N.J. Democrats looking for cuts in public worker health care costs instead of Murphy’s millionaires tax

Updated Apr 2, 2019

The state Senate budget chairman said Tuesday the Legislature will be looking to replace Gov. Phil Murphy’s $447 million in proposed new revenue from higher taxes on millionaires with spending cuts.

Sen. Paul Sarlo, D-Bergen, said legislative leaders feel strongly that new or increased taxes should be considered only as a last resort and he will be looking for ways to avoid imposing a millionaires tax, which has fallen out of favor with Democratic lawmakers.

He said finding savings with cuts to public worker health care costs is on the table.

“Let’s explore every opportunity, every avenue to find cost-savings measures, especially in the area of health care, that will negate the need for the millionaires tax,” Sarlo told reporters Tuesday at the conclusion of a Senate Budget and Appropriations hearing in Trenton.

Murphy is pushing for an expanded millionaires tax to finance added spending on k-12 education, government worker pensions and public transit next fiscal year.

He also attempted to raise the top tax rate on income over $1 million to 10.75 percent last year but ultimately settled for taxing income over $5 million at the higher rate instead.

The Legislature also agreed to a temporary surcharge on corporate income, but top lawmakers made clear they do not want to inflict anymore pain on the well to do.

About 39,000 taxpayers — 20,000 residents and 19,000 nonresidents — would have to pay the millionaires tax, compared to only 1,760 taxpayers who are now paying more under the higher tax that kicks in on income over $5 million.

On Tuesday, Sarlo emphasized the risk that comes from relying on a tax on high earners. A millionaires tax would expose the state budget to even more risk in the event of a recession, he said.

Studies show income from high earners is also much more volatile than low-income earners, and it can prompt big losses in state revenue during an economic downturn.

While Treasurer Elizabeth Muoio told the committee that volatility underscores the need for the state to build up its budget reserves, Sarlo said it is reason to shun the millionaires tax.

“If there is a slight or moderate recession that is coming down, a millionaires tax is not a sustainable revenue that you can count on,” he said.

Sarlo said Democrats do not have a specific plan to cut spending, but a plan released last year by Senate President Stephen Sweeney provides a blueprint for the Legislature to follow.

Murphy’s proposed budget includes $800 million in reduced spending on health care, through a combination of audits, contract rebidding, contract negotiations with unions, out-of-network reforms and shifting retired educators to Medicare Advantage.

Last week, Sweeney, D-Gloucester, proposed moving educators enrolled in the School Employees Health Benefits Plan into the less expensive State Health Benefits Plan.

While the vast majority of savings will be recorded by local school districts and teachers themselves, the state could see lower costs too because it pays retiree health care costs, Sarlo said.

Sarlo asked Muoio during the hearing if the administration would be receptive to cuts to offset the revenue from a millionaires tax and if she would support the merger of the two health care systems.

“We’re constantly looking for savings,” Muoio said, but the governor has offered his steadfast support for collective bargaining and believes any benefit reforms should be negotiated with public-sector unions.

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