Shorter-Term TTF Plan + Much Larger Tax Cut = Bad News for New Jersey’s Future

This bill will have far-reaching negative effects on the state's ability to pay for essential services, contractual obligations and key investments.

Published on Jun 28, 2016 in Tax and Budget

The outlook for New Jersey’s economic future went from bad to worse last night in Trenton, as legislators hastily pushed forward a tax cut plan that would cost the state about $1.7 billion a year as the price for finally enacting a gas tax increase for essential transportation funding. At a time when the state already can’t meet its current and future obligations, invest in the assets that grow a strong state economy or provide a strong safety net for its neediest residents, blowing a hole of this size in the state’s budget is reckless, short-sighted and – indeed – unfair.

Late last night the Assembly approved a revised omnibus tax bill that raises fuel taxes and cuts New Jersey’s sales tax rate to 6 percent, from 7 percent. The bill no longer includes the elimination of the estate tax, a new charitable deduction exemption, or the increase in the Earned Income Tax Credit. But it does still include an increase in the retirement income tax exemption.

The bottom line: While we are pleased that the estate tax is preserved under this new legislation, that doesn’t disguise the fact that the bill will have larger and far-reaching negative effects on the state’s ability to pay for essential services, contractual obligations and key investments.

In fact, the hole it blows in the budget (approximately $1.7 billion) is twice as large as the hole the previous plan would have created (approximately $870 million).

At the same time, the plan put forward last night is a shorter-term transportation-funding fix (8 years) than the original proposal (10 years).

This proposal, on the surface, is a fairer plan, in that it’s not a tax shift primarily from the wealthy to the working- and middle-class. But that advantage evaporates as soon as the gaping budget hole causes New Jersey to cut vital services, lay off employees or shrink the social safety net.