Phil Murphy not backing down on plan to drive up taxes, treasurer tells lawmakers

Gov. Phil Murphy is sticking to his plans to raise income and sales taxes even if higher-than-expected collections from income taxes due next week can pay for part of his agenda on their own, Murphy's state treasurer told lawmakers.



Facing skeptical lawmakers, acting Treasurer Elizabeth Maher Muoio said that even if a robust economy powers strong tax collections, higher taxes will be needed to cushion against future downturns.

"We still have needs in terms of building up our surplus," Muoio told the Senate Budget and Appropriations Committee. "To the extent that we bring in new revenues, we have to keep an eye on strengthening our fiscal position as a state."



Even Muoio's fellow Democrats were skeptical of Murphy's plans to raise taxes by $1.6 billion to compensate underfunded school districts, subsidize community college tuition for low-income students, increase pension funding and expand pre-kindergarten programs. After state budget analysts said tax collections were especially unpredictable this year, budget committee chairman Paul Sarlo, D-Wood-Ridge, said lawmakers should hold off on any new taxes.



"There still needs to be a stronger justification for new taxes," Sarlo told reporters after the hearing. "We're not there yet."

Murphy has proposed a 7 percent levy on retail sales, tied for the second-highest rate among states and up from the current 6.625 percent. High-income earners would see their state income tax rate increase to 10.75 percent, the third-highest in the country, from the current 8.97 percent. The Democrat also is proposing new taxes on ride-sharing services like Uber and Lyft, home-sharing sites like Airbnb, legal marijuana sales and investment profits.



In a forecast released Tuesday, the Office of Legislative Services said Murphy's projection of corporate business tax revenue is more than $200 million too high — which would blow a small hole in Murphy's plans to ramp up spending on state pensions, fight opioid addiction and provide tuition aid for community college students.

In testimony to the Senate budget committee, state budget forecasters noted that Murphy's spending plan rests on an especially thin fund reserve and could fall victim to variables such as a national economic downturn and accounting maneuvers by wealthy New Jerseyans to minimize the effect of a federal tax law that took effect this year.



State budget analyst David Drescher spoke of an "April surprise" that could upend planning for a budget that would take effect July 1.

The $208.2 million that budget forecasters say is too optimistic is more than four times what Murphy is proposing to send 15,000 low-income students to community college tuition-free and is nearly equal to the additional money the governor is proposing for K-12 schools.

The non-partisan Office of Legislative Services, however, says Murphy's administration is underestimating tax revenue from personal incomes and insurance premiums, making the total difference between its projections and Murphy's $176.6 million.

Any shortfall would force Murphy and lawmakers to choose between cutting programs and raising taxes.

In a criticism of Chris Christie's eight years as governor, Muoio said a tax policy focused on cuts has harmed the state's infrastructure and education -- which in turn has depressed economic growth.



"Not investing has not worked," she said. "We have not grown as a state."



Sen. Declan O'Scanlon, R-Monmouth, said Murphy's approach guarantees "massive tax increases" that would cause the state's wealthiest residents to flee and take their taxable incomes with them.



"At some point, you either crush the golden goose or it ... flies away to Florida. Either way, you don't get those golden eggs."

For the year ending June 30, the Office of Legislative Services said the state is in relatively good shape, with revenue likely missing estimates by about $3.4 million, or just .01 percent of the total. The major shortfall was in corporate taxes, while personal income taxes and insurance premium taxes are expected to exceed projections.

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