New Jersey’s taxpayer protection bill from the effects of rising inflation – at least when it comes to paying state income taxes – is scheduled to receive the committee’s long-awaited first hearing early next week.
The Republican-backed measure is gaining a new perspective from state lawmakers, as recent federal government statistics on consumer prices show that inflation is rising at a rate not seen in the United States for decades.
The legislation, which will be considered for the first time on Monday by the Senate Committee on Budget and Appropriations, provides for the “indexation” of state income tax categories in line with annual inflationary changes.
This, sponsors say, will prevent what is known as the “creep bracket” that occurs when wage growth pushes taxpayers to higher tax rates, even if their financial situation is no better due to the coincidence of rising consumer prices.
For decades, the federal government has indexed its income tax categories to take into account annual inflationary changes, providing regular cost-of-living adjustments.
The policy was adopted when inflation was steadily rising across the country, cutting consumers with higher prices but also giving Congress the opportunity to earn more without having to vote to approve any particular tax increase, according to the Washington, D.C. an organization that closely monitors federal tax and state policies.
New Jersey was late with indexation by tax designs
Many states, which also levy income tax using a progressive tax rate scale, have adopted their own versions of indexation by tax group. But New Jersey is one of about a dozen in that category that haven’t done so yet, according to a Tax Fund study.
The account for consideration the Senate committee will change this by allowing annual adjustments to “taxable income and taxable income” in New Jersey based on 12-month inflationary changes recorded by the U.S. Department of Labor’s Consumer Price Index.
The event is sponsored by Senators Steve Oroha (R-Sussex) and Anthony Buk (R-Morris).
By the end of January, inflation in the United States had risen 7.5 percent year-on-year, according to the Consumer Price Index. According to officials, this was the largest annual increase since the 1980s.
Without providing regular adjustments to account for inflation, performance will continue to sock many taxpayers at the state level, Buk told NJ Spotlight News in an interview late last year.
Legislative records show that Buka and other Republicans have been pushing for the indexation of state income tax categories to take into account inflation since at least 2016. Buka has resumed calls to put the indexation bill up for voting during a recent interview.
Feeling of inflation
“People in New Jersey are starting to feel it,” Buk said, discussing rising inflation. “If ever there was a time for indexing, now it is.”
Of course, the effects of the spikes experienced by individual state taxpayers can vary depending on a number of factors, including how much an individual earns annual taxable income. State income tax rates, which reach 10.75% for revenues over $ 1 million, are also typically more modest than those levied by the federal government, which ranges from 10% to 37%.
Meanwhile, changing the way the government organizes its tax groups is likely to affect revenue collection and the state’s annual budget. Moreover, in New Jersey, income tax revenues are constitutionally intended to fund programs that provide direct or indirect property tax relief, such as assistance to public schools.
Non-partisan analysts from the Office of Legislative Services estimated that indexation would initially reduce the collection of state taxes by as much as $ 22 million, provided the indexation law is passed by both chambers of the legislature and signed by Gov. Phil Murphy in 2023.
High taxes – especially property taxes – have disappointed residents for decades
But the proposed policy change could end up costing the state $ 150 to $ 440 million annually, subject to an annual increase of 2% to 6%, according to this analysis.
However, the first review of the legislation is taking place at a time when total state tax collections are well ahead of year-end growth targets despite the coronavirus pandemic.
The latest revenue figures released by the Treasury Department show that the total collection of all major state tax sources increased in the first seven months of the fiscal year, which began in July, by more than $ 4 billion over the same period last year.
This provided a significant cushion for the state budget in the remaining months of the fiscal year.
At the same time, according to the Ministry of Finance, in the first seven months of the financial year, the collection of state income tax increased by more than 20%.