New Jersey’s Democrat-led Legislature has successfully passed a $56.6 billion budget, which notably includes a tax hike on high-earning corporations. This legislative move is now awaiting the signature of Governor Phil Murphy, who is expected to approve it. The budget passage, completed two days ahead of the constitutionally set deadline, averts a potential government shutdown and introduces significant allocations for various state programs.
Corporate Tax Increase
The new budget imposes a tax increase on businesses earning over $10 million annually, raising the top corporate rate from 9% to 11.5%. This measure, referred to by Governor Murphy as the “corporate transit fee,” aims to provide financial support to the struggling New Jersey Transit system. The agency, responsible for operating buses and trains across the state, has been using capital funds to cover operational costs for years. Murphy had pledged to secure dedicated funding for the agency, although it remains uncertain how fully this tax increase will meet that objective. Future legislative actions will be required to ensure sustained funding, a commitment that may prove challenging if tax revenues decline.
Education and Property Tax Relief
The budget also significantly boosts funding for K-12 education, increasing state aid by nearly $1 billion to over $11 billion. This increase aims to fully implement an aid formula ratified by the state Supreme Court. Additionally, about $2.5 billion is allocated for direct property tax relief, continuing programs initiated in 2022 and 2023 to assist residents, renters, and older citizens. The average property tax amount in 2022 was approximately $9,500.
Other Key Allocations
The budget covers all aspects of state government operations, from executive departments to public universities. It includes a 67% pay raise for lawmakers, their first since 2002, which will take effect in 2026. The budget also features various expenditures often referred to as “Christmas tree line items,” seen as gifts for specific constituencies. These include funding for ending homelessness, aiding re-entry into society from prison, supporting fire departments and arts programs, and even one city’s initiative to teach life skills through tennis.
This budget is Governor Murphy’s second-to-last before the next gubernatorial election, where he will be term-limited after two terms in office. Since taking office in 2018, Murphy and the Democratic-led Legislature have made substantial changes to the state’s finances. They have invested billions in K-12 education, increased payments to the public pension system, and bolstered the state’s rainy day fund. They have also raised taxes on high-income earners and briefly increased business taxes, though the surcharge expired this year. The new budget reinstates this tax for companies making over $10 million annually.
Despite these efforts, Republicans and business groups have criticized the higher taxes, arguing that they hinder economic growth and unfairly penalize companies that contribute positively to the community.
