From the Washington Post:
Democrats in the New Jersey state legislature approved a tax hike on millionaires five separate times under then-Gov. Chris Christie (R) — knowing he would veto it.
But now that the state has a liberal governor eager to sign the bill, Democratic legislators are backing off the “millionaire’s tax,” echoing some of the concerns once expressed by Christie.
“This state is taxed out. If you know anything about New Jersey, they’re just weary of the taxes,” said New Jersey State Senate President Steve Sweeney (D), lead advocate of the millionaire’s tax during Christie’s tenure, in an interview.
This blue state’s sudden allergy to taxing the rich is an ominous sign not just for Democratic Gov. Phil Murphy, who swept to office last fall promising to fund a suite of new social programs via a millionaire’s tax, but for other liberals running for statewide office this year.
Democratic candidates in several states are campaigning on higher taxes on millionaires to pay for the robust social programs increasingly demanded by the party’s base, such as universal prekindergarten, expanded health-care benefits and free community college. But the unexpectedly rocky reaction to the plan in New Jersey underscores the difficulty in implementing higher taxes on the rich, even when Democrats have full control of the government.
“It’s easy to gain popular support for the millionaire’s tax on the campaign trail, since most people wouldn’t be impacted by it,” said Elaine Maag, a tax expert at the Tax Policy Center, a nonpartisan think tank. “But in reality, it’s very difficult to raise taxes on high-income people because they tend to be very well politically connected and vocal.”
The fight in New Jersey suggests that higher taxes on the rich may be easier to campaign on than to enact.
Murphy ran for office promising universal prekindergarten and free community college. To fund these initiatives, he is partly relying on the millionaire’s tax, which would start taxing income over $1 million at a new rate of 10.75 percent. That would raise $765 million annually for state coffers, according to Murphy’s office.
Now the plan is being tested as New Jersey works to complete a budget by June 30 — or risk shutting down the state government. The budget, which also directs funding to New Jersey’s transit system, wouldn’t fulfill Murphy’s campaign promises on their own without additional tax hikes. Murphy is also pushing a sales tax hike and new taxes on ride-hailing services such as Uber and Lyft. The combined package amounts to about $1.5 billion in new taxes.
Democratic leaders in the statehouse say that is untenable. They have blamed the tax law passed by Congress last December for their reversal, saying the tax overhaul already punishes wealthy New Jersey taxpayers by capping at $10,000 the amount of state and local taxes they can deduct from their federal taxes. (Previously, the deduction was limitless.)
About 40 percent of New Jersey’s richest 1 percent also do not benefit from the tax cut on “pass-through” business entities and will therefore see a “sizable” tax hike under the law, said the spokesman, Mark Magyar.
Imposing a second round of new taxes could force many of these millionaires to leave the state, Sweeney said.
“The Trump tax increase for New Jersey changed the game for us here,” said Sweeney, who tweeted on election night last year that the millionaires tax should be the party’s first priority. “Circumstances change.”
Tax experts disagree about whether a millionaire’s tax would help New Jersey, with some conservative economists agreeing it will force rich taxpayers to flee the state. In turn, they say, that would shrink the state’s tax base and saddle the remaining middle-class taxpayers with a greater tax burden.
“We’re the most unaffordable state and least competitive, business-wise, by many metrics,” said Tom Bracken, president of New Jersey’s Chamber of Commerce. “Increasing taxes on job creators doesn’t help the situation.”