Over the course of the past two weeks, I testified before both the Senate and Assembly Budget Committees, as they conducted public hearings on Governor Murphy’s FY 2019 Budget proposal. The public hearings are held annually throughout the state, as lawmakers examine the Governor’s proposed budget and tax priorities for FY 2019. To view a copy of my testimony, please click here.
In my testimony, I recognized the positive changes made toward improving the state’s business climate over the past several years, which lowered the tax burden for businesses and individuals making New Jersey more competitive both regionally and nationally. I encouraged the Legislature to build upon past changes, which were achieved in a bipartisan fashion, and I continued to send positive signals to the business community.
While there are proposals in the Governor’s proposed budget that are important to the business community, there are initiatives and new tax hikes that would impact the business climate in New Jersey. I communicated that all of these proposals, which include a tax on millionaires and changes to the way in which the state taxes corporations, must be considered as part of the overall cumulative increase on the cost of doing business in New Jersey. As you know, the Legislature is already discussing mandatory paid sick leave, an increased minimum wage, additional workplace mandates, and increased energy costs to ratepayers.
Furthermore, the Governor’s proposed budget calls for additional spending and new programs without budgeting for the entire cost of the program. These outstanding obligations, coupled with outstanding school funding and pension funding obligations, will require additional funding in future years and it is unclear how that revenue will be generated. This creates uncertainty within the business community, which should be avoided in order to achieve the goal of attracting and retaining investment and high paying jobs in New Jersey.
While there are several provisions which are concerning to the business community, we are encouraged to see a number of proposals aimed at improving New Jersey’s future workforce and targeted tax relief for homeowners and families. I also communicated our willingness to work with the Legislature and the Governor to ensure that the final budget reflects positively on the business community. Please find below additional information on our concerns with the proposed millionaires tax and changes to the corporate tax structure:
- The FY 2019 budget proposal includes a “millionaires tax” provision, which would increase the top income tax rate to 10.75 percent on income above $1 million. New Jersey’s current top rate is 8.97 percent on income over $500,000.
NJBIA has long opposed a millionaires tax, as it will directly impact small companies that provide jobs and help drive New Jersey’s economy, including the businesses which represent over 8 percent of all Gross Income Tax (GIT) revenue reported by businesses in 2015. Additionally, over the past 12 years, New Jersey has experienced a net loss of nearly $25 billion in adjusted gross income, as businesses and residents look towards more tax-friendly states. An increase on the top Gross Income Tax rate will make us less competitive within our region, especially our top two outmigration states of Pennsylvania and New York.
- Additionally, the Governor’s budget recommends a number of changes to the way in which New Jersey taxes corporations. These changes include combined reporting with a limited “water’s-edge” election, market-based sourcing, and the reinstitution of the taxation of international holding companies. The Governor’s business tax proposals also include a one-time tax on the deemed repatriation of foreign-held assets, while further incorporating other revisions to hold New Jersey harmless for certain provisions related to the recent federal tax reform plan.
We are awaiting additional details on how the Governor specifically seeks to tax corporations as mentioned above, and how the proposed changes will interact with the changes under the recent federal tax reform plan. NJBIA is concerned about the impact these changes will have on the larger, corporate taxpayers in the state.
We were pleased to see the Governor set forth recommendations to expand computer science education and invest in STEM-focused high schools, along with programs to prepare workers for technical skilled jobs and upgrade the skills of incumbent workers, which will help to prepare New Jersey’s future and current workforce. An increased focus on career pathways will help ensure that New Jersey employers have a trained and skilled workforce.
Additionally, measures such as increasing the State property tax deduction cap from $10,000 to $15,000, creating a new state child and dependent care tax credit based on the federal credit and increasing the Earned Income Tax Credit (EITC) from 35 percent to 40 percent of the federal credit over three years, will help make New Jersey a more affordable place to live and raise a family.
Please stay tuned for additional budget-related updates, as I plan to keep everyone informed as the budget process continues. The FY 2019 budget must be passed by the State Legislature and signed by the Governor by July 1, 2018.