Budget plan includes 2-year Corporation Business Tax surcharge and tax amnesty, relies on health care savings and efficiencies to avert further tax increases
TRENTON –Senate Budget Chair Paul Sarlo (D-Bergen) today announced a $36.2 billion budget appropriation that provides more property tax relief and school funding than the Governor’s proposed budget, at the same time it restores cuts to programs for abused women and children, the developmentally disabled, cancer research and prisoner reentry programs, among other Democratic priorities. The plan includes a surplus of $756.9 million.
“This is a responsible budget that reflects our priorities and values,” said Senator Sarlo. “Compared to the Governor’s Budget, we provide almost $250 million more in property tax relief by increasing state aid to education and restoring full homestead rebates for senior citizens and middle-income New Jerseyans. We not only fund pensions and NJ Transit, but also restore funding for all of the social service programs the Governor cut.
“We are being smart about how we raise taxes and by how much,” Senator Sarlo said. “The two-year Corporation Business Tax surcharge we are imposing on C-Corporations making more than $1 million a year in New Jersey will be borne mostly by multinational corporations headquartered out of state and by foreign and out-of-state investors – unlike a millionaire’s tax and across-the-board sales tax increase that would come mostly out of the pockets of New Jerseyans.”
The budget bill calls for a 4 percent Corporation Business Tax surcharge on C-Corporations earning more than $25 million in profit in New Jersey and a lower 2.5 percent surcharge on corporations making between $1 million and $25 million. The tax would raise $805 million, but corporations would be able to deduct $169 million of that amount from their federal taxes.
“C-Corporations making over $1 million in New Jersey are getting a $2.85 billion federal tax cut from Congress, and our plan recaptures a net $636 million of that corporate windfall,” Senator Sarlo said. “This bill exempts small businesses, including the emerging tech companies we want to attract, by exempting the 42,000 corporations earning under $1 million. It also exempts all of the S-Corporations, LLCs and partnerships who make up 80 percent of our small businesses, and would have been hit hard by an increase in the general sales tax or the millionaire’s tax.”
Senator Sarlo said the Legislature’s reliance on the Corporate Business Tax and other General Fund revenues eliminates the structural imbalance between shrinking General Fund revenues and growing Gross Income Tax receipts that can only be used for property tax relief programs; the Governor’s budget, with its inclusion of a $750 million increase in the income tax on millionaires, would make the problem worse.
“We put in just about every one of the Governor’s priorities – which generally match our priorities — including $57 million more for preschool, a net $98 million budget increase for NJ Transit to improve service and avert a fare hike, an increase in the Earned Income Tax Credit, and a new Child and Dependent Care Tax Credit,’ Senator Sarlo said. “But we do it without raising more taxes than needed.”
Senator Sarlo noted that the Legislature’s budget includes more than $240 million in health care savings, much of it from the new Pharmacy Benefits Manager and Medicaid Advantage contracts that the administration issued earlier this month.
“We’re going to be aggressive about finding cost savings this year and in the future, particularly in health care costs,” said Senator Sarlo. “We’re going to get great savings for FY20 by bringing in independent Third Party Administrators to monitor health insurance overcharges.
“This budget is just the beginning of what is going to be an ongoing effort to make New Jersey more competitive and affordable,” said Senator Sarlo, who co-chairs the bipartisan Economic and Fiscal Policy Working Group that will be coming in with recommendations for long-range cost savings and budget efficiencies this summer.
The Senate & Assembly Democratic Budget Plan FY19 – An Outline
- The Budget: The Legislature’s FY 2019 budget appropriates $36.20 billion and is supported by $36.96 billion in total revenues.
- The Surplus: The Legislature’s Budget contains an FY 2019 Closing Balance of $756.9 million or 2.1% of total expenditures.
- Legislature’s Budget supports nearly every spending initiative proposed by the Governor in March:
- Invest in Our Future by increasing K-12 formula funding, expanding Pre-K, improving STEM education, planning grants as a first step toward free county college and strengthening higher education student aid programs like TAG and EOF;
- Fulfill Existing Promises by making 6/10 pension payment and increasing school funding;
- Drive Economic Growth by increasing funding for NJ Transit, upgrading IT infrastructure, increasing EITC, creating Child & Dependent Care Tax Credit, raising property tax deduction cap, reinvigorating Workforce Development Partnership Program, and strengthening community development programs;
- Affirming NJ Values by confronting gun violence, protecting women’s health, continuing to address opioid epidemic, expanding autism services, and restoring environmental programs eliminated by previous Administration.
- Legislature’s Budget includes new revenue initiatives proposed by Governor in March to support State budget.
- Corporation Business Tax – Various decoupling changes due to federal tax reform and one-time tax on deemed repatriation of foreign-held assets.
- Gross Income Tax – Carried interest fairness fee to end unjust advantage for Wall Street Earnings.
- Sales and Use Tax – broadens base to incorporate transient accommodations through marketplace providers like AirBnB and levies new notification and reporting requirements on remote sellers who make taxable sales to NJ resident but do not maintain physical presence.
- Other Taxes – imposition of new taxes on electronic cigarettes and liquid nicotine and per ride fee on ridesharing services such as Uber and Lyft.
- Revenue sources:
- 2-year CBT Surcharge on Millionaire Businesses, 2.5% on businesses w/ net revenue greater than $1 million but less that $25 million; and 4% on businesses w/ net revenue greater than $25 million;
- Tax Amnesty;
- Savings opportunities & cost-cutting initiatives;
- Higher revenue assumptions.
- Savings Opportunities– New PBM Contract 1/1/2019 ($100 million); Early Repricing PBM ($50 million); SHBP/SEHBP/PBM Forensic Audit Recoveries ($20 million); and Medicare Primary Audit ($50 million).
- Cost-Cutting Initiatives– Assume SEHBP Reforms ($43 million); Unnecessary State House Debt Service ($13 million), PBM MAC List ($5 million).
- Higher Revenue Assumptions– OLS Sales Tax Projection ($54 million); Sports Betting (additional $12 million for a total of $25 million); and CBT ($200 million as a result of federal tax changes).
- Legislature’s Budget does contain differences from Governor’s Proposed Budget:
- Legislature’s Budget does not include phase one of the Governor’s Tuition Free Community College ($45 million). It does, however provide $5 million in planning grants to county colleges as a first step.
- Property Tax Relief:
- Restoration of Homestead Benefit Program ($154 million);
- Restoration of funds to Affordable Housing Trust Fund ($15 million);
- Additional K-12 formula Aid ($64.5 million).
- FY 2019 School Aid:
- In addition to the Governor’s proposed $283 million increase, the Legislative budget adds $64.5 million;
- Shift additional aid proposed for overfunded districts to underfunded districts;
- In addition, overfunded districts would be reduced by 5% with a $3.5 million loss cap for all districts;
- All underfunded districts would at a minimum receive 58% of total State funding under the formula;
- Limit reductions to 13 districts that have “overburdened” property tax bases (according average State property tax rate) in order to maintain constitutionality.
Democratic Priorities; The Legislature’s Budget also includes funding to restore Legislative spending items cut by the Governor, providing state support for an array of services and programs that address the needs of the most vulnerable, aid those experiencing hardship and expand opportunity for the disadvantaged.