Senate panel advances tax cut bill, but worries remain

The Senate Budget Committee advanced a series of bills aimed at making New Jersey more affordable in largely bipartisan votes Monday, but a proposal to tie New Jersey’s tax brackets to inflation faces an uncertain path amid silence from Gov. Phil Murphy’s administration.

The bill, sponsored by Senate Minority Leader Steve Oroho (R-Sussex) and Sen. Tony Bucco (R-Morris), would require the state annually adjust its tax brackets to account for increases in the cost of living.

“It’s been over 30 years since we’ve seen a reduction in any of our income tax brackets, and it’s my understanding that 60% of our residents live paycheck to paycheck,” Bucco told the committee. “By giving them this small break, it will give them some hope, especially those in the low- and middle-income tax brackets that get hit the hardest.”

Though the bill won plaudits from both sides of the political spectrum, there are still some worries.

Senate Majority Leader Teresa Ruiz (D-Essex) and Sen. Sandra Cunningham (D-Hudson) voiced concerns about the bill’s impact on cash-strapped municipalities and costs for their residents. The cut in state revenue from tax bracket changes could lead to tax hikes at the local level, they cautioned.

“Even though that household might be getting $100 extra for the year, then the municipality and/or the school district has to raise their tax levies and that gets passed onto them again,” Ruiz said. “I just still have questions in that space that haven’t been answered 100%.”

The measure is expected to cost the state between $150 million and $440 million in lost revenue each year, with greater losses as bracket thresholds continue to increase in future years.

The state’s income tax is paid under a series of marginal rates that grow with a filer’s income, topping out at 10.75% for income that exceeds $1 million. The lowest tax brackets have not changed since Christie Whitman was governor in the mid-1990s.

Worries among Democratic lawmakers may prove to be among the bill’s smaller hurdles. It’s not clear whether Gov. Phil Murphy would sign the bill if it reaches his desk.

Sen. Paul Sarlo (D-Bergen), who intends to sign onto the measure as a prime sponsor, said the administration has not made its position on the bill clear despite direct requests.

“We asked for a fiscal note to see what kind of loss of revenue there would be. Thirty-four states already do it who have similar income tax brackets to us. It’s the right thing to do, but they have not weighed in,” Sarlo said.

Sheila Reynerston, senior policy analyst at progressive think tank New Jersey Policy Perspective, asked the committee to give more consideration to the bill’s impact on tax relief programs, municipal and school aid, and low- and middle-income New Jerseyans’ bottom line.

“This proposal would drain up to half a billion dollars in funding for public services, which leads to layoffs and brutal cuts,” she said. “With no other way to raise revenues, municipalities would be forced to raise fines or fees. These are the kinds of changes that are always regressive, falling most heavily on low-income residents who are disproportionately people of color.”

In response to Reynerston’s testimony, Bucco and Sen. Declan O’Scanlon (R-Monmouth) said they will introduce a separate bill that would tie the standard deduction to inflation.

Prospects are brighter for a spate of other affordability measures advanced by the Senate budget panel Monday.

The committee cleared a bill that would nearly double the amount of rental expenses New Jersey tenants can deduct from their state income tax bills, raising the deduction from 18% of rent paid to 30%.

It also approved a bill that would restore state aid to municipalities from the Energy Tax Receipts Property Tax Relief Fund and under Consolidated Municipal Property Tax Relief Aid to their 2008 levels. Municipalities would be required to offset their tax collections to account for the additional aid.

The bill, which would eventually send municipalities $330 million in state aid annually, was amended to phase in over two years instead of five.

The committee also passed bills allowing residents to deduct contributions to 401(k)s, 403(b)s, and certain other retirement plans from their state income tax bills.