The intra-Democratic Party current budget war in New Jersey comes down to two competing tax proposals:
1) The “millionaire’s tax” proposal of Governor Phil Murphy, to wit, an increase in the income tax rate on income in excess of one million dollars from 8.97 percent to 10.75 percent; and
2) The corporate business tax (CBT) increase proposal passed by the Democratic-controlled Legislature, which would create two new tiers for the Corporation Business Tax, levying the top current rate, 9 percent, on businesses with net income between $100,000 and $1 million, and then 11.5 percent on businesses with $1 million to $25 million, and 13 percent on businesses with income higher than $25 million. The surcharges would expire after two years.
Both these proposals are highly deleterious from the standpoint of both job creation and economic growth.
The negative impact of the Murphy millionaire’s tax is evident both from the economic and revenue vantage points. It is intended to redistribute income, but it will actually redistribute taxpayers, causing successful job creating entrepreneurs to relocate from New Jersey to other, more tax friendly jurisdictions.
The case in point most often cited is that of billionaire David Tepper, the new owner of the NFL Carolina Panthers who in 2016 changed his residence from New Jersey to income tax – free Florida. Tepper’s move results in an annual revenue loss to New Jersey of $40 million.
The recently federally enacted tax proposal of President Donald Trump adds to the negative impact of the Murphy millionaire’s tax. It limits the annual federal deductibility of state taxes to $10,000. This results in an additional tax burden to New Jersey’s job creating class.
Yet the corporate business tax increase measure passed by the Democratic-controlled legislature, resulting in New Jersey having the highest state corporate tax rate in the nation, is just as economically deleterious as the Murphy millionaire’s tax.
Democratic Senate President Steve Sweeney and Assembly Speaker Craig Coughlin note that in the newly enacted Trump tax proposal, the federal corporate tax rate has been reduced from 35 to 21 percent. This more than offsets the state corporate income tax increase resulting from their proposed CBT surcharges.
Yet this Sweeney-Coughlin analysis misses the point: From the standpoint of economic competitiveness, the new CBT increase is a major disaster. It leaves the Garden State at a major disadvantage when it comes to competing with other states for corporate relocations and expansions.
Sweeney and Coughlin also emphasize the fact that the CBT increase is scheduled to sunset after two years. New Jersey voters know, however, that more often than not, the sun never sets on new tax increases. Once enacted, a tax increase will be renewed, sunset or no sunset.
Accordingly, for the voters of New Jersey, choosing between the two competing Democratic tax increase proposals comes down to a game of pick your economic poison. This leaves the Republican minorities in the state Senate and Assembly in a remarkably unique advantageous position, both from the standpoint of policy and politics.
Both Senate Republican Leader Tom Kean,Jr. and Assembly Republican Leader Jon Bramnick have displayed remarkably effective leadership in achieving a unanimous vote of their members against the CBT increases. This strengthens the authenticity of the NJGOP anti-tax message in future campaigns.
The early indications that Sweeney and Coughlin will not attempt an override of any Murphy veto also constitutes further good news for the NJGOP. To begin with, it is to the advantage of the Republicans for the Democrats to own the tax hikes, lock, stock, and barrel. Secondly, given their future gubernatorial aspirations, neither Kean, Jr. nor Bramnick could afford to have their fingerprints on any deal giving GOP votes for a tax increase.
So at this point, Kean, Bramnick, and their caucuses are actual winners in the Jersey budget wars of the summer of 2018. The question is where they go from here.
From a Republican state government political point of view, New Jersey now resembles most strongly Massachusetts. In both states, the political demographics, for the most part, assure continued control by the Democrats of both houses of the legislature.
Yet voter dissatisfaction in both states will always make possible the election of a Republican governor when the incumbent is an unpopular Democrat. In fact, in Massachusetts, an extremely dark blue state, the present Republican governor, Charlie Baker, is the most popular governor in the nation.
The utter political incompetence of Phil Murphy bodes well at this point for the election of a Republican governor in 2021. Yet the Republicans must do more than simply oppose Phil Murphy’s tax and spending proposals if they are to succeed in achieving the election of a GOP governor at the next election.
New Jersey now is in a state of permanent budget crisis, due to the financial imbalances in both the state pension and health benefit funds and the escalating costs of education. The electorate perceives both parties as being responsible for this. They will want to know what alternatives the Republicans can offer.
In order to do this, it will be essential for the Republicans in both houses in future fiscal years to develop and promulgate alternative budget proposals. The alternative budget proposal will achieve two objectives.
First, it will give rise to an enhanced policy debate between the two parties.
Second, it will strengthen the coherence and effectiveness of the NJGOP message. This will increase the possibility that in 2021, Governor Phil Murphy will become One Term Murphy.
Alan J. Steinberg served as Regional Administrator of Region 2 EPA during the administration of former President George W. Bush and as Executive Director of the New Jersey Meadowlands Commission under former New Jersey Governor Christie Whitman.