In his first budget showdown with intransigent lawmakers from his own party, New Jersey Governor (and Goldman Sachs alum) Phil Murphy has made a major concession on his budget plan in a last-minute attempt to work out a compromise that would avert a shutdown of the state government on Saturday.
In a letter circulated to lawmakers, Murphy said that while he’s unwilling to accept the legislature’s budget – a budget that would raise the state’s corporate income tax to the highest level in the country – he’d be willing to work out a compromise plan that included a smaller corporate tax hike and also eliminated a budget shortfall that would’ve left the state with a $100 million deficit and no emergency reserves, according to NJ.com.
“I remain … unable to certify that the revenues contained in this budget are sufficient to fund the programs we all support. Failure to provide sufficient funding places all of these programs at risk,” Murphy wrote.
“It is not too late for us to bridge this shortfall,” he continued.
Murphy offered a more modest increase in the Corporation Business Tax, a smaller increase on taxes on personal income over $1 million and a two-year phase-in of a sales tax hike. Democrats had reportedly discussed similar concessions last week, but those talks ultimately broke down. But despite the opposition, Murphy insists that his new “merged” bill represents a “significant compromise” from his initial plan, which would’ve restored the sales tax from 6.625% to 7% and would’ve raised the 8.97% marginal tax rate on gross income over $1 million to 10.75%, and remains the best path forward for the state.
Of course, passing a fiscally responsible budget is more important than ever before for New Jersey, which was forced to “immediately halt state spending and hiring” earlier this month in a desperate attempt to close out the fiscal year with the state’s general fund in the green, as the state’s reserve funds have dwindled.
Meanwhile, the proposal passed by Senate President Stephen Sweeney (who lost out to Murphy in the gubernatorial primary) and Assembly Speaker Craig Coughlin would create two new tiers for businesses, levying 11.5% on businesses with net income between $1 million and $25 million while charging 13% on businesses with net income over $25 million. Murphy has insisted that any increase in the business rate must not be large enough to make New Jersey an outlier. Furthermore, any new taxes must be extended for more than two years (the budget passed by the legislature relies mostly on short-term tax hikes). Whether the stalemate ends with a compromise, government shutdown or $855 million in spending cuts should the legislator pass Murphy’s budget still remains to be seen. But after a meeting between the two factions yesterday failed to yield any progress, it’s looking like this budget battle could go down to the wire.