While previous budgets by Gov. Phil Murphy have included record-setting state spending, there are some positives anticipated when he unveils the state budget for Fiscal Year 2024 on Tuesday.
Right at the top of the ledger is the sunset of a temporary 2.5% Corporation Business Tax surcharge.
“The governor has suggested that this is a direction he will go in for this year’s budget and we thank him because it’s the right thing to do,” said NJBIA Chief Government Affairs Officer Christopher Emigholz. “New Jersey has been a national outlier in this space for far too long and we’re now seeing other states reducing their CBT to be more competitive – including our neighbors in Pennsylvania.”
The governor and business groups were criticized by New Jersey Policy Perspective in a report this week for supporting what the progressive group called a “tax cut” to benefit a “select few ultra-wealthy corporations.”
Perhaps not accidentally, the NJPP report failed to note that the 2.5% surcharge was always supposed to be temporary.
“We believe calling the sunset of a temporary surcharge a “‘tax cut“‘ is a bit disingenuous,” Emigholz said. “More accurately, it’s the end of a temporary tax increase that actually stayed a couple of years longer than it should have.
“New Jersey has had the largest CBT rate in the nation – by a long shot – for years. Even with the hopeful 2.5% sunset of the surcharge at the end of this year, New Jersey will still have the fourth highest CBT rate in the country.
“Plus, the narrative that is lost on these groups is that reducing the CBT rate can actually be stimulative for jobs and salaries,” he said.
Emigholz also noted that New Jersey employers pay the top property taxes in the nation and one of the top income tax rates in the nation.
Additionally, New Jersey businesses were hit with a $1 billion unemployment insurance tax increase as a result of the longest COVID shutdowns and restrictions in the nation – with the state opting against using federal relief dollars to replenish its depleted UI fund.
Said Emigholz: “It does make one wonder – is there any level of taxation that is too much for these groups?”
LOOKING BEYOND THE CBT SUNSET
Thanks to a bipartisan agreement, Pennsylvania is on a path to reducing its CBT rate to 4.99% by 2031.
And there are currently several legislative proposals to reduce New Jersey’s CBT rate below 9%.
So, will that further CBT reduction be part of the budget discussion this year?
“It’s definitely a conversation worth having,” said NJBIA President and CEO Michele Siekerka. “There is no denying the positive news about the sunset of the surcharge, and we applaud Governor Murphy if that is part of his budget announcement.
“At the same time, Pennsylvania is on the way to becoming way more competitive and 12 other states have reduced their CBT rates in the last five years. We have an opportunity here to decelerate our outmigration of income-generating residents and businesses and increase home values and wages. This should be a top-line discussion point during the budget season.”
OTHER POSIVITES & POSSIBILITIES
Other possible positives in this year’s FY24 budget could include a full payment to New Jersey’s underfunded pension system – which would mark the third year in a row the governor has done so.
“That’s always a fiscally responsive move,” Emigholz said.
Last year’s $50.6 billion budget – which NJBIA described as unsustainable spending – also had pro-growth spending in the areas of innovation, education, workforce development and infrastructure that Siekerka and Emigholz both positively acknowledged.
While the past two years did not include any relief from a $1 billion unemployment insurance tax increase on businesses, NJBIA is not giving up that quest in this year’s budget advocacy.
“It’s no less appropriate that businesses get some kind of UI relief than it was two years ago,” Siekerka said. “Businesses could be facing yet another $300 million-plus UI increase on July 1, and we have heard from members who are rightfully shocked about their UI increases.
“Obviously, New Jersey did not use federal relief dollars to help offset that $1 billion UI increase, as most states did. And we know some of the same legislators who sought that relief through legislation last year may revisit it this spring.
“If comprehensive tax reform, which is always our first goal, isn’t part of this year’s budget plan, it would be a nice combination to have some sort of UI relief to go along with a reduction in the Corporation Business Tax rate,” Siekerka added.
Siekerka also added that the ANCHOR Property Tax relief program in FY23 excluded businesses.
“If we see that type of tax relief again in FY24, it must include relief to business owners as well,” she said. “Although we would prefer sustainable reform versus one-time checks.”
BIGGEST CONCERN
In two words – unsustainable spending.
The current FY23 budget is the largest in the state’s history. It has grown more than 43% since Gov. Chris Christie’s last state budget. And virtually no one thinks Murphy’s next budget will be any smaller.
“Budget sustainability often becomes an affordability issue, because an unsustainable structural imbalance eventually has a way of becoming sustainable through tax increases which our taxpayers can ill afford,” Emigholz said.
“An unsustainable budget ultimately strikes against affordability – which is what both the governor and the Legislature have said they would fight for on behalf of the residents and businesses of New Jersey.”
