In an effort to pull in more revenue for New Jersey, Gov. Chris Christie revoked a nearly 40-year tax agreement with neighboring Pennsylvania.
Christie announced late Friday that Pennsylvania residents who work in New Jersey will now be taxed, putting an end to a "reciprocity" arrangement with the Keystone State first put in place in October 1977.
The Republican governor blamed the legislature's Democratic majorities for opening a $250 million budget shortfall by failing to make public employee healthcare insurance cuts. Ending the tax pact is estimated to bring $180 million of new revenue, according to New Jersey Department of Treasury spokesman Joseph Perone.
"Today's action was made necessary by the legislature irresponsibly creating a $250 million state budget hole in June," said Christie in Friday's statement. "I am left with the least painful option I have to fulfill my constitutional duty to balance the budget for New Jersey taxpayers."
Structurally unbalanced budgets and a rising unfunded pension burden have led to nine credit downgrades since Christie took office in 2010. New Jersey is rated A2 by Moody's Investors Service and A by Fitch Ratings, S&P Global Ratings and Kroll Bond Rating Agency. Only Illinois has a lower rating of the 50 U.S. states.
"The Governor's decision to focus on turning a quick buck instead of finding sustainable solutions to our budget problems continues to hurt our state and our residents," Assembly Majority Leader Lou Greenwald, D- Lindenwold, said in a statement responding to Christie's decision. "New Jersey's high cost of living already causes residents to flee our state, it makes no sense to needlessly raise taxes on working families."
The discontinuation of the reciprocal tax pact has a far different impact on Pennsylvania, which has a flat income tax rate of 3.07% compared with New Jersey's rates ranging from 5.52% to 8.95% for those earning over $40,000. Jeffrey Sheridan, press secretary for Pennsylvania Gov. Tom Wolf, said the move will cost the commonwealth $5 million a year and that the Democratic governor hopes Christie reverses his decision.
"Governor Christie has erred significantly in his decision to unnecessarily punish 125,000 Pennsylvanians and cost the commonwealth $5 million annually," said Sheridan in a statement. "Unfortunately, it seems that Governor Christie is committed to making Pennsylvania and our residents working in New Jersey suffer the consequences of his failure to enact a responsible budget in a bipartisan way."