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.