The Return of the Corporate Tax Surcharge in New Jersey
In an unexpected twist, New Jersey finds itself at a financial crossroads as Governor Phil Murphy’s budget proposal signals a shift back to tax increases. The state, which had just seen the sunset of its corporate income tax surcharge, is now facing its potential resurrection. This surcharge had previously given New Jersey the dubious distinction of having the highest corporate tax rate across all fifty states.
Businesses in New Jersey are already under pressure, with many choosing to relocate due to the state’s fiscal policies. The timing for reintroducing the corporate tax surcharge could not be more inopportune, especially as neighboring Pennsylvania embarks on a journey to significantly reduce its own corporate tax rate to 5.99%. This move by New Jersey threatens to exacerbate the state’s competitive disadvantage in attracting and retaining businesses.
Adding to the business community’s concerns is the proposed “truck traffic excise fee,” estimated to cost a hefty $10 million annually. This fee is poised to increase shipping costs, which would ripple through the economy and potentially inflate prices for consumers at a time when inflation remains a persistent challenge.
The Governor’s budgetary strategy appears to be at odds with his earlier campaign promises where he assured voters that he would not pursue further tax hikes. Despite this pledge, the proposed tax increases are aimed at supporting a budget that has swelled state spending by an astonishing 60%. Even with these tax hikes, New Jersey is projected to grapple with a structural deficit.
At the heart of the budget controversy is the manipulation of the Debt Defeasance and Prevention Fund. This fund, originally established to reduce New Jersey’s considerable bonded debt, is now being eyed for a nearly $600 million diversion to the general fund—a move that could undermine its purpose of debt relief and capital project funding.
Moreover, Governor Murphy’s budget proposal boldly seeks legislative approval for an annual spending increase to nearly $56 billion, overshooting anticipated tax revenues by approximately $2 billion. This gap underscores a pattern of rising expenditures without a corresponding increase in revenue under Murphy’s administration.
While new debt prevention measures and spending hikes are on the table, including significant investments in infrastructure and public services, these come at a time when New Jersey faces a $1.8 billion structural deficit. The sustainability of such financial commitments remains a point of contention.
The budget also proposes property tax “relief” measures that effectively involve disbursing checks rather than addressing the root causes of New Jersey’s notoriously high property taxes. This approach continues a trend from Governor Murphy’s first term, which was marked by increasing budgets and annual tax hikes, culminating in over $2.778 billion in tax increases—not counting an additional $1.229 billion he proposed but did not enact.
