Republican budget calls for permanent tax cuts amid surging revenue

Senate Republicans released a budget proposal Thursday that calls for $8 billion in tax relief using excess revenue the state is projected to collect in the current and coming fiscal year.

Many of their proposals appear to create recurring increases in spending and structural tax reductions that may necessitate spending cuts or tax hikes in future years, though it’s unlikely Democrats who control the Legislature will adopt any of the GOP budget ideas.

“We have this unprecedented situation where families are struggling to pay their bills amid the highest inflation in a generation while the state is simultaneously bringing in record tax collections that are billions beyond expectations,” Sen. Steve Oroho, the chamber’s minority leader, said in a statement. “We’ve proposed a comprehensive and responsible plan that includes structural reforms to provide New Jerseyans with substantial tax and toll relief at a time when it’s desperately needed.”

Chief among the Republicans’ non-recurring proposals is a pitch for $4.5 billion in one-time rebates under two Republican programs that have not advanced through the Legislature. Families making no more than $500,000 would receive rebates of $1,000, while those making $250,000 or less would be eligible for a separate $500 rebate.

They said those programs compare favorably to Gov. Phil Murphy’s proposed ANCHOR tax relief program, which would provide some homeowners with initial tax credits averaging $700 — they would rise in subsequent years — and give some renters up to $250.

Unlike ANCHOR, the Republican proposals would not recur and would keep in place the existing Homestead Benefit Program and Middle Class Tax Rebate, programs Murphy’s ANCHOR is intended to replace.

Negotiations between Democratic legislative leaders and the Murphy administration on the governor’s budget proposal are ongoing. Assembly Speaker Craig Coughlin (D-Middlesex) said Democrats would have their own spending plan.

“In this year’s budget, I have insisted that we deliver the largest tax relief program in state history while making sure our surplus is leveraged so we are ready to weather any storm coming our way,” he said. “The Democratic proposal will include tax relief in the place where people need it most: their property taxes.”

A spokesman for Senate Democrats declined to comment on the Republican plan.

Tax cuts

The GOP is proposing more than $1.1 billion in tax cuts that would continue into future years.

Among those is a provision raising the retiree income tax exclusion from $150,000 to $250,000, a change expected to cost $165 million annually. A separate clause would enact $530 million in corporate business tax cuts by ending a 2.5% surtax on business net income above $1 million — the surtax, set to expire in 2024, would end a year earlier under the GOP plan — and eliminating a tax on multinational firms based in the state.

Republicans have also proposed indexing New Jersey’s income tax brackets to inflation to prevent bracket creep, a phenomenon where tax rates intended for filers who make a certain income start to capture people making less. The plan would cost the state $366 million in revenue, Republicans said, but the costs would likely compound in future years as wages do not necessarily track to inflation.

The GOP plan calls for the state to double a veteran tax deduction from $250 to $500, a move that would require a constitutional amendment and cost the state $30 million annually.

Overall, the Republican reduction plans threaten to force spending cuts or tax hikes after revenue returns to historical levels, but the GOP caucus said the changes would stabilize New Jersey’s economy ahead of a likely recession.

“There will be those who say these tax cuts will dig a future budget hole … We strongly disagree,” the GOP budget resolution says. “To the contrary, providing substantial tax relief with a mixture of short-term and long-term strategies is precisely what will help mitigate the potential recession. These policies will help our economy, and budget revenues, recover more quickly.”

Federal dollars

The Republican proposal calls on New Jersey to spend down the bulk of the $3 billion in unallocated federal aid it received under the federal American Rescue Plan.

Republicans propose about $1.2 billion of it go to prevent unemployment tax hikes — primarily on employers — triggered by the draining of the state’s unemployment fund by skyrocketing jobless claims early in the pandemic.

They are also asking for another $600 million to be set aside for local capital programs and have requested $200 million to boost state school aid to some districts that have recently lost state funding.

Another $570 million in federal money would go to improve state parks and build flood resiliency across the state and $30 million would boost funding for fire departments and emergency medical service providers.

The remaining funds would go to fill state, local, and nonprofit capital projects, like $400 million to upgrade the state’s IT network and the same amount for capital projects at colleges and universities.

Miscellany

To pick up slack on the revenue side, Republicans called on the state to take over income tax collections on New Jerseyans who work in New York, noting many commuters began working remotely with the pandemic. Those reforms must likely be litigated.

They also pitched pension reforms they said would bring the state $600 million in its first year by moving state workers to a 401k-style plan, though any changes to pensions are likely to be a political non-starter.

And they asked the state to set $1.8 billion aside to pay down existing debts or avoid future ones. It’s not clear whether that money would go into an existing debt prevention fund, into which Murphy has proposed depositing $1.3 billion.

Like their Democratic counterparts, Republicans said language allowing the Legislature to have input on how federal funds are spent should be reinserted into the budget, though they want the full Legislature to vote on such issues instead of the Joint Budget Oversight Committee.