Two years after the coronavirus pandemic causes historic revenue losses, Gov. Phil Murphy is rewriting his budget estimates to take into account rising tax levies.
The latest revision of the Murphy administration’s forecast added more than $ 4.6 billion to budget revenues for the fiscal year ending in June.
This is a significant amount for a state that has historically had trouble meeting all of its spending commitments, including the K-12 School Aid Act, which has not been fully funded for years.
A new forecast, detailed in budget documents released last week, came less than a year after another contingency payment helped New Jersey accumulate a budget surplus of more than $ 10 billion despite a long-running crisis in the industry. health care.
Overall, state revenues will increase by more than 60% compared to fiscal year 2012, according to the latest forecasts detailed in budget documents.
Revenue growth, record costs
This year’s sources of income are all the highest categories of tax revenues of the state. Improving the labor market has led to increased income tax collection, while stable consumer spending and high corporate profits are also conducive. budget documents to say.
“… future strains of the virus may continue to affect the way the economy recovers.”
But amid state happiness – Murphy’s proposed budget spends record high spending totaling nearly $ 49 billion for the next fiscal year – there are concerns about how long the revenue streak will continue, especially as the pandemic remains a serious wilderness card.
“Economic prospects have recently improved for both New Jersey and the United States, although future strains of the virus may continue to affect the path to economic recovery,” the Murphy administration said in budget documents.
Meanwhile, rising tax collection has also prompted Republicans before Murphy, a second-term Democrat, copes with the budget and taxes. And Republican lawmakers have also begun calling for an immediate tax cut for residents struggling with rising inflation and high gas prices.
Overall, the revised tax collection forecast for fiscal year 2022 has increased state budget revenues by the end of June by more than 10% to $ 46.9 billion.
The predictions turned out to be inaccurate
But not so long ago Murphy predicted that the pandemic would lead to historic revenue losses that had not occurred since the Great Depression. To prevent severe budget cuts due to these projected losses, Murphy successfully lobbied lawmakers in 2020 to pass a series of tax increases that remain in place and allow emergency borrowing without voter approval.
About a year ago, the federal government also adopted a $ 2 trillion aid and incentive package that funded a new round of direct aid payments to individuals and sent billions of dollars to states to help them tackle the health crisis.
Aggressive federal intervention is one of the factors cited by the Murphy administration in its latest summary of improving New Jersey’s revenue forecast, published last week in budget documents.
“The impact of the pandemic on corporate results has been smaller and short-lived than expected.”
The increase in sales tax revenues was partly due to federal stimulus payments, as well as delayed consumer demand after the worst months of the health crisis. Sales tax revenues collected from online stores also helped; The pandemic seems to have spurred growth in the consumption of taxable goods, including online retailers.
More than $ 720 million in state sales taxes are expected to be received through online sales by the end of June, according to budget documents. The overall sales tax forecast for the same period increased by almost $ 790 million.
Meanwhile, nearly $ 500 million has been added to the income tax revenue forecast for fiscal year 2022, the world’s largest source of revenue. This comes as the latest unemployment figures show that New Jersey has regained nearly 86% of the jobs lost when the pandemic began causing an economic downturn two years ago. It also follows a tax on millionaires introduced by Murphy and lawmakers in 2020.
But the source of the tax that sees the biggest revision of the forecast is the corporate tax, or CBT, which has been raised by more than $ 1 billion. Murphy and lawmakers also raised the CBT rate, which is levied on the state’s most profitable businesses in 2020, when the state was still forecasting deep revenue losses.
“The impact of the pandemic on corporate results has been smaller and short-lived than expected,” the Murphy administration said in its latest budget documents.
Overall, according to budget documents, the latest increase in tax collection in New Jersey is ahead of the overall revenue trend line over the past decade.
In fiscal year 2012 alone, the state collected less than $ 30 billion in tax revenue. The Murphy administration’s forecast for fiscal 2023 envisions a slight increase in total tax collection to $ 47.2 billion by the end of June 2023. This is more than 60% more than in fiscal year 2012, without inflation adjustment.
New Jersey is not alone
According to budget documents, almost a quarter of revenue growth falls on the 2020 fiscal year alone, when the state soon suffered losses at the start of the pandemic.
New Jersey is not the only state to see revenue growth in recent months, despite a long-running health crisis.
Fiscal report released earlier this month by National State Legislature 25 states are forecasting revenues that will exceed forecasts, some of which have already been revised upwards. And no state has shown that this fiscal year it expects to fall short of projected revenue, according to an NCSL report.
For his part, Murphy wants to use part of New Jersey’s excess profits to do more to help the state repay part of its significant bond debt and finance large-scale projects based on calculations to get rid of the need to issue new long-term debt.
Budget documents also show that Murphy is seeking approval for nearly $ 1 billion in additional spending by June, although the administration has not yet disclosed a list of individual items of additional spending.
The governor is also looking to increase the size of the state’s unlimited budget surplus, and spending on direct real estate tax credits will also rise to nearly $ 900 million in the new fiscal year according to Murphy’s budget plan.
Republicans have put forward their own ideas in recent weeks as they have also criticized Murphy for “overloading” residents. These proposals include an immediate $ 500 tax credit for all families with annual incomes of less than $ 250,000, rather than expecting Murphy’s proposed increase in direct property tax to be distributed next spring.
“States will continue to face long-term pressure on spending …”
Republicans are also calling for unrestricted state income tax deductions for local property taxes – currently limited to $ 15,000 – and for income tax indexation to prevent inflation from raising taxes that erode the cost of any wage increases that residents could be observed in recent years.
However, a recent report by the Center for Tax Policy in Washington, DC, may be a reason for government policymakers to be wary as they consider persistent tax cuts and other policy changes during short-term revenue growth.
“In the long-term prospects of state and local budgets remain uncertain depending on the state’s actions, especially after the completion of federal relief programs and temporary changes caused by the recession of the pandemic, ”the report said.
“States will continue to face long-term pressures on spending caused by aging populations, rising health care costs and growing threats of natural disasters caused by climate change,” the report said.