Murphy’s First Budget Is Focused on Progressive Policies and New Taxes

TRENTON — Gov. Philip D. Murphy unveiled his first budget proposal on Tuesday, a $34.7 billion spending plan that reads like a wish-list-come-true for his liberal base and reflects the progressive agenda he campaigned on, and that also seeks to bring relief to frustrated riders of New Jersey’s sputtering commuter rail.

The budget proposed by Mr. Murphy, a Democrat, would use tax increases and new taxes to generate $1.5 billion in revenue to help pay for his ambitious plan, which included restoring the earned-income tax credit, significantly increasing funding for schools, expanding preschool and making community colleges tuition free. He also wants New Jersey to join the growing ranks of states that have legalized the recreational use of marijuana.

“For everyone who cares about common-sense gun safety laws, a 100-percent clean energy future, women’s health care, the rights of our L.G.B.T.Q. brothers and sisters, or immigration policies that are sensible, that allow diverse and safe cities to flourish, the pull of New Jersey will become inescapable,” Mr. Murphy said.

But Mr. Murphy’s ability to pay for much of his spending plan, which represents a 4.2 percent increase over the current budget, will hinge on his proposal to raise taxes on those making over $1 million, a notion that has met stiff resistance in the Legislature, even though both chambers are controlled by Democrats.

“Yes, a millionaire’s tax is the right thing to do — and now is the time to do it,” Mr. Murphy said in a nearly-hour long address in the State House.

While much of Mr. Murphy’s spending plan focuses on his progressive promises and are a departure from the priorities of his Republican predecessor, Chris Christie, the governor is also seeking to reverse the precipitous slide of New Jersey Transit, the state’s public transit agency, which Mr. Murphy has called a “national embarrassment.’’

Mr. Murphy said that his proposal relies on several new taxes: restoring the state sales tax to 7 percent from 6.625 percent, closing the carried interest tax loophole and raising the marginal income tax rate on those making over $1 million to 10.75 percent from about nine percent.

The so-called millionaire’s tax has become a political lightning rod for the governor as his nascent administration navigates entrenched political power bases in the state Legislature. Stephen M. Sweeney, the Senate president, opposes the new tax and he has numerous allies who often vote with him.

In fact, Mr. Murphy may find a tough road ahead as he tries to put his imprint on the state. Here’s a look at some of his proposals:

THE MILLIONAIRE’S TAX: Raise marginal income tax rate to 10.75 percent for those making more than $1 million. Projected revenue: $765 million.

While Mr. Christie was still in office, many Democrats, including Mr. Sweeney, supported Mr. Murphy’s proposal to raise taxes on the wealthy. But because the new federal tax law caps a key tax deduction on property taxes and mortgage interest, Mr. Sweeney and other Democrats argued that any new tax would be untenable.

The standoff has soured the already frayed relations between Mr. Murphy and Mr. Sweeney. Last week, Mr. Sweeney announced a proposal to raise taxes on corporations. Mr. Murphy called the proposal interesting, but vowed to pursue his proposal. This will likely be the biggest sticking point during budget negotiations for the next fiscal year, which starts on July 1.

SALES TAX: Restore the sales tax to 7 percent from 6.625 percent. Projected revenue: $581 million

As part of the negotiation to raise the gas tax in 2016, Mr. Christie won a reduction in the sales tax from 7 percent to eventually 6.625 percent in 2018. Mr. Murphy said that the savings were “imperceptible” to the average resident.

Mr. Murphy is also proposing new taxes, separate from the sales tax, on disruptive tech services like Airbnb, Uber and Lyft, as well as out of state online retailers.

MARIJUANA: Legalize recreational use by Jan. 1, 2019 and expand medical marijuana. Projected revenue: $80 million

Mr. Murphy’s campaign pledge to legalize marijuana was lauded by progressive supporters but since he took office he has faced fierce opposition from religious leaders, wary Democrats and some municipalities, and he lacks the support in the Legislature to pass a bill.

NEW JERSEY TRANSIT: A $242 million increase in the state’s subsidy

Mr. Murphy said he would direct $242 million in new funding for the agency, an amount that marked a 172 percent increase over Mr. Christie’s final budget.

The new revenue would be used to improve existing services and provide more training, though it was unclear if any would be used to accelerate the installation of a federally mandated braking system. The agency is also receiving $75 million less from the state’s Turnpike Authority, reducing its overall increase.

PENSIONS: A $3.2 billionpayment for the state’s pension obligation, a 28 percent increase from lastyear

New Jersey’s unfunded pension liability led to to the 11 credit downgrades under Mr. Christie. Mr. Murphy pledged to reverse that and the $3.2 billion is a step in that direction.

SCHOOL FUNDING: A total of $14.9 billion in spending, including an increase of $341 million in public school aid, $57 million for preschools and $50 million for community colleges.

The $14.9 billion in education funding represents a $933 million increase over last year, according to the governor’s office. While the majority of that money will be used to maintain school budgets, Mr. Murphy did include a $283 million increase to the school funding formula, which his office says will result in 94 percent of districts receiving more aid.

“Think about this — when we have achieved these objectives, New Jersey will set a standard for the nation by providing free access to an education for everyone from pre-K all the way up through to an associate degree,” Mr. Murphy said. “We will be the only state in the nation that does what I just said.”

PROPERTY TAXES: Raise the deduction for local property taxes to $15,000 from $10,000. Projected cost: $82 million

After the federal tax law capped state and local tax deductions at $10,000, Mr. Christie and other Republicans proposed eliminating the state cap. Mr. Murphy initially resisted and the $15,000 limit represents a compromise.









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