TRENTON, N.J. – Rather than increasing taxes or borrowing after state revenue has dropped by billions, Assemblyman John DiMaio believes he has found a way for New Jersey to cut taxes for the middle-class while keeping state and local governments afloat.
Similar to the reciprocal tax agreement with Pennsylvania, certain residents would not have to file a federal income tax return and New Jersey would raise rates to the federal level for only this tax year. The state would have to create a new tax form that would be filed earning under a certain income, to be negotiated with Congress, to limit the amount of revenue to New Jersey’s needs.
Essentially, residents who file this form would get a tax cut by not paying state income tax rates in addition to federal rates, and applying the federal rates at the state level would boost revenue by billions.
It also avoids constitutional problems because the state would not have to use a bond or loan to cover revenue.
The state Supreme Court ruled in a 2004 case, Lance v. McGreevey, that under the state Constitution’s Article 8, section 2, paragraph 2, does not qualify bond proceeds as revenue to balance the budget. In that same section, paragraph 3 allows debt to be issued for emergency costs, but the subsection only pertains to the restrictions in that paragraph.
DiMaio says that the plan addresses New Jersey’s three biggest fiscal problems: residents struggling to make ends meet will receive tax relief, state revenue receives a much-needed boost to help state and local budgets, and there is no conflict over constitutional interpretation to slow down New Jersey’s urgent need to recover.
“The state shouldn’t be asking for a federal bailout because of years of poor fiscal management,” said DiMaio. “But our political system needs a market correction. New Jersey annually gives far more tax dollars to the federal government than we get back. This plan doesn’t ask for taxpayers across the nation to fix our problems, it asks to let us fix our own problems.”
Federal receipts from New Jersey were $33.9 billion more than federal expenditures to the state combined between fiscal years 2017 and 2018 alone, according to the Rockefeller Institute of Government’s “Giving or Getting” reports. New Jersey sent $112 billion to the federal government in FY18. Gov. Phil Murphy told President Donald J. Trump in a press conference that the state needs up to $30 billion.
The plan is amenable to Congress setting fiscal conditions on how the money is spent and requiring reforms that achieve savings to optimize help for people and state and local governments. Income tax revenue is constitutionally dedicated to property tax relief, which covers education spending, county and local government aid, and pensions and health benefits.
“New Jersey and other states should not receive the benefit of the doubt because there is ample reason to doubt the money will be spent responsibly,” said DiMaio, who has repeatedly been critical of the state’s penchant for adding new programs and budgetary increases while not ensuring that current programs are financially solvent. “Congress would be wrong to give carte blanche, because if that is the case there is a good chance states will go back hat in hand. The states that need money the most are by many metrics the worst managed: currently and historically.”
The state Treasury Department is releasing a revenue report today. DiMaio has sent letters to Sens. Mitch McConnell and Chuck Schumer, Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy, as well as all of New Jersey’s members of Congress. He sent a separate letter to President Donald J. Trump, asking for his consideration of the plan.