Late Tuesday, Governor Murphy and legislative leaders announced a deal to renew New Jersey’s corporate tax subsidy programs. The proposal, which has yet to be publicly released, sets an enormous cap of $11.5 billion over six years. Lawmakers plan to hold hearings on the bill on Friday and pass the legislation on Monday. In response to the proposal and lack of transparency, New Jersey Policy Perspective (NJPP) releases the following statement.
Brandon McKoy, President, NJPP:
“Fast-tracking an $11.5 billion corporate tax incentive program is a slap in the face to New Jersey taxpayers. Study after study, as well as New Jersey’s own recent history, shows that corporate tax breaks have little effect on job creation or the broader economy. Instead, they rob the Treasury of much-needed funds and make it difficult to invest in areas of proven economic growth, like public schools and transit infrastructure.
“Good government groups and grassroots activists have fought for years to rein in and reform New Jersey’s runaway corporate tax subsidy program. While this bill includes important oversight and independent review provisions to help prevent fraud and abuse, those safeguards are completely undermined by the bloated $11.5 billion price tag. There is no doubt that this will do long-term damage to the state’s already strained finances. It also normalizes a comically high level of subsidies and cements New Jersey’s status as woefully out of line with the development programs of comparable states. Simply put, New Jersey cannot afford this deal.”
New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based, independent research, analysis, and advocacy.
The following testimony, on S3218, was delivered to the Senate Budget and Appropriations Committee on December 15, 2020.
Good morning, Chairman Sarlo and members of the Budget and Appropriations Committee. Thank you for this opportunity to provide my testimony on the proposed restructuring of Horizon. My name is Dr. Brittany Holom-Trundy, and I am a senior policy analyst at New Jersey Policy Perspective (NJPP). NJPP is a non-partisan, non-profit research institution that focuses on policies that can improve the lives of low- and middle-income people, strengthen our state’s economy, and enhance the quality of life in New Jersey.
This is one of the most complex pieces of legislation that state lawmakers have considered all year. As you know, the bill would change Horizon’s corporate structure to separate its health insurance operations from other business ventures; it would also give Horizon a tax cut. Because this proposal is crucial to the future of the state, it must be carefully considered in an open and transparent manner. There is no reason to rush the process and doing so would simply invite shortsighted decision-making and regrettable mistakes.
Due to the uncertainty of the bill’s fiscal effects, I have a couple of major concerns.
First, this bill doesn’t provide any information on the fiscal impact of this restructuring on the state. Yes, the $600 million upfront payment may seem enticing, but this is not simply about the lump sum payment. Changes to Horizon’s tax status can lead to significant losses that must be taken into account. For example, we do not yet have a fiscal note on the application of the tax cap law and how this difference, as well as other changes in tax obligations, will impact the funds that the state collects annually. The state is already receiving only a small fraction of the value of the public assets in this deal, and the calculation of the amount owed seems arbitrary at best. Further fiscal analysis of the restructuring by an independent entity is needed.
Additionally, the second part of these funds — the $650 million to be paid over a number of years — are not fully guaranteed, since they can expire under certain conditions. The state is essentially acting, then, as an unsecured general creditor. It is allowing Horizon to change its annual tax obligations for the long term without a backup plan should these funds go unpaid. If we consider this money to be a payment in lieu of taxes (PILOT), then the state should guarantee that the full value of the promised funds will be collected.
Past governors have fallen for the lure of upfront payments to fill budget holes during tough economic times; short-term fixes negatively affect the state’s finances and the state’s credit rating in the long term. We need a fiscal note and independent evaluation of Horizon’s assets and changes to its tax status to understand the full implications of this restructuring.
Lawmakers must consider slowing down this bill to ensure that the state and all New Jerseyans get the best deal possible from any restructuring.
The following testimony, on A4809, was delivered to the Assembly Commerce and Economic Development Committee on October 21, 2020.
Thank you, Chairman Johnson and members of the committee for this opportunity to speak with you today.
I am testifying in support of A4809 as a technical improvement to the corporate business tax code. This bill should ease the accounting processes for both the state Division of Taxation and tax filers. However, New Jersey Policy Perspective (NJPP) views this legislation as a missed opportunity to close the remaining loopholes in the corporate business tax code. New Jersey successfully enacted combined reporting legislation in 2018, but large corporations continue to utilize tax avoidance schemes, which further erode New Jersey’s corporate business tax revenue and funding for investments that are critically important for the state, especially right now as we chart our recovery from COVID-19.
Given the extraordinary circumstances of a pandemic-induced recession, New Jersey must get a handle on multinational corporations that brazenly exploit tax loopholes. Given New Jersey’s budget restraints, the state is in no position to provide special favors to businesses that need it the least.
Respectfully, I ask members of the committee to consider some major shortcomings of current law that this bill seeks to codify, each a missed opportunity to close tax loopholes, some big enough to drive a truck through.
The “Nexus Isolation” Method
A4809 clarifies that the income from the separate activities of a multi-state corporation will only be taxed if one of a corporation’s members independently has a physical presence in, or nexus with, New Jersey. The “nexus isolation” strategy itself is not consistent with the fundamental conceptual goal of combined reporting, which is to ensure that the tax liability of a corporation to a state is the same regardless of whether it consists of a single member or multiple members. What this bill actually clarifies is how to give those out-of-state corporations an enormous tax loophole worth millions of dollars in foregone revenue. And the bill’s assertion that this method is in line with the United States Supreme Court jurisprudence on the unitary business principle and combined groups implies that another more effective method is unconstitutional. No court has ever found that to be the case.
Deferred Tax Deduction Provision
A4809 also repeals the use of certain credits to reduce deferred tax liability on a corporation’s balance sheet, but does so without a glance at the deferred tax deduction, an accounting adjustment that offsets a “paper” expense like a one-time income tax increase. This little trick protects publicly traded companies from any appearance of depreciation that could impact their stock value, though there is no compelling evidence to support such a claim. It is an unwarranted and unsubstantiated tax giveaway that will eventually cause New Jersey to forgo real revenue needed to fund critical assets and services. In other words, another lost opportunity.
Tax Haven Subsidiaries in Unitary Groups
The combined reporting legislation as proposed in 2018 included the definition of “tax haven” to ensure that a multinational corporation reports subsidiaries that may be used as tax shelters. The final legislation dropped the definition of “tax haven” entirely, which opened up a loophole so large that between $95 million and $233 million flows right through it every year. This bill fails to address that, which is a shame given New Jersey’s precarious fiscal situation.
Small business owners in New Jersey do not have the ability to move taxable income out of the state or country like these large corporations and their well-compensated tax lawyers do. A strong combined reporting statute would level the playing field for all businesses. That can’t happen with a technical clean-up bill. It’s time to make closing loopholes in the existing corporate business tax code a priority.
New Jersey’s recently enacted $32.7 billion budget is an anomaly in many ways given the extraordinary circumstances under which it was crafted. Covering a 9-month period, it relies on borrowing billions of dollars through a federal loan program to avoid deep cuts and stay on track with pension payments. It raises taxes on those who actually prospered during the pandemic 一 the state’s wealthiest individuals and most profitable corporations. It advances equity by repealing a racist policy in the state’s cash assistance program and by expanding a tax credit for low-income workers and their families. And it puts aside a healthy surplus in case the state gets slammed by a second wave of COVID-19.
Some of NJPP’s most important policy recommendations made it into this year’s budget as a progressive response to tough times: raising revenue, providing support to those who need it the most, and expanding investments in health care and education. In the midst of a public health crisis, New Jersey is setting an example for the nation by heeding lessons learned from the Great Recession.
A Fairer Tax Code
Millionaires Tax — With a Caveat New Jersey’s tax code just got more progressive with the creation of a new tax bracket for the state’s wealthiest earners. Income over $1 million per year is now taxed at 10.75 percent; this is estimated to generate over $400 million annually. However, a rebate program for 800,000 families earning less than $150,000 in annual income will largely eat up the new revenue gained starting next fiscal year.
Corporate Business Tax Surcharge After receiving a windfall from the 2017 federal tax cuts, successful corporations will continue to pay a 2.5 percent surcharge on the corporate business tax to help fund critical programs that all New Jerseyans rely upon. This surcharge will generate over $200 million in new revenue per year through Fiscal Year 2023.
Health Maintenance Organization (HMO) Tax The HMO tax will increase a state assessment on certain health insurance premiums from 3 to 5 percent, which will generate $107 million to supplement funding for charity care. Most of these premiums are tied to Medicaid plans that will draw down this increase with federal matching dollars.
Health Insurance Assessment While technically passed before the budget deadline, this revenue raiser replaces the recently repealed federal fee on health insurance companies that was meant to help fund the Affordable Care Act (ACA). The state will collect 2.5 percent on net premiums of individual and large group plans, raising roughly $200 million in new revenue. Funds will support health insurance affordability measures, including the reinsurance program and additional state subsidies on the new state exchange for those with incomes below 400 percent of the federal poverty level.
Important Investments
Maintaining Pension Payments for Retired Public Workers The retirement fund continues on its pathway toward stability with a $4.7 billion state pension contribution. Despite the fiscal challenges, New Jersey chose to make this contribution 一 the largest in the state’s history 一 because postponing or reducing it meant risking a total collapse of the retirement system.
Property Tax Relief The final budget restores $500 million in funding for two property tax relief programs geared toward vulnerable homeowners.The Homestead benefit program provides 580,000 seniors, disabled, or low-income homeowners with a credit on their property tax bill. The Senior Freeze program reimburses eligible seniors and people who are disabled for property tax increases and mobile home park site fees.
Tax Credits for Working Families The Earned Income Tax Credit (EITC), one of the state’s most effective anti-poverty measures, increases from 39 to 40 percent of the federal EITC level, marking the final stage of a three-year phase in. Further, the minimum age requirement for workers who are not raising children at home drops from 25 to 21 years old, increasing the after-tax earnings of up to 58,000 low-paid young workers. This eligibility expansion is estimated to add up to $12.1 million to the state and local economies.
Helping Students Cope and Excel From K-12 to college, public schools across the state will receive their rightful state aid as required by the school funding formula. This budget also restores $15 million in funding for the School Linked Services Program, which provides mental health treatment services to students; this investment is critical as students continue to struggle with mental health issues caused and/or compounded by the ongoing pandemic. Community college funding was also restored in the budget deal, guaranteeing $25 million in tuition aid.
Keeping Families Together This year’s budget expands funding for free legal counsel for New Jersey immigrants in detention. While this funding will only meet a fraction of the need, this increase, from $3.1 million last year to $6.2 million this year, substantially expands access to representation and due process.
Maintaining Health Care Access New Jersey will maintain state support for medical care through Medicaid, a sorely needed move as enrollment numbers have skyrocketed due to the loss of employment insurance during the pandemic. The Charity Care program, which supports hospitals treating uninsured and underinsured residents, and the Graduate Medical Education program, which supports teaching hospitals, also maintained funding in the budget deal. It’s good to see New Jersey prioritize access to health care and improved outcomes as we recover from the pandemic.
Addressing Child Poverty New Jersey’s budget takes a major step forward in dismantling a harmful, racist policy with the permanent repeal of the “family cap” in the state’s Temporary Assistance for Needy Families (TANF) program. The family cap, which originated in the Garden State in 1992, prohibits recipients of Work First New Jersey cash assistance from receiving additional per-child assistance if they choose to have another child. This coercive law — meant to reduce pregnancies in low-income families through punishment, rather than increased resources — only pushed families deeper into poverty. Still in place in 13 states, the policy was effectively dropped from Governor Murphy’s 2019 and 2020 budgets. The signed law makes the change statutorily permanent.
Expanding Environmental Justice The final budget avoids a $5 million cut, as proposed in the Governor’s original budget proposal, to the Lead Hazard Remediation Fund. This fund supports the removal of lead-based hazards in homes and schools, which harm children’s lifelong health, education, and developmental, especially for those exposed at a very young age. These hazards are generally higher amongst children of color living and learning in older buildings. The budget also dedicates $60 million for the replacement of lead service pipe lines, a small portion of the projected price tag of $2 billion, according to the Department of Environmental Protection.
Supporting Energy Efficiency Consumers who purchase mid-range electric cars and trucks will receive rebates from the state through the Clean Energy program, which received $23 million in funding in this year’s budget. However, the budget also diverts $100 million from the Clean Energy Fund ($60 million to NJ Transit and another $40 million to the General Fund), which reduces energy efficiency programs for homeowners and low-income households.
Improving Transportation Significant federal help — $1.4 billion — was provided to NJ Transit through the CARES Act. This aid helps to offset losses due to lower ridership during the height of the COVID-19 outbreak. The state-owned system is also expected to receive a subsidy of $386 million using borrowed funds.
Budgeting Best Practices
New Borrowing Instead of Harmful Cuts New Jersey lawmakers have tapped into the new federal borrowing program to help address revenue shortfalls brought on by COVID-19 without resorting to austerity measures. This borrowing also allows the state to fund long-term obligations like the state’s underfunded pension system. With extremely low interest rates, any borrowing approved by the legislative committee will allow New Jersey to manage immediate cash flow problems until the economy begins to improve. Should more federal aid be available to states in the near future, New Jersey could fast-track the repayment schedule to lessen the state’s debt load and alleviate concerns about its widening structural budget deficit.
Big Surplus The budget’s surplus of $2.5 billion, the largest in over a decade, has been set aside as an insurance policy against any economic damage from a potential second wave of COVID-19. Should any surplus funds remain at the end of the fiscal year, half could then be deposited into the state’s empty rainy day fund for future emergencies.
What’s Missing
Repeal of Christie-era Tax Cuts With economic projections showing a sluggish rebound, New Jersey can’t depend on economic growth alone to make up the difference once borrowed dollars are gone and debt service payments come due. Recapturing over $1 billion in lost revenue by repealing two key tax cuts must remain on the table. New Jersey must fix how inherited wealth is taxed by either bringing back the estate tax or reforming the state’s inheritance tax. The repeal of the 2016 sales tax cut, which left a $600 million hole in the state budget every year, must also be prioritized.
Full Expansion of Tax Credits for Workers The Earned Income Tax Credit (EITC) still excludes far too many low-paid workers in New Jersey. State lawmakers should further improve access to the credit by expanding it to workers who file taxes using an Individual Taxpayer Identification Number (ITIN) and eliminating the minimum and maximum age thresholds altogether. In the absence of a federal EITC for ITIN filers and childless workers under 25 and over 64 years old, the state should also increase the credit amount for these groups from 40 percent to 100 percent of the federal credit.
Economic Relief for Immigrant Families More than six months after the onset of COVID-19, over half a million New Jersey residents are still without economic relief. Unlike those who qualify for publicly funded programs like unemployment insurance and federal stimulus payments, many immigrants have been left behind. Despite months of advocacy by affected workers, the final budget neglects to include any relief for these New Jersey workers and their families.
Addressing Deep Poverty in a Pandemic Enrollment in cash assistance programs have increased due to the pandemic-induced economic crisis, yet the final budget fails to reflect that. The benefit level for families receiving assistance is flat funded, while overall state funding for Work First New Jersey benefits was cut. State lawmakers have defended the funding cut with the argument that federal funds can fill that gap. However, it is unclear whether federal dollars will be sufficient to cover the increased number of residents enrolling in poverty alleviation programs.
For The Many NJ coalition applaud Governor Murphy and legislative leaders for rejecting austerity and setting a strong foundation for New Jersey’s COVID-19 recovery.
September 29, 2020 – New Jersey’s leading advocates for working families applauded the state budget signed into law earlier today by Governor Phil Murphy. The budget for Fiscal Year 2021 balances revenue shortfalls brought on by COVID-19 with a combination of borrowing and tax increases on the state’s wealthiest residents and biggest corporations. This will allow the state to maintain investments in key programs and services that will help New Jersey ultimately recover from the pandemic.
“Today is a historic moment for New Jersey, as the state tax code is getting a lot fairer — and for good reason,” said Sheila Reynertson, Senior Policy Analyst at New Jersey Policy Perspective (NJPP). “Income inequality is at an all-time high, and for far too long, lawmakers failed to address this in a meaningful way. Today, that changes. The millionaires tax will help New Jersey maintain investments in crucial assets like education while responding to the COVID-19 health crisis without further worsening economic and racial inequality. We truly are setting an example for the nation on how to build an economy that works for all of us, not just a chosen few.”
Unlike state budgets passed during the last economic downturn, the budget signed today rejects austerity measures and instead calls on New Jersey’s wealthiest individuals and biggest corporations to pay closer to their fair share in taxes.
“We applaud the Governor’s leadership and the legislature’s willingness to take a stand for the 99% of New Jerseyans who will benefit from this budget,” said Sue Altman, Executive Director of the New Jersey Working Families Alliance. “May this be the first step toward long term budgetary thinking and fairness in our state.”
The budget includes a millionaires tax — which raises the marginal income tax rate on earnings over $1 million from 8.97% to 10.75% — and extends the corporate business tax surcharge. This follows recommendations made by the For The Many NJ coalition and more than 90 economists who warned the legislature last month against harmful cuts.
“This budget marks an important step forward in addressing longstanding racial and socioeconomic inequities in our tax code, with millionaires and the wealthiest of corporations finally paying their fair share and an expansion of Earned Income Tax Credits,” said Dena Mottola Jaborska, Associate Director for New Jersey Citizen Action. “But we have a lot more to do, and we look forward to working closely with Governor Murphy and the Legislature to ensure state budget policy meets our most pressing pandemic needs while also making smart investments in our future. These priorities include assisting immigrants excluded from federal pandemic relief, restoring New Jersey’s fiscal health, and ensuring all New Jerseyans have access to programs and services they need to both survive and prosper.”
The budget is far from perfect, however, as there remains more work to be done to advance racial equity and ensure no one is left behind in New Jersey’s pandemic recovery. This includes providing support to the state’s undocumented immigrants and residents living in mixed status households who were shut out from receiving state and federal COVID-19 relief.
“Today’s budget signing is a historic but incomplete victory for tax fairness and equity,” said Sara Cullinane, Director of Make the Road New Jersey. “A half-million undocumented immigrants and potentially 225,000 US citizens will see nothing in COVID aid. Many of these families have survived more than six months without income or a penny in government relief. We urge the legislature and Governor Murphy to provide COVID relief for excluded workers and their families and make sure these families are included in the tax rebate. It is unjust to leave more than a half-million New Jerseyans behind.”
“New Jersey’s immigrant families have gone six months living with increasing economic insecurity every day,” said Maneesha Kelkar, Interim Director of New Jersey Alliance for Immigrant Justice. ”Despite the gains made by Governor Murphy’s budget, immigrants remain excluded, without unemployment benefits or COVID19 relief. A balanced and fair budget must include all residents, regardless of immigration status, so that every household can get their basic needs fulfilled.”
Members of For The Many NJ coalition made the following statements in support of the budget and millionaires tax:
Marie Blistan, President, New Jersey Education Association “We are pleased that this consensus budget prioritizes the needs of students, their families, and all hardworking New Jersey residents. Its emphasis on fiscal responsibility and tax fairness will help ensure that New Jersey emerges stronger from this current crisis, with a firm foundation for future fairness and prosperity.”
Renee Koubiadis, Executive Director, Anti-Poverty Network of New Jersey “The Anti-Poverty Network of New Jersey is pleased to see the inclusion of a true millionaires tax and the continuation of a fair corporate business tax in the state budget. These steps move New Jersey towards real tax fairness with crucial new revenues, rather than putting an unfair burden on middle and low-income residents for our state’s recovery. During this unprecedented health and economic crisis, these real investments in all of our state’s residents are needed to see valuable returns in our state’s economy and for New Jersey to be a place where all of our residents can recover and thrive.”
Brandon Castro, Campaign Organizer, New Jersey Work Environment Council “After years of advocacy, the Work Environment Council is happy to see the New Jersey State Government prioritize economic justice and tax fairness, and finally pass a millionaire’s tax. We hope that this will only be the beginning and that the state will continue to move away from austerity measures in times of economic crisis, and towards a more just, democratic economy for everyone.”
Doug O’Malley, Director, Environment New Jersey “State agency funding is critical, and the final budget ensures we won’t see furloughs in key state agencies like the NJDEP. We are grateful for the investments in lead remediation, which reduces lead in children’s blood, and the full funding for RGGI and EV rebates to electrify vehicles and to clean our air. The increased investments of the Corporate Business Tax, which worked to clean contaminated toxic sites more than 20 years ago, is a win for investing in the public good. We need in the next budget cycle to finally end the ongoing raids of the Clean Energy Fund and dedicate funding to NJ Transit.”
Amy Goldsmith, NJ State Director, Clean Water Action “At a time when New Jersey’s working families are hurting, our climate is in crisis, and our state is still fighting COVID-19, we are glad to see Governor Murphy and legislature pass the millionaires tax. This is just the beginning of a more progressive budget. From clean energy and respiratory disease, to lead in drinking water and raw sewage in waterways, critical programs are underfunded, and that’s why it is important to have everyone, especially millionaires, pay their fair share.”
Jeff Tittel, Director, New Jersey Sierra Club “This final budget restored key funding to important environmental programs. The budget eliminates some of the raids and one-shots that hurt the environment. This means there’s more money to make sure our air is clean, water is pure, and that we can clean up toxic sites. The budget restored $10 million for removing lead paint from homes and $22 million for the Recycling and Clean Communities Trust Funds, which will help implement the statewide plastic bag ban. NJ Transit saw an increase as well. There will also be more money for programs like open space, parks, cleaning up underground storage containers and contaminated sites, and watershed protection. This is because the Corporate Business Tax is increasing, and 6% of the CBT is dedicated to environmental programs. This budget has been an improvement for the environment and the people of New Jersey.”
Marcia Marley, President, BlueWaveNJ “BlueWaveNJ congratulates Governor Murphy and the legislature for creating a more equitable and fiscally responsible budget. Increasing revenue from millionaires and wealthy corporations rather than cutting services will preserve critical support for struggling New Jersey families and lessen the pandemic’s economic impact. The budget’s continuing investments in future generations will help lay the foundation for a stronger recovery. While we applaud many aspects of this budget, there is further work to be done. We look forward to working with the legislature and Governor to make sure no group is left behind.”
Barry Kushnir, President, Hudson County Central Labor Council and IFPTE Local 194 “The Hudson County Central Labor Council and IFPTE Local 194 are proud to support a state budget that includes tax fairness in a Millionaire’s Tax and Corporate Business Tax extension. Both are prudent and reasonable policies to raise much-needed revenue in an unprecedented crisis by asking those with the most to pay their fair share. While this is good news, our organizations remain committed to advocating on behalf of the many New Jersey families who continue to suffer inequality and will not relent in our pursuit of a budget that works for all.”
Leslie Bockol, Co-Executive Director, New Jersey 11th For Change “For too long, tax policies (and tax loopholes) on the state and national level have been skewed to favor those in the top fraction of a percent in wealth and income. For too long, the state budget has been balanced disproportionately on hard-earned money that working people have needed to cover basic necessities — not luxuries — to build a secure future for their families. We are gratified to see Governor Murphy sign this historic bill into law today, and proud that New Jersey is leading the way on tax fairness!”
Kevin Brown, New Jersey State Director, 32BJ SEIU “We applaud the passage of a ‘millionaires tax’ which asks residents best able to contribute to do their part for our economic recovery. At the same time, our essential workers have sacrificed everything throughout this crisis. We need our state to recognize that the federal aid available to many working families for part of this year has been out of reach for immigrant families, who occupy a large share of essential jobs. It’s only right for our state to step in to provide some income replacement for them.”
For The Many is a statewide coalition of more than 40 organizations working to expand funding for essential services and improve budget practices to meet current and future needs, especially for communities that have been historically marginalized.
Earlier today, Governor Murphy, Senate President Sweeney, and Assembly Speaker Coughlin announced a deal on the FY 2021 budget. The deal includes the “millionaires tax” — a new tax bracket on annual earnings over $1 million — and provides a $500 rebate to middle-class families with children. In response to the budget deal, New Jersey Policy Perspective (NJPP) releases the following statement.
Brandon McKoy, President, New Jersey Policy Perspective (NJPP):
“New Jersey’s tax code just got a lot fairer with the budget deal announced by Governor Murphy and legislative leadership. Calling on the state’s wealthiest residents to help fund New Jersey’s pandemic recovery is both smart and just policy, especially now during an economic downturn that has disproportionately harmed low-paid workers and communities of color.
“While many states across the country are balancing their budgets with steep spending cuts, New Jersey’s legislative leaders made the right choice in rejecting austerity measures like those made in response to the Great Recession. This deal recognizes the importance of maintaining state investments that grow our economy and protect New Jersey families harmed during the pandemic.
“There is still much more work to be done. Even with this deal, New Jersey needs more resources to meet its obligations, address future challenges, and advance racial equity and economic justice. We eagerly await details regarding funding for programs and will provide analysis of those decisions when they are made public.”
New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based, independent research, analysis, and advocacy.
Brandon McKoy, former President, was the chief executive of NJPP and led the organization's efforts in shaping policy debates to advance economic justice for the many, not a chosen few. Prior to being named President of NJPP in February 2019, Brandon served as NJPP's Director of Government and Public Affairs, where he designed and implemented the organization's outreach, advocacy, and government relations activities. He also produces timely, credible and accessible research and analysis on issues including, but not limited to, economic security, the social safety net and economic opportunity.
New Jersey lawmakers have taken an interest in implementing a state-level financial transactions tax, which would levy a small fee on the billions of stock trades that are processed in the state every day. This could be a promising way to raise additional revenue from high-income earners and tamp down excessive stock market speculation. It could also be the answer to the state’s long standing fiscal woes, including billion-dollar debt service payments that crowd out other spending. But it is unlikely to become a reality in time to shore up New Jersey’s revenue shortfalls during the immediate fiscal crisis.
Based on a compelling proposal published in a June op-ed, a recently introduced bill (A4402) would apply a micro-tax on high-speed stock trading. Specifically, this bill would impose a $0.0025-per-transaction tax on persons or entities that process 10,000 or more financial transactions through electronic infrastructure located in the state. The tax, estimated to generate $13 billion in annual revenue, would apply to transactions involving financial securities such as futures contracts, derivatives, and stock shares. The largely conceptual bill was introduced by Assemblyman McKeon, chair of the Financial Institutions and Insurance Committee, and has grabbed the attention of both the Governor and the Senate President. New York has introduced similar legislation[1] and Vice-President Biden also has his eyes on a financial transaction tax at the federal level, as originally proposed by Senator Elizabeth Warren.
But how do these financial transactions work? Every day, trillions of dollars’ worth of financial securities are traded electronically at hyper speed through fiber-optic cables connected to banks of computer servers. Those servers don’t reside under Wall Street in Manhattan; they sit in metal cages inside nondescript, temperature-controlled facilities just across the river in New Jersey. The largest among them — a 338,000-square foot data center in Secaucus — provides storage space for servers owned or leased by thousands of companies including Nasdaq, the New York Stock Exchange (NYSE), Bloomberg LP, and the Chicago Board Options Exchange, plus telecommunication companies and brokerage firms. Densely packed data centers like this one make it possible to trade stocks on a smartphone, as all the intermediaries needed to complete such a complex transaction are housed in this data center. This particular mega data-center is so vital to the U.S. financial industry that it requires five security checkpoints to reach the servers themselves and contains multiple backup options in the event of a power outage.
While the revenue potential is impressive, further study of the state-level proposal is necessary. For instance: How would this tax be structured? Would it mimic the current fee on stocks and derivatives collected by the Securities and Exchange Commission (SEC) to fund the agency? Which entities would pay the tax: the data centers that provide the infrastructure for the servers, the exchanges or other financial firms that own or lease the servers, or the software companies that facilitate high-speed trading taking place on these servers? Besides potential legal issues that arise in taxing any interstate transaction, technical issues of how to appropriately tax the transactions also need to be thoroughly vetted. And designating taxable transactions of such vast swaths of financial activity could run into regulatory issues.
It may be worth exploring other ways to tax these data centers that do not involve the high-speed transactions themselves. Given the novelty of the proposal — no other state has implemented this tax since New York repealed theirs in 1981 — and the high probability of legal action against it, a tax on financial transactions is unlikely to generate revenue in FY 2021.
Of course, given the tremendous revenue potential and the likelihood that this tax would be paid by high-income people who own financial assets, NJPP supports efforts to craft comprehensive legislation to establish a financial transactions tax. We also recommend that state lawmakers allocate most, if not all, of the revenue toward paying off New Jersey’s outsized obligations. By dedicating funds to pension payments and debt service, large amounts of revenue would be freed up for investments in areas that benefit all New Jersey families, such as public education, health care, college, housing, and child care support, to name a few.
End Note
[1] New York A7791, introduced by Rep. Phil Steck (D), would repeal the state’s rebate of the stock transfer tax and use the revenue to maintain roads and bridges and fund various state programs. The tax, which was levied from 1905 to 1981 on the sale of securities, is 100 percent rebated to the industry under current law.
The following testimony, on the FY 2021 Revised Budget, was delivered to the Senate Budget and Appropriations Committee on September 11, 2020.
Chairman Sarlo and members of the committee. My name is Sheila Reynertson and I am a Senior Policy Analyst at New Jersey Policy Perspective. I am also testifying as a member of the For The Many coalition, which seeks to enhance equity through the tax code and raise adequate revenue to meet the challenges facing the Garden State.
With the initial pandemic outbreak behind us and the likelihood of another outbreak this winter, all signs are pointing to a long, drawn-out economic recovery. Unlike New Jersey’s last recession, low-income workers and small businesses have been hit the hardest by this crisis with cut hours, layoffs, or businesses shutting down entirely. Job losses thought to be temporary are now becoming permanent, which may reduce low-income and middle-class families’ earnings for years to come. This reality must be at the center of the state budget negotiations.
In fact, we implore the legislature to adopt a long-term approach to the state budget this year, to consider not just the immediate 9-month plan but the next fiscal year as well. How New Jersey policymakers respond to the needs of New Jersey families over the next 21 months will have enormous economic consequences for decades to come.
The legislature has a choice: prioritize racial and economic equity by helping New Jerseyans through a tough economic downturn or continue giving away massive tax breaks to wealthy households and millionaires. New Jersey may not be able to control the timing or severity of a second wave of the coronavirus, but policymakers do have tools to prepare and respond more effectively. Here are our top recommendations.
First, protect the state programs needed to meet the demands induced by the pandemic and the economic crisis that is still unfolding. After years of disinvestment and deep cuts, services and programs that support workers, students, children, and families continue to be under- or flat funded. The damage done was far from being fully repaired and then a global public health crisis struck. Legislators must plan for the full impact that has yet to hit the state. If that means borrowing to shore up the surplus, so be it.
Next, raise revenue quickly while making our income tax more progressive. It’s time to think big and bold — and aim high. There is no good reason why earnings between $500,000 and $5 million are taxed at the same rate. By raising the income tax on the wealthiest 5 percent of households, our state budget will no longer be balanced on the backs of working and middle class families.
We recommend adding four brackets to the state’s income tax and increasing rates on the state’s wealthiest households. This would raise more than $1 billion in new revenue each year for education, aid to cities and towns, and property tax relief for struggling households. The tax increase would be paid almost exclusively by New Jersey’s ultra-wealthy, with the top 1 percent – households with average annual incomes of $2.4 million – paying 85 percent.
This tax reform would also make New Jersey’s tax system more equitable, finally undoing the tax code’s upside-down nature, in which low-income and middle-class New Jerseyans have historically paid greater shares of their incomes to state and local taxes than wealthy residents.
To those concerned about losing high earners to another state, consider this: Based on the growth trend of high-income households over the past two decades, there is no reason to treat millionaires like an endangered species. In fact, New Jersey has proven itself to be a healthy and sustainable habitat for them as the state continues to gain millionaire-earning tax filers every year.
Successful corporations have a stake in bringing back New Jersey’s economy. The 2017 Trump tax cuts were a huge giveaway to big corporations and pass-throughs. Given the extraordinary circumstances we are facing, it is vital to make the corporate business tax surcharge permanent as a reliable and sustainable source of needed revenue to ensure a full recovery. We also support the Governor’s proposal of a five percent surcharge on Qualified Business Income for individuals earning over $1 million in income generated by pass-throughs. This would recapture a substantial percentage of a very generous deduction gifted at the federal level. Even with the surcharge, these individuals would still come out ahead.
Finally, we encourage the legislature to take this opportunity to restore fiscal responsibility. Just as our pension obligation is non negotiable, so is our need for sustainable budgeting without resorting to raids of dedicated funds and gimmicky one-time revenue raisers. To get back on track, we must adopt good budgeting practices recognized by credit rating agencies, like prioritizing a healthy surplus and rebuilding the Rainy Day Fund to avoid deep, harmful cuts in the future. States should set aside about 16 percent of total general fund spending for emergencies, according to the Government Finance Officers Association. New Jersey currently has 0 percent in its Rainy Day Fund.
Finally, NJPP thanks the Legislature for enacting a state-level Health Insurance Assessment tax which largely recaptures the recently repealed annual fee on health insurance providers and will support subsidies for New Jerseyans purchasing health insurances. A small percentage of this windfall could also support efforts to make the remaining 80,000 uninsured children in New Jersey eligible for health insurance with the added bonus of $60 million in federal matching funds. We know these kids are at risk for poorer health outcomes and school performance. It’s time to cover all of New Jersey’s kids.
Welcome to NJPP’s Revised Budget Address FY 2021: Rapid Reaction, your source for commentary and data analysis on Governor Murphy’s address. The transcript below was taken from NJPP’s Zoom room and has been lightly edited.
Lou (Louis Di Paolo, Communications Director): Budget season gets a reset! For the second time this year, Governor Murphy delivered his budget address for Fiscal Year (FY) 2021 — this time to a socially distanced crowd at the Rutgers University football stadium. For context, New Jersey took the unprecedented step of delaying the budget deadline by three months to better assess the state’s finances after the COVID-19 outbreak. State lawmakers passed a three-month spending bill in June, which extended FY 2020, and this latest budget proposal would fund the state for the following nine months, starting October 1, for FY 2021.
Due to the economic fallout from COVID-19, New Jersey came into this fiscal year with an unprecedented multi-billion dollar revenue shortfall. In his proposal, Governor Murphy makes up for the drop in revenue with a combination of cuts, borrowing, and new revenue, including the millionaires’ tax and an extension of the corporate business tax surcharge.
Joining me in this budget reflection are policy analysts Sheila Reynertson, Brittany Holom, and Vineeta Kapahi. My first question: does this budget proposal meet the moment in responding to the COVID-19 health and economic crisis?
Sheila (Sheila Reynertson, Senior Policy Analyst): Given the extraordinary circumstances of this crisis in a state with outsized obligations, one would think that the Murphy administration’s hands were tied. But it turns out that their advantage was to embrace every option on the table. Faced with a $5.63 billion revenue shortfall, this budget turned a unique fiscal challenge into an opportunity to maintain and even grow some critical investments. With a targeted mix of new revenue, spending cuts, borrowing from the federal government, and even a healthy surplus, the budget proposal sets a solid foundation for a strong pandemic recovery.
Well, almost all.
It’s important to note, with disappointment, the absence of emergency assistance for our immigrant neighbors who have been left out of relief programs for more than 6 months. This proposal is also a missed opportunity to improve how New Jersey taxes inherited wealth.
Lou: My next question is for Vineeta and Brittany. Given that this is your first budget address with NJPP, what are your overall impressions of the governor’s budget address? What stood out to you?
Brittany (Brittany Holom, Senior Policy Analyst): Going into this, I was interested to see how the COVID-19 pandemic would shape the framing of the governor’s speech and the funding decisions in his budget proposal. I was worried that there would be a lot of short-term “patching” with the crisis, but I am glad to see instead that the lessons of the last recession are being recognized. It’s clear from this speech that the focus remains on the future of New Jersey rather than simple bandages hastily constructed during a tough time.
Vineeta (Vineeta Kapahi, Policy Analyst): Given the context of the current crisis, I was heartened to see that efforts have been made to keep many critical programs intact, like the Earned Income Tax Credit (EITC) and Child and Dependent Care Credit. In light of the unprecedented challenges that are disproportionately falling on low-income, Black, and immigrant communities, like Sheila, I was disappointed that the budget does not provide relief to people who have been left out of federal assistance (more on that later). The budget could also go further towards addressing the structural inequities that have allowed wealthy individuals and corporations to continue to gain disproportionate benefits, even during the pandemic.
Brittany: I was also surprised by the Bon Jovi soundtrack. Not that I minded it, I just doubt that’s the type of music that gets played when these types of speeches are given at the State House.
Lou: Brittany brings up a great point (well, two if you count her comment on Bon Jovi). It definitely seems like New Jersey learned its lesson from the Great Recession. Instead of cuts, cuts, and more cuts, Governor Murphy is proposing balancing the budget with roughly $1 billion in new revenue. This follows the recommendations laid out in an open letter signed by nearly 100 economists in New Jersey, which highlighted how targeted tax increases on wealthy families and big businesses would be better for the state’s economy than spending cuts.
So this question on revenue is for Sheila: How do you feel about the Governor’s revenue proposals? And as a follow-up, do they go far enough?
Sheila: The governor proposed a pretty solid list of new revenue streams, totaling $1.02 billion to help fund the recovery and create a more equitable tax code. It’s impressive that the state would be able to raise this much revenue without it affecting the vast majority of New Jersey families and small businesses. And most of these sources are sustainable, meaning they will be reliable funding streams for years to come.
That means that the wealthiest among us – millionaires and large corporations – need to pay their fair share in taxes, whether it be on income or in buying a yacht. #NJBudget
Lou: Definitely thrilled to see the millionaires’ tax in the governor’s proposal. Earlier this year, state lawmakers said they didn’t want to raise taxes on the top one percent of earners during a booming economy. Maybe this economic downturn — which has largely spared the wealthiest among us — will convince them that the tax code needs to change. We all know the state desperately needs the revenue. Any other tax changes worth highlighting?
Sheila: It’s also great to see a permanent extension of the corporate business tax surcharge on businesses that make over $1 million in profits a year. That will make a big difference for programs and services that may otherwise have been shut down, including programs that businesses themselves benefit from, like high-quality education and reliable roads and bridges.
The budget proposal also reverses sales tax breaks on limousine services and on yacht purchases, which will raise a combined $20 million. These tax breaks disproportionately benefit the wealthiest among us while robbing the state of critical revenue.
Lou: Wait, you’re telling me the yacht and limousine tax breaks benefit wealthy folks?
And there’s one new source of revenue that caught me by surprise: a five percent surcharge on certain federally qualified business income (QBI) for individuals with income greater than $1 million. But this isn’t a new tax — it’s a partial repeal of a very regressive tax policy that was included in the 2017 federal Tax Cuts and Jobs Act (TCJA). This will raise an estimated $75 million in FY 2021 and could raise much more in the future.
Brittany: Oh, and don’t forget the Health Insurance Assessment (HIA)! I know it was passed last month, but that’s more than $200 million to expand health coverage and keep insurance affordable.
Lou: Thank you for the breakdown, Sheila (and Brittany)! With this new revenue, New Jersey will be able to maintain investments in public services and programs that families across the state rely on. Along those lines, what investments are you all most excited about?
Vineeta: This budget maintains several programs that aim to provide stability for low-paid New Jersey residents. The governor committed to following through on the scheduled increase in the state EITC to 40 percent of the federal credit and to extending eligibility to certain young adults without qualifying children. I would have liked to see a boost in the credit amount for workers without qualifying children (the maximum credit is only $206 for this group!) and a commitment to addressing other barriers to the EITC, like including immigrant households that file taxes using an ITIN. The governor’s budget also maintains the Child and Dependent Care Tax Credit, which can help offset childcare costs. This program would be more impactful for those who need it the most if it were refundable; it would be great to see that happen next year.
Brittany: I’m excited to see the state’s commitment to affordable health care through support for critical Medicaid benefits and with state subsidies for our upcoming State Exchange. Making sure that more people can afford health care is key when many are losing access to employer-based health insurance. I am also happy with the continued commitment to addressing the stark racial inequities in our health care system with the public awareness campaign for Black infant mortality and increases in payments for certain providers and services that address inequities. I hope that, while there are unfortunate decreases in areas like the Charity Care program, these targeted investments will establish a foundation for a healthier future for all New Jerseyans.
Sheila: It is fantastic to see a full pension payment in the budget proposal. The recognition that New Jersey’s recovery is closely tied to child care availability and affordability for workers is another highlight that wouldn’t have even registered just a few years ago.
And finally, the most surprising proposal of the day, and one that puts New Jersey on the map as an incubator for new progressive policy, is baby bonds! Inspired by a federal bill by Senator Cory Booker, the proposal would provide a $1,000 deposit into a savings account for every child born in 2021 to families making up to $131,000 a year. Under Governor Murphy’s proposal, when the child reaches the age of 18 that appreciated bond becomes theirs to invest in higher education, a business, or a home.
Lou: Yes! The baby bond proposal was definitely a welcomed surprise. Was there anything else that surprised you in today’s address? Other than the tent interruption.
For the first time in New Jersey history, a flyaway tent has interrupted a governor’s budget speech.
Sheila: I know I have mentioned it already, but can I just state again how impressive it is to see this $2.2 billion surplus in this proposal. That’s 5.6 percent of the 9-month budget, compared to last year’s surplus at 4 percent of the 12-month budget. What that tells us (and credit rating agencies) is that the administration understands the limitations of borrowing from the federal government, as well as the importance of being able to handle revenue shortfalls should the state be hit by a second wave of the pandemic. This is smart budgeting and I am here for it. Brittany: I know I mentioned this earlier too, but I was surprised by the Bon Jovi exit music. While I appreciate the “It’s now or never” mentality, the framing of the address itself rang more “I’ll Be There for You.”
Lou: And what was missing?
Vineeta: At this critical time when thousands of New Jersey households are struggling to pay for basic needs like food and housing, the governor’s budget proposal fails to include relief for immigrants who have been excluded from federal pandemic assistance. Since the onset of COVID-19, immigrants have been calling on state lawmakers to provide support where the federal government has fallen short. Immigrants not only face the same challenges as other New Jerseyans, but they also have disproportionately high representation among essential workers responding to the current crisis and among industries that have experienced the most job loss due to COVID-19. I would have also liked to see an increase in funding for the Detention and Deportation Defense Initiative, which can only provide representation for a small fraction of low-income individuals facing detention and deportation at its current level.
Brittany: I second Vineeta’s point. With so many of our uninsured counting themselves amongst our immigrant, and particularly our undocumented, residents, the lack of a clear solution for getting our immigrant population access to care during this time left the picture of New Jersey’s future uncertain.
Sheila: It does bother me that in the middle of an uncontained pandemic that disproportionately hurts communities of color we still allow large concentrations of wealth and profits to grow unchecked. Wealthy heirs and multinational corporations receive massive tax breaks due to New Jersey’s weak taxation on inherited wealth and remaining loopholes exploited by multinational corporations to avoid state taxation.
** Brandon McKoy enters the chat **
Brandon (Brandon McKoy, President): Couldn’t agree more, Sheila. There’s a lot that the governor said today, appropriately, about the need to tackle racial inequality. He stated, “Ensuring fairness and justice in taxation is just as important as ensuring fairness and justice in society — in fact, it is an essential step in eliminating the structural racism in our society.” To realize that value fully, New Jersey needs to restore some of the wealth taxes that were eliminated under the Christie administration, especially the estate tax. The Center on Budget and Policy Priorities has produced incredible research that shows how fair wealth taxation is critical to closing the racial wealth gap. Until our state secures fair wealth taxation, we’ll continue to struggle in the fight to reduce racial disparities and structural discrimination against New Jerseyans of color.
Nonetheless, it’s nice to see a budget that generally promotes a positive vision of the future and pushes for maintaining — and even expanding — critical investments in programs, services, and assets that are central to growing our economy. It’s a welcomed change to how New Jersey responded to the Great Recession and I sincerely hope the legislature adds to this proposal to make it even stronger.
Earlier today, Governor Murphy delivered his revised Budget Address for Fiscal Year 2021. The $32.4 billion budget proposal covers nine months, beginning October 1, and closes New Jersey’s revenue shortfall with a combination of tax increases and borrowing from the federal government. In response to the budget address, New Jersey Policy Perspective (NJPP) releases the following statement.
Brandon McKoy, President, New Jersey Policy Perspective (NJPP):
“In the face of an unprecedented health and economic crisis, Governor Murphy’s budget proposal thoughtfully protects key state programs and services that workers and their families rely on. These investments — in public education, tuition assistance, tax credits for working families, and much more — are the building blocks of strong communities, a strong economy, and a strong recovery from the COVID-19 pandemic.
“Unlike state budgets passed during the last economic downturn, this proposal recognizes that New Jersey must balance revenue shortfalls by ensuring wealthy individuals and big corporations pay closer to their fair share in taxes. Every dollar raised through new revenue is a dollar we don't have to cut or borrow. These revenue streams will set a strong foundation for a stable recovery, as they provide the state with resources to keep the economy afloat and deliver critical relief to families and small businesses in need.
“This budget falls short in one key area: it neglects immigrants who have been excluded from state and federal pandemic relief. Immigrants play a huge role in New Jersey’s diverse communities and local economies and deserve their share of state aid. We urge state lawmakers to do more to ensure that no one is left behind in the state’s recovery, regardless of where they were born. Only then can we be sure that our recovery will be strong and long-lasting for all.”
Brandon McKoy, former President, was the chief executive of NJPP and led the organization's efforts in shaping policy debates to advance economic justice for the many, not a chosen few. Prior to being named President of NJPP in February 2019, Brandon served as NJPP's Director of Government and Public Affairs, where he designed and implemented the organization's outreach, advocacy, and government relations activities. He also produces timely, credible and accessible research and analysis on issues including, but not limited to, economic security, the social safety net and economic opportunity.
