Republican budget plan calls for updated tax brackets

GOP lawmakers also want to return energy tax revenue to towns, boost state school aid

By: - May 24, 2022 1:35 pm

Assemblyman Jon DiMaio said lawmakers "really need to work on" making New Jersey more affordable. (Amanda Brown for New Jersey Monitor)

Assembly Republicans want New Jersey to go big on tax relief using a voluminous surplus fueled by better-than-expected tax collections in the current and coming fiscal years.

On a press call Tuesday, they pitched direct payments to consumers to offset high inflation, tax bracket tweaks that would account for more than two decades of inflation, additional state school aid, and an end to the state diverting municipal energy taxes.

“Anyone who’s on this call knows the suffering that is going on, and no matter where I go people are saying, ‘I have a difficult time affording anything,’ and that’s why we want to do structural changes, long-lasting changes, but we need immediate relief,” said Assemblyman Hal Wirths (R-Sussex), the Assembly Republican budget officer.

Earlier this month, Treasury officials predicted New Jersey would collect $7.8 billion more than anticipated during the current and coming fiscal years, while the Office of Legislative Services projected revenues would come in $6.9 billion above expectations. In both cases, the glowing forecasts would leave the state with more than $10 billion in unallocated revenues.

Foremost among the Republican proposals is one that would adjust New Jersey’s income tax brackets to reflect inflation in what would be the first such adjustment since temporary tax hikes put in place by former Gov. Jon Corzine expired in 2007.

The GOP plan would raise the income thresholds for tax brackets used by joint and married filers by roughly 71%. Under the current brackets, a single filer’s income between $20,000 and $35,000 is taxed at a marginal rate of 1.75%. Under the Republican plan, that same marginal rate would apply to income between $34,255 and $59,946.

The proposal would also eliminate a tax bracket for joint filers that raises the marginal rate for income between $50,000 and $70,000 to 2.45%. There is no equivalent bracket for single filers.

“We’ve talked about affordability. The Democrats are talking about affordability. We all agree we have an affordability problem in New Jersey, and we really need to work on that, said Assemblyman Jon DiMaio, the chamber’s minority leader. “This would be a step towards that. You adjust these tax brackets for inflation, it’s going to save people money.”

The changes would leave New Jersey’s highest tax brackets — those assessed on income over $500,000 and $1 million — untouched, and unlike a long-standing Republican proposal, the GOP plan announced Tuesday would not link any of the brackets to future inflation, somewhat limiting the impact on state income tax collections in future years.

The Assembly Republican Office said joint filers with an income of $110,000 would save $1,600 annually under the new brackets, while single filers making $70,000 would save about $1,000.

The Republican leaders also called for an end to diversions of Energy Tax Receipts collected by municipalities.

Utilities pay the tax for facilities and infrastructure into a state fund. Those collections are intended to bolster municipal budgets, but the state government has historically diverted a portion of the funds.

Those diversions ramped up in 2009 amid budget constraints created by the Great Recession and continued to rise in the next two years, reducing the municipalities’ portion of the tax receipts by roughly $331 million. The added diversions persisted even after the state’s economy recovered from the housing market’s collapse.

The Republican plan would restore those diversions over two years.

“That money belongs to the towns,” said DiMaio, a former president of the New Jersey Conference of Mayors. “That money does not belong to state government.”

Republicans also called for an influx of state school aid to undo cuts that have hit some districts since lawmakers suspended a certain type of state school funding called adjustment aid in 2018.

The end of adjustment aid was intended to finally enact a state school funding formula meant to divert funds from so-called overfunded districts to underfunded ones.

Gov. Phil Murphy’s budget proposal calls for increasing state formula aid to $9.9 billion and provides another $20 million in one-shot stabilization aid meant to help districts struggling to adjust to reduced state funding.

The Republicans said their plan would leave the state with a surplus of between $6.9 and $7.8 billion. State Sen Paul Sarlo (D-Bergen), the upper chamber’s budget chairman, last week said surging collections could be used to bring the state’s surplus to a similar level to guard New Jersey against an economic downturn.

Democratic plans

The Republican proposals appear to diverge from Democrats’ spending plans.

While the majority party has announced few details about how they plan to use excess revenue, Democratic leaders have said they want to use the money to shore up the state’s surplus, put more to paying down New Jersey’s immense debts or preventing them from growing, and boost tax relief.

Murphy and Treasury officials have signaled Sarlo’s pitch for a surplus of between $7 and $8 billion would suit them well, but details about their plans remain scant.

Treasury officials last week suggested the administration would be willing to speed the phase-in of Murphy’s proposed ANCHOR tax rebate program.

The governor on Monday said he wanted to bring “property tax relief at a historic, never-before-seen level” but said details had yet to be determined. Assembly Speaker Craig Coughlin (D-Middlesex) has also said he would push for the “largest tax relief program in state history” to be included in this year’s budget.


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Nikita Biryukov
Nikita Biryukov

Nikita Biryukov most recently covered state government and politics for the New Jersey Globe. His tenure there included revelatory stories on marijuana legalization, voting reform and Rep. Jeff Van Drew's decamp to the Republican Party. Earlier, he worked as a freelancer for The Home News Tribune and The Press of Atlantic City.