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With just a few days left before the end of the fiscal year, Democratic lawmakers who control the legislature released an alternative to Governor Christie’s budget that the good people over at New Jersey Policy Perspective call a “this is what we stand for budget.”
Most notably, the budget reintroduces a tax on millionaires which the governor vetoed last year. The proposed “millionaires’ tax” would raise around $500 million and help avoid damaging cuts to public education in a way that affects only the very wealthiest taxpayers. The proposed tax — a 10.75 percent marginal rate — would only apply to taxpayers with taxable income above $1 million, or about .2 percent of all households.
Moreover, this plan would take back only a fraction of the huge federal income tax reductions accruing to these best-off taxpayers as a result of the recent extension of the Bush tax cuts. According to an Institute on Taxation and Economic Policy analysis, these very same taxpayers are already enjoying an average $72,505 in federal tax savings in 2011. It is entirely reasonable to ask the less than 1 percent of the state’s wealthiest households to pay more in state income taxes now, particularly as New Jersey continues to struggle with the consequences of the national recession.
Governor Christie wasted no time criticizing the alternative plan and is expected to veto any tax increase just as he did last year.
While the battle over the millionaires’ tax is in the spotlight, another tax change in the Democrats’ proposal is worthy of attention. The alternative plan would also restore the single most effective anti-poverty tax strategy available to state lawmakers — the Earned Income Tax Credit — to its previous levels. The EITC provides targeted tax cuts to low-income working families, helping low-wage families to stay above the poverty line.
The decision of Governor Christie and the legislature to reduce the EITC from 25 to 20 percent of the federal credit last year directly pushed more families into the increasingly frayed safety net—a shortsighted and counterproductive decision that Democratic lawmakers are smart to propose reversing.
By law, New Jersey must have a budget in place for next fiscal year by the end of the day on Thursday, June 30th. The alternative budget plan passed out of House and Senate committees on Monday and is expected to be approved in both chambers on Wednesday. While it is all but certain that Governor Christie will use his line-item veto power to strike out portions of the Democrats’ plan, at this point it is unclear if the Democrats have enough Republican support to overturn the governor’s veto. Also not known is whether the governor’s allies in the legislature can afford to back him on an override vote: with 72 percent of the New Jersey voters supporting a millionaire’s tax, it won’t be easy for legislators to explain or justify their opposition.