Gov. Phil Murphy and legislative leaders celebrated an agreement on a $400 million income tax increase tax this week as part of the current FY2021 budget negotiations.

Headshot of Christopher Emigholz

Chris Emigholz, NJBIA Vice President

But unfortunately the realities and the intent of this oft-proposed income tax increase are two things.

The revised FY2021 budget will raise the state’s gross income tax rate on income between $1 million and $5 million per year. The rate will increase from the current 8.97% to 10.75% – the second highest top rate in the nation – for every dollar earned between $1 million and $5 million annually. It already is 10.75% on earnings over $5 million.

The Governor and legislators also simultaneously announced a tax cut that will pay up to $500 rebate to approximately 800,000 New Jersey middle-income families.

But let’s dive deeper into the “middle-income relief” beyond face value. This rebate is certainly undermined by other non-budget hikes for tolls and gas which all New Jerseyans are now forced to pay, the borrowing in this year’s budget that will hurt all future taxpayers – including the middle-income earners that are targeted for help here – and the pandemic business limitations imposed by Gov. Murphy.

Whatever is left from that stipend – if anything – it won’t come close to addressing our overall affordability crisis or save us from our fiscal cliff.

Additionally, this tax increase to pay for a rebate verifies what we have been saying all along – that added taxes were always a completely unnecessary part of the proposed budget that already included $4 billion in borrowing and a growing surplus.

These new taxes are not going to address a deficit or shortfall, but are serving unnecessary political theater.

Governor Murphy’s budget also calls for a corporate business tax (CBT) increase that would give New Jersey the highest CBT rate in the nation in 2021, at 11.5%.

So now New Jersey is well on its way to simultaneously being an extreme outlier in both CBT and top income tax rates, which strikes at the heart of our competitiveness in terms of attracting top talent and businesses from around the country.

Ultimately, the income tax increase will do nothing to right New Jersey’s fiscal ship, nor will it amount to more meaningful property tax relief. The proposed budget includes no new economic stimulus or any path to job creation. There is not yet any real talk of desperately needed structural reforms, other than commitments we have heard before. In short, there are simply no holistic thoughts from our leadership to cure what ails our great state.

For the sake of New Jersey’s solvency, it’s absolutely imperative that our governor and legislative leaders stop viewing our state through the lens of who gets a “fair share” and observe the collateral damage they are infringing upon our economy and its competitiveness through rampant taxing, spending, borrowing and burying our struggling job creators.

A short-term gimmick like this income tax increase to pay for a rebate will do nothing to fix our long-term problems.

11 responses to “Understanding the Realities of NJ’s Income Tax Increase”

  1. Richard Beeferman says:

    Unfortunately the NJ policies that got us here (pandemic aside) will continue. I think NJ leaders keep doing the same thing over and over and expect different results. The samething happened with the minimum wage hike, they gave the people the increase then took it away with a 400% increase in the tax base for state taxes, higher gas taxes. This time may result in more mass exodus from the Garden State leaving no one to foot the bill but those who can’t leave.

  2. ac says:

    well said.

  3. Thomas says:

    This Governor is completely out of touch. If fact the left had ruined NJ. We are not California lite

  4. John says:

    Well put. I’ve made my choice like many others to flee this disaster at the earliest opportunity.

  5. John says:

    They’ll never learn. I’ve had enough. We’re leaving.

  6. Michael Vail says:

    Governor Murphy, Senate President Sweeney and Assembly Leader Coughlin have revealed what they believe the so called middle class is worth and the answer is $9.62 per week in the form of their ridiculous wealth redistribution scheme. This assumes you have a household income under $150k and at least one child. They would have been smarter to dedicate these new funds to servicing the $4 BILLION dollars they plan on borrowing from the Fed to balance the budget. The simple truth is that NJ is a fiscal zombie with little, if any chance at returning to life. We are overtaxed and overregulated beyond comprehension. Fiscal governance is nonexistent and the primary reason for the continued exodus of wealthy taxpayers. Murphy has done nothing to reform government or even attempt to control spending. He has married himself to the public sector unions and the benefit plans that have long outlived their intended purpose, yet Murphy believes he can save them. Eventually, someone will see the light and realize this entire fiscal disaster is beyond repair. However long that takes, no one really knows. I just hope to be long gone from the state before the sky starts falling.

  7. JD says:

    I left last year. Moved from Mercer County to Bucks County, PA. It took a lot of time, effort, and $, to move but now even more glad I did it. I know many others that have done the same. Feel sorry for those who do not have that option.

  8. Adeline Marano says:

    I guess Governor Murphy doesn’t care what the people of NJ are saying or that they are leaving in droves. This may very well be the breaking for myself and all of my family who are running a family owned business in this state and generate much revenue for it for the last 50 years. We have several commercial and residential properties but this is the straw that breaks this camels back. Why should we as hardworking taxpayers pay for all the free loaders!!!!!! We need to get rid of these Democratic leaders before we wind up like New York and california. We need to lead a force to get rid of our current Governor.

  9. JJ says:

    The $500 rebate is nothing but smoking mirrors for the middle class which the governor is stating it will help. Without addressing the toll hikes and the gas tax hike coming in 10 days, and as mentioned by Mr. Emigholz and Michael Vail in his reply, in order to qualify to receive it, you must have an eligible child, and you also must have a tax liability for 2020. This amounts to leaving the senior citizens out of the equation, as well as those younger couples who are empty nesters. On top of this, if a couples’ tax liability for 2020 is less than $500, then their rebate is that amount, and if it is zero, they receive nothing! It gets better. If a couple is retired, receiving pensions, and have income of less than $100,000, their tax liability for 2020 will be zero since the pension exclusion amount for 2020 is $100,000. And so, where is he middle class relief. What you really have from the governor, Sweeney, and Coughlin is a smoking mirrors game of the famous 3 Card Monte Hustle.