Gov. Phil Murphy (D) joined New Jersey Senate and Assembly Democrats in announcing June 21 an agreement on tax relief measures in the fiscal year 2022 budget as Republicans’ top Senate budgeter criticized the deal for not returning enough of the state’s record revenue windfall to taxpayers.
The Democrats’ agreed-upon items include property tax relief, an expanded child and dependent care credit, and expanded eligibility for the earned income tax credit, among other measures, according to Murphy, Senate President Stephen Sweeney (D-3), Assembly Speaker Craig Coughlin (D-19), Senate Budget Chair Paul Sarlo (D-36) and Assembly Budget Chair Eliana Pinto Marin (D-29). Their announcement follows days of negotiations.
“Tax relief is a critical component of a stronger and fairer New Jersey,” Murphy said in a joint press release. “With each budget I have introduced, we have provided greater relief to those who need it most —through our continued expansion of the Earned Income Tax Credit, the establishment and expansion of a Child and Dependent Tax Care Credit, increased tax relief for veterans, middle-class tax rebates, and now the long-overdue expansion of the Homestead Benefit to make sure relief reflects reality.”
Updated Homestead Benefit
The Democrats’ budget agreement would update how the homestead benefit, which gives property tax relief to eligible homeowners, is calculated. Murphy and Democratic lawmakers who control both the Senate and Assembly agreed to update the homestead benefit’s base year from 2006 to 2017—a change that they estimated would increase the average benefit for seniors and disabled homeowners by more than $130 and the average benefit for low-income homeowners by $145. The Democrats said in a press release that the estimated program cost is nearly $80 million.
Additionally, Murphy said the budget accord would expand the child and dependent care credit to make it available for families making up to $150,000 a year and refundable. They said the changes would benefit 80,000 more families and increase the average credit for those making under $30,000 annually to $277. Expanding the child and dependent care credit will cost an estimated $17 million.
“This is much-needed tax relief going to middle-class families, homeowners, senior citizens, veterans and the working poor and it comes at a time when it is needed by those who are struggling to emerge from the economic hardship of the pandemic,” Senate Budget Chair Sarlo said in the release.
Sarlo noted that New Jersey is enjoying unexpected revenue growth and said policymakers must be responsible in how they spend the funds, while making middle-income tax relief “a top priority.”
Tax Rebate Checks to Go Out This Summer
The Democrats said they agreed on a middle-class income tax rebate of up to $500 for over 760,000 New Jersey families as well. Eligible families will receive rebates over the Summer at an estimated cost of $319 million. Democrats said the rebate will be funded by revenue from Murphy’s “Millionaires’ tax.”
Last fall, the Democratic legislature gave approval to Murphy’s proposal to expand the reach of New Jersey’s top individual tax rate. Previously this 10.75% rate kicked in when income reached $5 million. Under the enacted change, the Garden State’s individual taxpayers earning between $1 million and $5 million saw their rates increase from 8.97 percent to 10.75% on that income, according to the Tax Foundation.
‘Ill-Advised’ or Boon to Working Families?
The group said that the tax increase on high earners would raise between $390 million and $450 million annually, once implemented, with $300 million going to annual rebate checks. The group added that under the rebate program, taxpayers earning under $75,000 annually, or $150,000 for joint filers, will receive up to $500 and said that the tax policy change is “ill-advised in normal economic times, but especially in the current crisis” brought on by the COVID-19 pandemic.
The group fretted that the tax increase would hit hard at passthrough businesses like S corporations, partnerships and sole proprietorships that pay taxes at the individual level—thereby stinging small businesses that already “are struggling to survive and meet payroll.”
Senate President Sweeney, though, focused on the benefit of the income tax rebate for the middle class.
“The income tax rebate will put money into the pockets of working families so they can support themselves and their children,” Sweeney said.
Help for Vets, Expanded EITC Eligibility to Young and Old
The Democrats pointed to additional agreed-upon items, including:
- Extending a veterans property tax deduction to peacetime veterans at an estimated cost of $15 million
- Expanding eligibility for the Earned Income Tax Credit in New Jersey to those 65 and older without dependents and to New Jerseyans as young as 18. Democrats projected that these expansions of the EITC would aid an additional 90,000 New Jersey residents at a revenue cost of $13 million.
Sen. Oroho Sees ‘No Significant Relief’ From Dems
Senate Republican Budget Officer Steven Oroho (R-24) panned the Democrats’ tax relief measures as insufficient, saying that what the Democrats were touting as “tax relief” amounted to just $125 million.
“Despite the State receiving a $5 billion tax windfall in recent weeks, Democrats are proposing no significant new tax relief for New Jerseyans, ” Oroho said in a June 21 press statement. “That stands in stark contrast to our Republican plan to significantly boost tax relief and fix long-standing structural budget issues. It’s likely we’ll see a spending spree of epic proportions for legislative add-ons when the final details of the budget are released.”