Democratic leaders support sales tax holiday on back-to-school items

New Jersey is set to implement a 10-day sales tax holiday for school supplies and select electronics as a means of offsetting inflation, the state’s top three Democrats announced Wednesday.

The move would exempt school and art supplies, sports equipment, computers, and certain computer accessories from the state’s 6.6% sales tax between Aug. 27 and Sept. 5 in a program expected to cost the state roughly $75 million in lost revenue, Gov. Phil Murphy said during a press conference in Red Bank.

“As inflation, I need not say but I’ll repeat, is a central worry around all of our state’s kitchen tables, now is the time to do it,” the governor said. “We can more than afford to give our students this tax break.”

Assembly Speaker Craig Coughlin (D-Middlesex) suggested the 10-day back-to-school sales tax holiday will also apply to television sets.

“That’s money back in the family’s pocket, money that they can spend,” Coughlin said.

The bill that would authorize the holiday, sponsored by Gloucester County Democrats Sen. Fred Madden and Assemblyman Paul Moriarty, does not mention televisions and would apply to computers worth up to $3,000. Earlier versions of the bill put that cutoff at $1,000 and applied only to computers purchased for personal use. It’s not clear how those provisions will change as lawmakers move the bill ahead of the June 30 deadline to approve an annual budget.

Murphy declined to say whether the sales tax holiday would recur in future years. Coughlin said the matter would be considered in next year’s budget talks.

The holiday is the second tax relief announcement top Democrats have made in as many weeks. Last Wednesday, Murphy and legislative leaders announced they would expand the proposed ANCHOR tax relief program, pushing its funding to $2 billion annually. The program was set to launch in the coming fiscal year with $900 million in funding in its initial year.

“Make no mistake about it. This is the Legislature’s direct attack on inflation,” Scutari said Wednesday, referring to the sales tax holiday.

Nationally, prices have surged 8.6% over the last 12 months, with food and energy prices facing the highest increase, according to the Bureau of Labor Statistics. The northeast has seen slightly lower inflation of 7.5%,

New Jersey’s fiscal house

Democratic leaders in Trenton say they have focused sharply on tax relief while drafting this year’s budget amid a surge in revenue that is expected to boost budget reserves above $10 billion. Some of that money will likely be used to raise spending above the roughly $49 billion Murphy proposed in March.

A panel of former top budget officers convened by former Sen. Steve Sweeney earlier this month warned the state will likely spend down its surplus in the next five years — or earlier if the economy sinks into a recession.

Murphy, Scutari, and Coughlin appeared unconcerned about the doomsaying Wednesday.

“This is something we have the money to do, and this is giving that money back to taxpayers,” Scutari said.

New Jersey’s sales tax levy is the state’s second-largest single source of revenue. It’s expected to bring in nearly $12.6 billion in the next fiscal year, or about 25% of the roughly $50.6 billion Treasury officials expect the state to collect starting July 1.

A shaky reception

Progressives, Republicans, and some labor leaders met Wednesday’s announcement with skepticism, calling the proposal a “gimmick” that would either do too little to help struggling New Jerseyans or disproportionately benefit the state’s wealthy residents.

“Changes to the sales tax, whether they’re temporary or permanent, are not targeted, so guess who benefits the most? Wealthier residents who generally buy the most and have the flexibility to stock up during the holiday period,” said Sheila Reynertson, a senior policy analyst at the left-leaning think tank New Jersey Policy Perspective.

She said the sales tax holiday would do little to benefit New Jersey businesses if it is extended to online sales, which were included under the bills Moriarity and Madden introduced in January.

New Jersey Policy Perspective and other progressive groups have pushed for the state to use its unexpected revenue to create a state child tax credit, expand New Jersey’s earned-income tax credit, and boost temporary assistance for needy families, among other things.

Assemblyman John DiMaio, the Republican Assembly leader, in a statement called the proposal “tone deaf,” saying it would do little to help New Jerseyans struggling to make ends meet.

“It’s a shame that they don’t make a true commitment to provide long-term tax cuts like Republicans have,” he said. “This is a red herring to make people think they aren’t being overtaxed when they are — and continue to be, with Democrats in charge.”

Republicans’ budget proposal, which will not advance in the Democratic-led Legislature, calls for $4.5 billion in one-time tax rebates of between $1,000 and $1,500 and permanent tax cuts that include adjusting New Jersey’s income tax brackets for inflation.

Their proposed rebates have higher income cutoffs than those proposed for ANCHOR, a fact some Democrats were quick to point out Wednesday.

“I try not to be political ever, but my friends on the other side are always focused on giving tax breaks to the top 1%, and we’re doing the exact opposite here,” Sen. Vin Gopal (D-Monmouth) said in Red Bank Wednesday.