The corporate business tax increase being pushed by state Senate President Steve Sweeney and Assembly Speaker Craig Coughlin does a lot more than just counter Gov. Phil Murphy’s millionaire’s tax.
The bill, a copy of which was obtained by ROI-NJ, includes more than just the two separate corporate tax hikes, which are tied to companies’ size. It also includes a tax on monies repatriated under President Donald Trump’s federal tax reform, which was used as the basis to justify the bill, and allows for certain exemptions for entities such as international banks.
In a media briefing Monday, Sweeney (D-West Deptford) and Coughlin (D-Woodbridge) said the bill raises the current 9 percent blanket corporate tax rate to 11.5 percent for businesses with revenues from $1 million to $25 million, and 13 percent for companies with revenues over $25 million.
These increases are scheduled to expire after two years, but, until they do, would give New Jersey the highest corporate business tax in the country.
The tax bill is separate from the Legislature’s budget bill, but the revenues generated by the corporate tax are dedicated to the budget.
Those revenues may be greater than originally thought, too, according to Michele Siekerka, CEO and president of the New Jersey Business & Industry Association.
The bill, she said, doesn’t just tax any revenues after $1 million, it taxes every dollar of a company’s revenues once they surpass $1 million.
Siekerka said this was stunning.
“We understood from the beginning that a surcharge (tax hike) meant $1,000,001 and up,” she said. “(But) when you go up to a $1,000,001, you go back and tax the entire amount from dollar one. So, you’re talking about 13 percent on dollar one all the way up. That’s a significant difference.”
There’s more, she said.
“One other piece is you’re not allowed to use any of your credits, exemptions or carry-forward on this,” she said. “So, what that also means is that these companies, when they reallocate their dollars for 2017, they are going to have to restate their earnings. These are SEC companies, and that will have an impact on the market.”
Sweeney and Coughlin said the corporate business tax is estimated to raise $805 million in additional revenue for the state.
But Siekerka said the proposed bill, based on what she has seen of the draft, would net the state far more than that.
Taxing monies repatriated under the federal tax reform at 9 percent — this includes cash assets from 1986-2017 that were housed overseas — could mean big revenue for the state and big bills to companies.
“The dollars attached with that are much larger than they think it is,” Siekerka said. “This bill has much more revenue than you need to fill the gaps that you have.”
Siekerka and Tom Bracken, CEO and president of the New Jersey Chamber of Commerce, testified in opposition to the tax hike at the Assembly Budget Committee hearing Tuesday.
Sweeney defended the corporate tax hike as a way to capture the “windfall” that companies have been given with the federal tax reform, but Bracken and Siekerka said that money already has been allocated.
“What is clear to me is they need money,” Bracken said. “They had to get it from someplace. Millionaire’s tax, CBT, neither are good. One or both is going to happen. So, the point we were trying to make is, you have to understand how this affects the future business of New Jersey.”
Legislative leaders have indicated there are enough votes to pass the corporate tax bill in both houses, as well as override a veto by Murphy.
But there appeared to be more of an appetite for the millionaire’s tax than the corporate tax.
Assemblyman John DiMaio (R-Bridgewater) voiced as much at the end of the Assembly hearing Tuesday.
“I’m disappointed with the increase in the CBT,” he said. “We are in the middle of a dynamic area of the United States of America. Positioned between Philadelphia and New York City. We should be the economic monster that grows faster than we can measure, and I just can’t help but realize that, as we make this move — and I truly hope it’s temporary — that we aren’t keeping more new businesses from coming in.”
DiMaio said it goes back to economic philosophy.
“Businesses are the people who create the jobs, the good-paying jobs most of the time, that create our economy in New Jersey,” he said. “We don’t create an economy in New Jersey by hiring more public workers.”
Assemblyman John McKeon (D-Madison) also expressed support for the millionaire’s tax.
“I still am not understanding why the millionaire’s tax isn’t a part of our revenue sources,” he said. “(It’s) $765 million, probably even more than that this year, with everyone deferring income because of the fact of the federal tax cuts. And we know, statistically, millionaires don’t leave. And they’re to be celebrated, I don’t mean it any other way than to be celebrating their success, but they don’t leave.”
McKeon said that, instead of going on with the millionaire’s tax, the Legislature’s solution seems to only be matching Murphy’s budget with the corporate business tax.
“I’m very proud of this budget for a lot of reasons … but I have to say I am disappointed on the revenue side of this,” he said. “The governor proposed to us $1.4 billion of what would have been recurring revenues — not like that is enough to meet where we have to be three years from now, but at least it was a part of the solution.”
McKeon said he worries how that will play out moving forward. That is, where will this revenue come from when the bill goes away in two years.
Siekerka and Bracken stressed having the highest corporate business tax in the country would not only damage to the state’s reputation, by it will impact its ability to compete with other states that are actively trying to attract New Jersey businesses.
“How does (the bill) positively impact affordability, competitiveness and outmigration?” Bracken said. “It does not.”
The very same companies the state wants to increase taxes on are the types of companies it wants to bring in — so, this may be a deterrent, Bracken said.
Siekerka said these companies also have other pressures in New Jersey, including a $15 minimum wage, paid family leave and paid sick leave.
“These are complicated issues, and we need the time to talk through and digest them,” she said.
The bill passed committees in both houses and will next be voted on in the Senate and Assembly floors.
Read more on ROI-NJ:
- Is N.J. headed for highest corporate tax rate in country?
- Murphy vs. Legislature: Upcoming budget battle may be as much about party as state (Editor’s Desk)
- NJBIA, state chamber insist higher taxes would exacerbate, not alleviate, N.J.’s budget woes