Welcome to NJPP’s Revised Budget Address FY 2021: Rapid Reaction, your source for commentary and data analysis on Governor Murphy’s address. The transcript below was taken from NJPP’s Zoom room and has been lightly edited.
Lou (Louis Di Paolo, Communications Director): Budget season gets a reset! For the second time this year, Governor Murphy delivered his budget address for Fiscal Year (FY) 2021 — this time to a socially distanced crowd at the Rutgers University football stadium. For context, New Jersey took the unprecedented step of delaying the budget deadline by three months to better assess the state’s finances after the COVID-19 outbreak. State lawmakers passed a three-month spending bill in June, which extended FY 2020, and this latest budget proposal would fund the state for the following nine months, starting October 1, for FY 2021.
Due to the economic fallout from COVID-19, New Jersey came into this fiscal year with an unprecedented multi-billion dollar revenue shortfall. In his proposal, Governor Murphy makes up for the drop in revenue with a combination of cuts, borrowing, and new revenue, including the millionaires’ tax and an extension of the corporate business tax surcharge.
Joining me in this budget reflection are policy analysts Sheila Reynertson, Brittany Holom, and Vineeta Kapahi. My first question: does this budget proposal meet the moment in responding to the COVID-19 health and economic crisis?
Sheila (Sheila Reynertson, Senior Policy Analyst): Given the extraordinary circumstances of this crisis in a state with outsized obligations, one would think that the Murphy administration’s hands were tied. But it turns out that their advantage was to embrace every option on the table. Faced with a $5.63 billion revenue shortfall, this budget turned a unique fiscal challenge into an opportunity to maintain and even grow some critical investments. With a targeted mix of new revenue, spending cuts, borrowing from the federal government, and even a healthy surplus, the budget proposal sets a solid foundation for a strong pandemic recovery.
Well, almost all.
It’s important to note, with disappointment, the absence of emergency assistance for our immigrant neighbors who have been left out of relief programs for more than 6 months. This proposal is also a missed opportunity to improve how New Jersey taxes inherited wealth.
Lou: My next question is for Vineeta and Brittany. Given that this is your first budget address with NJPP, what are your overall impressions of the governor’s budget address? What stood out to you?
Brittany (Brittany Holom, Senior Policy Analyst): Going into this, I was interested to see how the COVID-19 pandemic would shape the framing of the governor’s speech and the funding decisions in his budget proposal. I was worried that there would be a lot of short-term “patching” with the crisis, but I am glad to see instead that the lessons of the last recession are being recognized. It’s clear from this speech that the focus remains on the future of New Jersey rather than simple bandages hastily constructed during a tough time.
Vineeta (Vineeta Kapahi, Policy Analyst): Given the context of the current crisis, I was heartened to see that efforts have been made to keep many critical programs intact, like the Earned Income Tax Credit (EITC) and Child and Dependent Care Credit. In light of the unprecedented challenges that are disproportionately falling on low-income, Black, and immigrant communities, like Sheila, I was disappointed that the budget does not provide relief to people who have been left out of federal assistance (more on that later). The budget could also go further towards addressing the structural inequities that have allowed wealthy individuals and corporations to continue to gain disproportionate benefits, even during the pandemic.
Brittany: I was also surprised by the Bon Jovi soundtrack. Not that I minded it, I just doubt that’s the type of music that gets played when these types of speeches are given at the State House.
Bon Jovi Jon Bon Jovi GIF from Bonjovi GIFs
Lou: Brittany brings up a great point (well, two if you count her comment on Bon Jovi). It definitely seems like New Jersey learned its lesson from the Great Recession. Instead of cuts, cuts, and more cuts, Governor Murphy is proposing balancing the budget with roughly $1 billion in new revenue. This follows the recommendations laid out in an open letter signed by nearly 100 economists in New Jersey, which highlighted how targeted tax increases on wealthy families and big businesses would be better for the state’s economy than spending cuts.
So this question on revenue is for Sheila: How do you feel about the Governor’s revenue proposals? And as a follow-up, do they go far enough?
Sheila: The governor proposed a pretty solid list of new revenue streams, totaling $1.02 billion to help fund the recovery and create a more equitable tax code. It’s impressive that the state would be able to raise this much revenue without it affecting the vast majority of New Jersey families and small businesses. And most of these sources are sustainable, meaning they will be reliable funding streams for years to come.
That means that the wealthiest among us – millionaires and large corporations – need to pay their fair share in taxes, whether it be on income or in buying a yacht. #NJBudget— Governor Phil Murphy (@GovMurphy) August 25, 2020
Of course, we are in complete agreement with Governor Murphy’s elusive millionaires’ tax proposal, which increases the tax rate on annual earnings above $1 million by two cents on every dollar. We would have preferred something bolder to better reflect the enormous income gains made by the top five percent of earners in the past twenty years, but this is still a long overdue step toward fairness in the tax code. Revenue from this tax would provide desperately needed funding to public schools, local governments, and property tax relief programs.
Lou: Definitely thrilled to see the millionaires’ tax in the governor’s proposal. Earlier this year, state lawmakers said they didn’t want to raise taxes on the top one percent of earners during a booming economy. Maybe this economic downturn — which has largely spared the wealthiest among us — will convince them that the tax code needs to change. We all know the state desperately needs the revenue. Any other tax changes worth highlighting?
Sheila: It’s also great to see a permanent extension of the corporate business tax surcharge on businesses that make over $1 million in profits a year. That will make a big difference for programs and services that may otherwise have been shut down, including programs that businesses themselves benefit from, like high-quality education and reliable roads and bridges.
The budget proposal also reverses sales tax breaks on limousine services and on yacht purchases, which will raise a combined $20 million. These tax breaks disproportionately benefit the wealthiest among us while robbing the state of critical revenue.
Lou: Wait, you’re telling me the yacht and limousine tax breaks benefit wealthy folks?
Surprised Pikachu GIF from Surprised GIFs
Sheila: Shocker, right?
And there’s one new source of revenue that caught me by surprise: a five percent surcharge on certain federally qualified business income (QBI) for individuals with income greater than $1 million. But this isn’t a new tax — it’s a partial repeal of a very regressive tax policy that was included in the 2017 federal Tax Cuts and Jobs Act (TCJA). This will raise an estimated $75 million in FY 2021 and could raise much more in the future.
Brittany: Oh, and don’t forget the Health Insurance Assessment (HIA)! I know it was passed last month, but that’s more than $200 million to expand health coverage and keep insurance affordable.
Lou: Thank you for the breakdown, Sheila (and Brittany)! With this new revenue, New Jersey will be able to maintain investments in public services and programs that families across the state rely on. Along those lines, what investments are you all most excited about?
Vineeta: This budget maintains several programs that aim to provide stability for low-paid New Jersey residents. The governor committed to following through on the scheduled increase in the state EITC to 40 percent of the federal credit and to extending eligibility to certain young adults without qualifying children. I would have liked to see a boost in the credit amount for workers without qualifying children (the maximum credit is only $206 for this group!) and a commitment to addressing other barriers to the EITC, like including immigrant households that file taxes using an ITIN. The governor’s budget also maintains the Child and Dependent Care Tax Credit, which can help offset childcare costs. This program would be more impactful for those who need it the most if it were refundable; it would be great to see that happen next year.
Brittany: I’m excited to see the state’s commitment to affordable health care through support for critical Medicaid benefits and with state subsidies for our upcoming State Exchange. Making sure that more people can afford health care is key when many are losing access to employer-based health insurance. I am also happy with the continued commitment to addressing the stark racial inequities in our health care system with the public awareness campaign for Black infant mortality and increases in payments for certain providers and services that address inequities. I hope that, while there are unfortunate decreases in areas like the Charity Care program, these targeted investments will establish a foundation for a healthier future for all New Jerseyans.
Sheila: It is fantastic to see a full pension payment in the budget proposal. The recognition that New Jersey’s recovery is closely tied to child care availability and affordability for workers is another highlight that wouldn’t have even registered just a few years ago.
And finally, the most surprising proposal of the day, and one that puts New Jersey on the map as an incubator for new progressive policy, is baby bonds! Inspired by a federal bill by Senator Cory Booker, the proposal would provide a $1,000 deposit into a savings account for every child born in 2021 to families making up to $131,000 a year. Under Governor Murphy’s proposal, when the child reaches the age of 18 that appreciated bond becomes theirs to invest in higher education, a business, or a home.
Lou: Yes! The baby bond proposal was definitely a welcomed surprise. Was there anything else that surprised you in today’s address? Other than the tent interruption.
For the first time in New Jersey history, a flyaway tent has interrupted a governor’s budget speech.— Elise Young (@EliseOnDeadline) August 25, 2020
Sheila: I know I have mentioned it already, but can I just state again how impressive it is to see this $2.2 billion surplus in this proposal. That’s 5.6 percent of the 9-month budget, compared to last year’s surplus at 4 percent of the 12-month budget. What that tells us (and credit rating agencies) is that the administration understands the limitations of borrowing from the federal government, as well as the importance of being able to handle revenue shortfalls should the state be hit by a second wave of the pandemic. This is smart budgeting and I am here for it. Brittany: I know I mentioned this earlier too, but I was surprised by the Bon Jovi exit music. While I appreciate the “It’s now or never” mentality, the framing of the address itself rang more “I’ll Be There for You.”
Lou: And what was missing?
Vineeta: At this critical time when thousands of New Jersey households are struggling to pay for basic needs like food and housing, the governor’s budget proposal fails to include relief for immigrants who have been excluded from federal pandemic assistance. Since the onset of COVID-19, immigrants have been calling on state lawmakers to provide support where the federal government has fallen short. Immigrants not only face the same challenges as other New Jerseyans, but they also have disproportionately high representation among essential workers responding to the current crisis and among industries that have experienced the most job loss due to COVID-19. I would have also liked to see an increase in funding for the Detention and Deportation Defense Initiative, which can only provide representation for a small fraction of low-income individuals facing detention and deportation at its current level.
Brittany: I second Vineeta’s point. With so many of our uninsured counting themselves amongst our immigrant, and particularly our undocumented, residents, the lack of a clear solution for getting our immigrant population access to care during this time left the picture of New Jersey’s future uncertain.
Sheila: It does bother me that in the middle of an uncontained pandemic that disproportionately hurts communities of color we still allow large concentrations of wealth and profits to grow unchecked. Wealthy heirs and multinational corporations receive massive tax breaks due to New Jersey’s weak taxation on inherited wealth and remaining loopholes exploited by multinational corporations to avoid state taxation.
** Brandon McKoy enters the chat **
Brandon (Brandon McKoy, President): Couldn’t agree more, Sheila. There’s a lot that the governor said today, appropriately, about the need to tackle racial inequality. He stated, “Ensuring fairness and justice in taxation is just as important as ensuring fairness and justice in society — in fact, it is an essential step in eliminating the structural racism in our society.” To realize that value fully, New Jersey needs to restore some of the wealth taxes that were eliminated under the Christie administration, especially the estate tax. The Center on Budget and Policy Priorities has produced incredible research that shows how fair wealth taxation is critical to closing the racial wealth gap. Until our state secures fair wealth taxation, we’ll continue to struggle in the fight to reduce racial disparities and structural discrimination against New Jerseyans of color.
Nonetheless, it’s nice to see a budget that generally promotes a positive vision of the future and pushes for maintaining — and even expanding — critical investments in programs, services, and assets that are central to growing our economy. It’s a welcomed change to how New Jersey responded to the Great Recession and I sincerely hope the legislature adds to this proposal to make it even stronger.
** Brandon McKoy exits the chat **
Bush GIF from Simpsons GIFs
Lou: Any final thoughts?
Sheila: What Brandon said.
Vineeta: Ditto.
Brittany: I’m going to go watch more Bon Jovi music videos…
Thats All Folks Cartoons GIF from Thatsallfolks GIFs
