Acting treasurer Elizabeth Muoio told skeptical state lawmakers on Tuesday that Gov. Phil Murphy’s proposed tax hikes are necessary to help fix New Jersey’s shaky finances.
Testifying before the Senate Budget and Appropriations Committee, Muoio tried to sell Murphy’s $37.4 billion budget that includes $1.7 billion in tax increases. She said a “status quo” budget that doesn’t raise new revenue would lead to a budget deficit and a depleted surplus.
“This is not only unsustainable, it’s unacceptable, and the governor is proposing a series of new revenue and budget initiatives to get our fiscal house in order,” she said.
Murphy, a Democrat, wants to hike taxes on millionaires and large corporations, restore a recent cut to the sales tax and legalize and tax recreational marijuana. In addition, Murphy has proposed taxing ride-sharing services, Airbnb stays and e-cigarettes.
He would use the extra revenue to ramp up state aid for school districts, increase funding for the beleaguered NJ Transit and a make a larger payment into the cash-strapped public worker pension system. He has also proposed beginning a path toward free community college and a statewide expansion of preschool education.
Muoio said the state would have a $161 million budget hole and no surplus for fiscal 2019 without new revenue. She also suggested Murphy’s budget would please ratings agencies, which downgraded the state’s credit-rating 11 times under former Gov. Chris Christie. The ratings cuts were largely due to a failure to collect enough money for pensions and other rising costs, as well as slim surpluses and a reliance on one-shot revenues.
“Once we had the chance to really open the books, it became readily apparent that decisions made over the past eight years, and in some cases over the past two decades, have had a devastating impact on our state’s finances,” Muoio said. “It’s time to face the facts. Our economic engine is on life support.”
But state lawmakers are reluctant to raise any taxes, especially in the wake of the new federal tax law that scaled back the state local tax deduction, something that disproportionally harms high-tax states like New Jersey.
“Any time you talk about new taxes, it has to be your last resort,” Senate Budget Chairman Paul Sarlo (D-Bergen) said after the hearing. “I don’t think anybody here is convinced yet on the tax piece… the legislature still has a way to go to get there before we pull the trigger and ask our members to support higher taxes.”
Murphy and lawmakers must agree on a spending plan by June 30.
Murphy’s budget expects a millionaires tax to bring $765 million into the state’s coffers. Under his plan, the marginal tax rate on income above $1 million would rise from 8.97 percent to 10.75 percent. Murphy also wants to modernize the Corporation Business Tax to raise $110 million
Sen. Declan O’Scanlon (R-Monmouth) warned the wealthy could pack up their bags and leave the state if their tax bills rise.
“You can squeeze the golden goose to get it to lay more golden eggs faster, but at some point, you either crush the goose or it gets pissed off enough and it flies to Florida,” he said.
Murphy has also called for restoring the sales tax rate to seven percent from the current 6.625 percent, which he says would raise around $546 million in revenue. In addition, Murphy wants to expand the base of the sales tax to include ride-sharing services and Airbnb stays to generate $67 million. He also called for taxing e-cigarettes to bring in $65 million.
In addition, the governor is banking on marijuana to be legalized by January to rake in $60 million for the next fiscal year, while expecting $20 million more from an expansion of medical marijuana.
Earlier Tuesday, representatives from Office of Legislative Services said they are projecting tax collections will come in roughly $180 million lower than what the Murphy administration anticipates. That’s a minor difference within a $37.4 billion budget.