From NJ Spotlight:
Three months ago, Gov. Chris Christie’s budget was in deep trouble. His revenue forecasts for FY2012 and FY2013 had come up a total of $750 million short. Standard & Poor’s had downgraded New Jersey’s revenue picture from “stable” to “negative,” and nobody knew what the real budget impact of Hurricane Sandy would be.
Today, however, thanks to a surge in income tax payments by wealthy taxpayers cashing out before federal tax hikes and cashing in on a bull market, it’s clear that Christie has dodged what could have been a major fiscal nightmare heading into his November reelection.
Yes, the Republican governor had to downgrade his revenue forecast for the year by $406.3 million and push off paying $396 million in property tax rebates until August, giving Democrats ammunition for the fall campaign. And yes, he did have to give up the income tax cut that was the centerpiece of last year’s budget speech.
But it could have been a lot worse.
Christie’s bold projection of an 8.3 percent revenue surge in FY2013 was built on assumptions of a broad-based “New Jersey Comeback,” an economic boom that would transform a state that had the fourth-highest unemployment rate in the nation and had ranked 47th in economic growth for two years in a row.
Christie’s bullishness led him to certify a budget built on more than 25 percent growth in corporate taxes and realty transfer fees, an 18 percent jump in casino revenues, 15 percent more from the lottery, 13 percent higher inheritance taxes, a 6.1 percent jump in sales taxes, and 5.7 percent in income taxes.
Eight months into the fiscal year, corporate taxes, inheritance taxes and casino winnings are all running lower than last year, and even motor vehicle and gas taxes are down, reflecting a weak economy. But despite an unemployment rate that still ranks among the highest in the nation, New Jersey’s income tax collections are soaring.
It is just the latest example of the disconnect between New Jersey income tax collections and the overall economy in a state whose highly progressive income tax structure and heavy reliance on healthy Wall Street financial markets creates its own boom-and-bust state budget cycle.
Wealthy taxpayers in New Jersey and other states pushed hundreds of millions of dollars of income into 2012 to avoid paying higher taxes in 2013 and future years. On January 1, the top tax bracket on individuals earning over $400,000 and families above $450,000 rose from 35 percent to 39.6 percent, and capital gains taxes jumped from 15 percent to 20 percent.
New Jersey’s approximately 16,000 millionaires paid $2.289 billion — or 26.4 percent — of the $8.686 billion in income taxes collected in 2010, the last year for which the Department of Treasury provided its detailed Statistics of Income report.
Overall, the top 20 percent of taxpayers, who make over $100,000, paid $7.263 billion, or more than 85 percent of total income taxes that year.
Most states, including New York, have significant income tax rates kick in at $25,000 or less, but not New Jersey, whose effective income tax rate on those earning under $75,000 is the lowest of any of the 43 states that have a state income tax.
It didn’t start out that way. New Jersey’s original 1977 income tax, pushed through by Democratic Gov. Brendan T. Byrne under a school-funding order from the state Supreme Court, was a virtual “flat tax,” with a 2 percent rate on income under $20,000 and 2.5 percent above that – not much different from the 3.07 percent flat rate that Pennsylvania currently imposes on both families and individuals.
Each of the five elected governors that succeeded Byrne made changes in the state income tax structure that made the system more progressive and thus increased reliance on wealthy taxpayers.