Budget agreement reached; shutdown avoided

The deal: No sales tax increase, millionaire’s tax only on those making more than $5M, four-year corporate business tax hike starts smaller (2.5%), gets cut to 1.5% after two years

By Anjalee Khemlani
Trenton | Jun 30, 2018 at 8:29 pm
Updated

State legislators and Gov. Phil Murphy finally reached a compromise late Saturday after five hours behind closed doors, capping weeklong negotiations to avoid a shutdown of the state government.

“Let me be clear, there will be no shutdown,” Murphy said Saturday night.

Included in the budget proposal are both a corporate business tax hike on companies with more than $1 million in revenue that will phase out after four years — starting at a 2.5 percent increase for the first two years and 1.5 percent for the last two — and a millionaire’s tax hike to 10.75 percent on individuals earning $5 million or more.

The deal represents a compromise for both parties. Murphy agreed to the $5 million threshold for the millionaire’s tax, as well as acquiescing to a corporate business tax hike — but at a lower rate than the 13 percent proposal that would have made New Jersey the highest-taxing state for businesses.

Michael Ein
Senate President Steve Sweeney, right, reached an agreement with Gov. Phil Murphy, left, on taxes in the state budget.

Senate President Steve Sweeney (D-West Deptford) agreed to a millionaire’s tax and reducing the level at which businesses would get taxed — but there will be no increase to the state sales tax.

The governor, flanked by Sweeney and Assembly Speaker Craig Coughlin (D-Woodbridge), said the agreement will help New Jersey prosper because of the increased revenue it will provide.

The governor said the millionaire’s tax would net $280 million while the corporate business tax would net more than $400 million.

The increase in revenue, according to sources, goes much higher. Those totals do not include an additional total from a tax on repatriated foreign assets, as well including the combined reporting rule — preventing companies from shifting incomes to other states — which would push the total revenues from the CBT to more than $800 million.

In an email late Saturday, the Department of Treasury provided more details.

Combined reporting would net the state $196 million, and a repatriation tax, retroactive to 2017, would net the state $200 million, plus an anticipated $40 million for the upcoming year.

That leads to a total of at least $861 million in total from the CBT.

And it does not take into account the additional taxes the state will receive on e-commerce sales, a bonus that came from a U.S. Supreme Court decision earlier this week.

Both Murphy and Sweeney said the agreement was a win-win.

“We ended in a very good place,” Murphy said.

Sweeney added, “The end game is what we all wanted.”

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Assembly Speaker Craig Coughlin also won some concessions in budget talks.

The deal also includes the homestead rebates that Coughlin wanted and a change to the school funding formula, which Sweeney wanted.

The negotiations had been ongoing since earlier this week. They escalated over an inability to agree on how much of a raise should be made to the millionaire’s income tax and the corporate business tax.

What started off as a standoff for either tax became a compromise on including both by Friday. Final negotiations began at 2:20 p.m. Saturday, and the deal was announced after 7:30 p.m.

“We had honest, blunt and sometimes heated, but civil, conversations,” Murphy said.

Sweeney said there was never a disagreement of where they wanted to go, “just how to get there.”

Coughlin said the budget was “balanced, fair and responsible.”

Both the Assembly and Senate called for a session Sunday at 8 a.m., following a caucus convening at 7 a.m. to vote to pass the new budget.

New Jersey Business & Industry Association CEO and President Michele Siekerka said the silver lining was that the state didn’t shut down.

But the business community is far from relieved.

“We should absolutely recognize that this is not being done in a silo, because New Jersey business is being hit with new mandates, through recent legislation, such as paid sick leave, new energy costs — to the tune of a few billion dollars — while business also faces down the future of a $15 minimum wage. This is all a big ask of business,” she said. “New Jersey businesses have been paying their fair share. This is a budget that is on the backs of New Jersey businesses.”

Siekerka added that the millionaire’s tax also affects small businesses in New Jersey, and, while the CBT isn’t enough to see a mass outmigration of the state, it will stagnate growth of businesses and jobs as a result.

But, the business community has been promised tax reform in return.

“Our ask is that, come Monday morning, you need to start that reform,” Siekerka said. “We need to see it being actively discussed. We need to know there is an end in sight for New Jersey business. The ask is that we need to discuss how we fund schools through local property taxes, which is the highest in the nation, and we need to look at pension and health care reform.”

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Montclair State professor Brigid Harrison said the budget woes raise concerns going forward.

Despite the agreement, one analyst said reaching the point of having six hours left before the deadline doesn’t bode well for the new governor.

Brigid Harrison, a political analyst and professor at Montclair State University, said it was too close.

“This whole process has been indicative of a really phenomenal degree of dysfunction between the governor and the legislative leaders,” she said “The fact that you had these competing conferences for days demonstrates that the governor’s office doesn’t understand Legislative Politics 101.

“You have to allow the legislative leaders to save face. I’m all for transparency, but the reality is that politics demands that people be allowed to look good in front of their constituents.”

A shutdown would have been indicative of the shallow support the governor has in the Legislature, she said.

“The administration is a new administration. At the end of the day, the acrimony that has continued to fester between the Murphy administration and the Senate president does not bode well for the rest of the governor’s administration,” she said.

Sweeney said the end result was worth the disagreements — and that the compromise came together because of the negotiations, not in spite of them.

“Changing course in New Jersey is never easy and the Legislature and the governor worked through this,” he said. “I am proud that the governor was willing to compromise. I appreciate the willingness to compromise; I think we all did.”

Murphy said the deal, no matter how it was reached, was a good one for the state.

“It is no secret New Jersey faces big challenges. They were not created overnight and they will not be solved overnight,” he said. “But this is a strong first step. I want stop fighting to make our tax system fairer, and I won’t stop fighting to make the investments are future demands.

“We have just started on this journey.”

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Anjalee Khemlani | akhemlani@roi-nj.com | AnjKhem