in New Jersey's free-spending ways, has refused to renew an income-tax surcharge on people earning $400,000 and more, saying residents are already overtaxed.

At the same time, his critics say a rental-assistance program for the poor is being cut, the developmentally disabled are being asked to pay more for their care, NJ Transit fares are rising by 25 percent, and the state is trimming its Earned Income Tax Credit, effectively handing the working poor a $45 million tax increase.

Democrats last week said they would not let that situation stand.

"Everyone's going to pay more, and the only people that got a break are the higher-income people," Senate President Stephen Sweeney (D., Gloucester) said at a meeting Thursday with The Inquirer editorial board.

Sweeney and Assembly Speaker Sheila Oliver (D., Essex), said the Democratic-controlled Legislature would not approve a spending plan without reinstating the tax surcharge that was imposed in 2009. The higher rates could bring in $800 million to $1 billion to offset some of the governor's spending cuts.

Christie has said he would veto that tax increase.

With Democrats offering little resistance in other areas, the fight over this piece of the budget is shaping up as the most obvious flash point in Christie's first attempt to put his stamp on state spending.

"He's drawn a line in the sand, and I've got to be honest with you: We're not going to get run over on this," Sweeney said. He later added, "We could have that fight tomorrow, because he knows where we stand with it, I know where he stands with it."

Raising taxes would be "insane," Christie said in his March 16 budget speech. He said New Jerseyans were already the most highly taxed citizens in the nation.

"Ladies and gentlemen, I was not sent here to approve tax increases. I was sent here to veto them," Christie told the Legislature in his speech.

Former Gov. Jon S. Corzine imposed the tax last year, saying it was a one-year fix during a historic decline in state revenue. He created three tax brackets on incomes of $400,000 and more, including a top rate of 10.75 percent on earnings of more than $1 million, among the highest marginal rates in the nation.

The tax expired at the end of 2009.

Higher earners paid more last year and will see greater savings in 2010.

A couple with $450,000 in taxable income, for example, would save $815 because of the tax change. A couple that made $1.5 million would pay $16,930 less than last year.

By contrast, low- to moderate-income families would pay an added $92, on average, because of Christie's planned cuts to the state's Earned Income Tax Credit. The credits would fall to $368, on average, from $460.

Those who received property-tax rebates last year are also taking a hit from budget cuts. Senior citizen homeowners with incomes of $150,000 and less, and other homeowners who earned $75,000 or less, will lose their property-tax rebates for 2010. That means going without checks averaging between $670 and $1,300.

The New Jersey School Boards Association, Rutgers University teachers, public-employee labor unions and Better Choices for New Jersey, a coalition of unions, churches and liberal groups, have all called for reinstating the tax.

"What we are saying is that everybody should share the sacrifice," said Mary Forsberg, interim president of New Jersey Policy Perspective, a left-leaning interest group.

A restored tax increase would affect about 1.4 percent of New Jersey's income-tax filers. But more than just wealthy individuals would pay more, according to the Christie administration. Some businesses pay the income, not corporate, tax.

In 2008 there were 4.6 million New Jersey income-tax returns filed, and 63,480 had income of $400,000 and more. Of those, an estimated 35,921 had some small-business income, according to the Treasury department.

Republicans have also argued that taxes are simply too high.

"Taxing has not cured the addiction New Jersey has had to spending," said Assembly Republican Budget Officer Joseph Malone (R., Burlington). "The cure has to be the shrinking of government."

Not all Democrats agree with reinstating the tax, either. Assembly Budget Chairman Louis Greenwald (D., Camden) said he would like sales and income taxes cut. In their place, he said, the state should consider allowing municipalities to impose taxes, such as local income taxes or taxes on hotel stays and restaurant meals.

As budget chairman, Greenwald has a key role in crafting the budget. Oliver, however, is the top lawmaker in the Assembly, and her district provides a broad perspective on the debate.

The towns she represents vary from blue-collar Clifton to urban East Orange to Glen Ridge, a wealthy suburb.

Those who earn more than $400,000 have told her that they feel "fortunate" and that increasing the tax "is not going to necessarily, demonstrably change their lifestyle and their quality of life, but their concern is just that the money is put to good use."

She added, "They see the downside of not having that tax."

Democrats, who controlled the governor's office until January and still hold the Legislature, could have re-authorized the tax surcharge at any time, said Christie spokesman Michael Drewniak. He questioned lawmakers' motivations for raising the issue now.

"If it's that important, and if they saw the looming crisis that we had here, they should have used their full advantage of controlling both the governorship and both houses of the Legislature and extended the tax," Drewniak said.

Sweeney said he did not relish raising a tax and would want to do it for one year, provided the economy picks up by the next budget.

He said Democrats would insist on reinstating the tax rates, even if it meant a government shutdown.

"There's some things you have to stand on principle on, and this is one of them," Sweeney said.

That leaves the top officials in each party headed toward a face-off by June 30, the day a new budget must be signed.

Christie "shouldn't have gone out and said, 'Dead on arrival,' because that put me in a box," Sweeney said. "I'm saying it just came back to life, so what are we going to do?"