TRENTON — New Jersey Gov. Phil Murphy hopes the third time’s the charm.
For the third year in a row, Murphy on Tuesday called for a tax increase on high-income earners, a goal that has eluded him amid resistance from lawmakers in his own party. It will undoubtedly be a key theme of his 2021 reelection campaign if he doesn’t get it passed this time.
“There is no better alternative than a millionaire’s tax,” Murphy, a Democrat who is a former Goldman Sachs banker and millionaire himself, said in his budget address. “It’s the way we both ensure fairness for our middle class and fairness at the same time to the dedicated rank-and-file women and men of our public workforce.”
Murphy’s $40.9 billion proposed budget for the fiscal year beginning July 1 calls for the marginal tax rate on incomes over $1 million to increase from 8.97% to 10.75%. His office projects that would raise an additional $494 million in revenue, much of which would be dedicated to property-tax relief, health care, and education.
“The property tax is the most unfair, regressive, and cruelest of taxes,” Murphy said. “Asking the wealthiest 22,000 New Jerseyans to pay two cents more in income tax for every dollar they make over $1 million, so we can provide nearly $500 million more in property-tax relief to New Jersey’s families, is simple fairness.”
Murphy proposed the tax last year, but efforts stalled after Senate President Stephen Sweeney declined to support the increase. Sweeney was in favor of it during the Christie administration, but reversed his position once President Donald Trump made changes to the federal tax code that limited the ability of New Jersey residents to deduct state and local tax payments.
This year, Sweeney has indicated he might support some form of millionaire’s tax, but only if Murphy finds $1 billion in additional state funds to pay down the Garden State’s public pension obligations.
Murphy has allocated $4.6 billion in pension contributions in his proposed budget, an amount officials say is the “largest annual contribution ever” to the pension system. Actuaries recommend the state pay $6.1 billion to prevent any further addition to state debt.
Murphy also made broad overtures Tuesday to reforming the state’s controversial tax-incentive program.
“Most companies are good corporate citizens who play by the rules. But some are not,” Murphy said. “I am committed to not reliving the mistakes of the past — the mistakes that put huge tax breaks for the well-connected before tax breaks for the middle class.”
The governor began his budget address by thanking lawmakers for their well-wishes after his announcement Saturday that he would soon undergo surgery to remove a likely cancerous tumor on his left kidney.
“The outpouring from every corner in this room, and every corner in this state, has been overwhelming,” Murphy said. "[But] I’m not going anywhere. So let’s get this thing going.”
His proposed budget — which represents a 2% increase in spending over last year’s proposal — includes $566 million in total savings, largely achieved through cost savings within individual state departments and in health benefits. It also projects a surplus of almost $1.6 billion, up from $1.2 billion in the governor’s fiscal year 2020 proposal.
Republicans criticized Murphy’s budget address, saying it was focused more on tax hikes than spending cuts.
“New Jersey government has a spending problem, not a revenue problem," New Jersey GOP chairman Doug Steinhardt said. "While the Governor is willing to mortgage and tax your family’s future for the cost of his sanctuary state, so-called ‘free’ college and a host of special interest giveaways, the honest answer is, we can’t afford it.”
Murphy proposed raising the state’s cigarette tax from $2.70 per pack to $4.35, which would match New York and Connecticut for highest state cigarette tax in the nation. The District of Columbia’s tax is higher, at $4.50 per pack. Murphy did not propose an increase to the state sales tax or corporate business taxes.
The budget also shined a light on Murphy’s political priorities for the year ahead.
He proposed $9.1 billion for K-12 school funding, an increase of more than $300 million from last year. He also wants to expand pre-K funding by $83 million, and put $50 million toward a tuition-free college program that would allow students to get their first two years at public universities covered.
The governor’s proposed budget also includes $4.7 billion to fund Medicaid, fueled partly by an increase in a “corporate responsibility fee,” which would require businesses to contribute money to New Jersey’s health bill when their employees receive Medicaid benefits from the state. The measure would bring in an additional $180 million.
He also proposed a fee on opioid manufacturers and distributors, which would generate $20 million to be put toward the state’s opioid crisis. Gun permit and license fees would also increase for the first time since 1966, potentially bringing in $8.5 million.