Murphy wants $1.6 billion in new taxes to fund schools, transit

Gov. Phil Murphy unveiled the price tag for his ambitious first-year agenda of pumping money into schools, college tuition aid and mass transit: $1.6 billion in new taxes that will hit the paychecks of the wealthy and retail purchases of everyone in the state.

In his first budget proposal as governor, the 60-year-old Democrat outlined how he intends to make good on campaign promises such as raising the minimum wage to $15 an hour, legalizing marijuana, providing free community college tuition and restoring troubled NJ Transit.

The cost would fall on every taxpayer in the form of 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. And Murphy is proposing new taxes on ride-sharing services like Uber and Lyft, home-sharing sites like Airbnb, legal marijuana sales and investment profits.

"Here is our inescapable reality — we need this revenue to get things right," Murphy told lawmakers at the State House. "We cannot afford to remain stuck, uncompetitive and unfair. This is the time for us to make our state stronger while we forge ahead with long-term solutions and investments that ensure fairness."

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Murphy's first budget represents a sharp break from the fiscal priorities of his Republican predecessor Chris Christie. Murphy's so-called millionaires tax, which aides said would apply to about 20,000 residents and 19,000 non-residents, comes after Christie vetoed several bills throughout his tenure that would have raised the rate on the wealthiest earners. Murphy's budget proposal includes a 25 percent excise tax on legal marijuana sales on top of the sales tax, an idea Christie strenuously resisted throughout his eight years in office.

And Murphy proposed putting $3.2 billion toward the state's troubled pension fund, up from the $2.51 billion that Christie included in his final budget. Even Murphy's proposed increase fails to keep up with the trend in expected pension payouts, meaning that New Jersey continues to slip behind in its long-term obligations.

All in all, Murphy is proposing an 8 percent increase in expenditures over Christie's final budget, an unprecedented amount for a period of below-average growth. Acting Treasurer Elizabeth Maher Muoio noted that state revenue remains 6 percent below the pre-2008 recession peak, whereas most other states have reached record highs.

The budget anticipates a surplus of $743 million, which could give Murphy cover if parts of his agenda – for example legal marijuana sales, which Murphy anticipates in January 2019 – don't pass the Legislature this year.

Murphy's plan now goes to a Democratic-controlled Legislature whose leaders have not embraced all components of his agenda.

More for schools

The governor is proposing $14.9 billion for public schools, which includes a $341 million increase in funding for pre-kindergarten programs and aid to lower-funded districts. Murphy's staff said 94 percent of districts would receive additional money. Such state aid to schools can help offset possible increases in local property taxes.

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Murphy also proposed $50 million in additional tuition aid for low-income students bound for community colleges, which he called a down payment on his pledge to make community college tuition-free by 2021.

The governor maintained his support for the millionaires tax even after Senate President Stephen Sweeney, D-Gloucester, backed off his own support after a new federal tax law reduced deductions claimed by wealthy New Jerseyans. Sweeney instead proposed higher taxes on corporations, an idea that Murphy didn't reject outright but also didn't include in his budget proposal. Instead, Murphy proposed closing "loopholes" in the corporate business tax.

Murphy and his aides said few people would notice the higher sales taxes — the rate was 7 percent before January 2017 — and that higher taxes on millionaires is an idea broadly popular among those who don't have to pay them.

New Jersey already has the nation's third-highest total state and local tax burden, according to the nonpartisan Tax Foundation.

The governor did propose targeted tax breaks as part of what he called an attempt to make the system fairer. He would increase the earned income tax credit to 40 percent of the federal credit from 35 percent over three years, which aides said would help more than 510,000 low-income families. Murphy also suggested a child and dependent care tax credit for families with incomes of less than $60,000. He also proposed raising the property-tax deduction from state income taxes to $15,000 from $10,000, which he said would help more than 500,000 taxpayers.

Sweeney avoided reporters following the speech and deferred to a joint statement he released with Senate leaders lauding the "many Democratic priorities" included in Murphy's budget but also cautioning that other "ambitious" plans "will require thorough review and consideration to determine if they are achievable."

Assembly Speaker Craig Coughlin, D-Middlesex, declined to discuss specifics in a brief availability with reporters.

"We're going to look forward to doing what I think is right and best," Coughlin said.

New spending bills must come from the Assembly. The chamber's majority leader, Louis Greenwald of Camden County, suggested that Murphy's more ambitious proposals, like the millionaires tax and restoring the sales tax, are not top priorities this fiscal year. More pressing, he said, is determining the effects of President Donald Trump's tax reform law and taking a close look at the state's own tax structure.

"I don't believe that we should be having a conversation around any taxes until we finish our work on the fiscal review of tax reform and how that plays in to make New Jersey competitive to other states," Greenwald said.

Republicans, who are in the minority in both the Senate and Assembly, expressed opposition to both tax proposals. They argued that New Jersey, which already has one of the nation's highest tax burdens, can ill afford to add to the costs of individuals or companies.

"What tax did he not want to raise? That's what I'm trying to figure out," Assembly Republican leader Jon Bramnick of Union County said after the speech. “You kept hearing the same word: investment, investment, investment. Let me interpret that for you: That’s taxes, taxes, taxes.”

Staff writer Nicholas Pugliese contributed to this report.