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With the announcement that New Jersey leaders have finally struck a deal to modernize the state’s badly outdated gas tax, work can soon finally resume to repair and maintain the state’s roads and bridges.
Unfortunately, as a New Jersey Policy Perspective (NJPP) report reveals, the deal leaves the state’s tax code in need of major repairs. Lawmakers approved a package that slashes about as much revenue as it raises while shifting taxes from the state’s wealthiest individuals to lower-income families.
The gas tax increase, which amounts to 23 cents per gallon, raises an estimated $1.2 to $1.4 billion per year. But the final package includes major tax cuts that add up to nearly as much. The package ultimately eliminates the estate tax, cuts the sales tax by 3/8 of a cent, expands an existing tax break for upper-middle-income retirees (though this expansion was reportedly scaled back Wednesday in committee), creates a new exemption for veterans, and increases the Earned Income Tax Credit for low- and middle-income working families.
An Institute on Taxation and Economic Policy analysis summarized in the NJPP report shows that, even without the estate tax cut that affects only about 3,500 of the wealthiest families each year, the package is regressive, raising taxes most on lower-middle- and middle-income New Jerseyans with incomes between $25,000 and $79,000.
And overall, if approved by the legislature Friday as expected, the package will cut about as much revenue out of the General Fund as it raises for the Transportation Trust Fund (TTF). This means that New Jersey lawmakers are effectively paying for transportation infrastructure with money taken from other areas of the budget such as schools, health care, and public servants’ pensions.
You wouldn’t tear down a school building to fill potholes with the rubble, but by shifting taxes from the General Fund (and higher-income New Jerseyans) to the TTF (and lower-income New Jerseyans), New Jersey leaders are damaging one part of their tax code to prop up another. Read the full NJPP report here.