NJ has more tax money now than ever. Why?

JOHN REITMEYER, BUDGET/FINANCE WRITER | MARCH 17, 2022

NJ Spotlight News

Two years after predicting the coronavirus pandemic would trigger historic revenue losses, Gov. Phil Murphy is instead once again rewriting his budget projections to account for soaring tax collections.

The Murphy administration’s latest forecast revision has added more than $4.6 billion to the budget’s bottom line for the fiscal year that ends in June.

That’s a substantial sum for a state that has historically had trouble keeping up with all its spending commitments, including the K-12 school-aid law, which hasn’t been fully funded in years.

The new forecast, detailed in budget documents made public last week, comes less than a year after another unforeseen revenue windfall helped New Jersey amass a more than $10 billion budget surplus despite the ongoing health crisis.

In all, state revenues will be up by more than 60% since the 2012 fiscal year, according to the latest projections detailed in the budget documents.

Surging revenues, record spending

The sources of this year’s windfall include all the state’s top categories of tax revenue. An improving job market has lifted income tax collections, while steady consumer spending and strong corporate profits are also contributing, the budget documents say.

But amid the state’s good fortune — Murphy’s proposed budget calls for record-high spending, totaling nearly $49 billion for the coming fiscal year — are concerns about how long the revenue hot streak will last, especially as the pandemic remains a major wild card.

“The economic outlook has improved recently for both New Jersey and the United States, though future strains of the virus may continue to influence the path of the economic recovery,” the Murphy administration noted in the budget documents.

Meanwhile, the surge in tax collections has also fueled Republican second-guessing of how Murphy, a second-term Democrat, is handling the budget and taxes. And GOP lawmakers have also begun calling for immediate tax relief to be sent to residents struggling with rising inflation and high gas prices.

In all, the revised tax-collection forecast for the 2022 fiscal year has increased the amount of revenue that is expected to come into the state budget before the end of June by more than 10%, to $46.9 billion.

Predictions were off

But it wasn’t that long ago that Murphy was predicting that the pandemic would create historic revenue losses not seen since the Great Depression. To prevent major budget cuts due to those projected losses, Murphy successfully lobbied lawmakers in 2020 to adopt a series of tax hikes, which remain in effect, and to authorize emergency borrowing without voter approval.

Roughly a year ago, the federal government also enacted a $2 trillion relief and stimulus package that funded a new round of direct aid payments for individuals and sent billions of dollars to the states to help them contend with the health crisis.

The aggressive federal intervention is one of the factors the Murphy administration cites in its latest summary of New Jersey’s improving revenue outlook made public last week in the budget documents.

The growth in sales tax revenue has been fueled, in part, by the federal stimulus payments, as well as by pent-up consumer demand following the worst months of the health crisis. Also helping has been sales-tax revenue collected from online shopping; the pandemic seems to have spurred a rise in the consumption of taxable goods, including online retail sales.

More than $720 million in state sales-tax receipts are expected to be generated via online sales through the end of June, according to budget documents. The overall sales-tax forecast for the same period has been increased by nearly $790 million.

Jobs regained

Meanwhile, another nearly $500 million was added to the forecast for the 2022 fiscal year’s income-tax revenue, the budget’s largest revenue source. That comes as the latest unemployment figures indicate New Jersey has gained back nearly 86% of the jobs lost when the onset of the pandemic triggered an economic downturn two years ago. It also follows a millionaires tax enacted by Murphy and lawmakers in 2020.

But the tax source that is seeing the biggest forecast revision is the corporate-business tax, or CBT, which has been upgraded by more than $1 billion. Murphy and lawmakers also hiked the CBT rate levied on the state’s top-earning businesses in 2020, when the state was still projecting deep revenue losses.

“The effects of the pandemic on corporate performance appeared to be shallower and shorter-lived than anticipated,” the Murphy administration noted in its more recent budget documents.

Overall, New Jersey’s latest tax-collection growth is outpacing the general trend line for revenues over the last decade or so, according to the budget documents.

The state collected less than $30 billion in tax revenue as recently as the 2012 fiscal year. The Murphy administration’s forecast for the 2023 fiscal year calls for overall tax collections to increase slightly, to $47.2 billion through the end of June 2023. That represents a more than 60% increase since the 2012 fiscal year, before adjusting for inflation.

New Jersey not alone

Nearly a quarter of the revenue growth has come just since the 2020 fiscal year, which is when the state suffered near-term losses at the onset of the pandemic, according to the budget documents.

New Jersey is not the only state to see a revenue surge in recent months despite the ongoing health crisis.

A fiscal brief published earlier this month by the National Conference of State Legislatures indicated 25 states are projecting revenues that will exceed forecasts, some of which have already been revised upward. And no state has indicated that it is expecting to come up short of a revenue forecast this fiscal year, according to the NCSL brief.

For his part, Murphy wants to use a portion of New Jersey’s revenue windfall to do more to help the state retire some of its significant bonded debt and to fund large-scale projects on a pay-as-you-go basis to obviate the need for issuing new long-term debt.

Budget documents also indicate Murphy is seeking approval for nearly $1 billion in supplemental spending before June, although the administration has yet to disclose a list of the individual items of added spending.

The governor is also seeking to increase the size of the state’s undesignated budget surplus, and spending on direct property-tax relief credits would also rise to nearly $900 million during the new fiscal year under Murphy’s budget plan.

Republican proposals

Republicans have put forward their own ideas in recent weeks as they’ve also been criticizing Murphy for “overtaxing” residents. These proposals include an immediate $500 tax credit to all families with annual incomes under $250,000 rather than waiting for Murphy’s proposed increase in direct property-tax relief to be distributed next spring.

Republicans are also calling for an unlimited state income-tax write-off for local property taxes — the state write-off is currently capped at $15,000 — and for income-tax bracket indexing, which would prevent inflation from triggering tax hikes that erode the value of any wage increases residents may have seen in recent years.

However, a recent report from the Washington, D.C.-based Tax Policy Center may provide some reason for state policymakers to be cautious as they consider enacting permanent tax cuts and other policy changes during the near-term surge in revenues.

“The longer-term outlook for state and local budgets remains uncertain depending on state actions, especially as federal assistance programs end and as temporary changes caused by the pandemic wane,” the report said.

“States will continue to face long-run spending pressures caused by an aging population, rising health care costs, and the growing threats of climate change-induced natural disasters,” the report went on to say.

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published this page in News and Politics 2022-03-17 04:41:42 -0700