New Jersey would generate more than $1 billion in annual income tax revenue if it raises rates on the state’s wealthiest households, according to a left-leaning policy think tank.
New Jersey Policy Perspective released a report Tuesday proposing the addition of four brackets to the state’s income tax and increasing rates on the state’s wealthiest five percent of earners. The proposal would add new brackets at income levels of $250,000, $750,000, $1 million and $2.5 million while also slightly raising rates for incomes above $500,000.
The top marginal rate would rise to 11% from 8.97%.
NJPP senior policy analyst Sheila Reynertson said such changes would raise $1 billion of new yearly revenue and result in $674 million paid by the state’s highest grossing homeowners after federal deductions.
All revenue raised from New Jersey’s income tax is constitutionally dedicated to fund property tax relief that includes school aid, teacher pensions and aid to municipalities. New Jersey last raised its top marginal rate to 8.97% on incomes over $500,000 in 2004.
A one-year surcharge was enacted in 2009 during the Great Recession moving the top 8.97% rate on income above $400,000, imposting a 10.25% rate above $500,000 and 10.75% above $1 million, which NJPP says raised $560 million for the state facing an “enormous” budget shortfall.
NJPP’s plan would be modeled after tax overhauls that California implemented in 2012, which Reynertson argues helped raise more than $8 billion of new yearly revenue and contributed to the Golden State erasing a $27 billion debt load. Reynertson noted that California has since experienced credit rating upgrades and last year voters overwhelmingly approved extending the income tax changes.
A deep pension burden and structurally imbalanced budgets in recent years have driven New Jersey to the seccond-lowest bond ratings of the U.S. states, ahead of only Illinois. The state’s general obligation debt is rated A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by both Fitch Ratings and Kroll Bond Rating Agency.
Potential tax policy changes in New Jersey could take on increased focus next year after Republican Gov. Chris Christie’s eight-year run in Trenton ends on Dec. 31. The race for New Jersey’s next governor features Republican Lt. Gov. Kim Guadagno against Democratic candidate Phil Murphy, a retired Goldman Sachs executive who served as ambassador to Germany under President Obama. Murphy, who is leading in the polls, has proposed instituting a millionaire’s tax if elected.