Christie ends income tax pact with Pa.; commuters could pay more

Christie Medicaid
Gov. Christie is scrapping a decades-long agreement between New Jersey and Pennsylvania that has allowed taxpayers to pay income tax in the state where they live, not where they work.

TRENTON - Cross the Delaware River for work? Your taxes could go up in 2017.

Gov. Christie on Friday scrapped a decades-long agreement between New Jersey and Pennsylvania that has allowed taxpayers to pay income tax in the state where they live, not where they work.

The change is set to take effect Jan. 1, though Christie suggested he might reverse course if the Democratic-controlled Legislature fills a budget hole by acting swiftly to reduce public employees' health-care costs.

Christie's decision means high-income Pennsylvania residents in Bucks County and elsewhere who work in the Garden State would be subject to Trenton's higher tax-rates. South Jersey residents who work in Philadelphia are also likely to pay higher income taxes - to Harrisburg.

About 125,000 Pennsylvania residents commute to New Jersey, and another 125,000 make the reverse trip, according to Census Bureau estimates.

Christie, a Republican, issued an executive order on June 30, the end of the last fiscal year, asking his administration to examine the issue. In the same order, he said the Legislature had failed to achieve $250 million in savings in public employees' health-care costs, which he had called for in his February budget address.

In a statement Friday, Christie said he had taken action in response to that budget hole - and left open the possibility that he would "consider revising this step" if lawmakers return to Trenton next week and take "the action necessary to reduce" health-care costs.

The Democratic-controlled Legislature "assumed public employee health insurance savings but did not give me the tools to make those savings real," the governor said, adding he had a constitutional duty to balance the state's budget.

"I will not raise state taxes, cut property tax relief, reduce aid to education or our hospitals, or reduce the state's record pension payment to cover for this blunder by the Legislature."

Christie's former treasurer, Andrew Sidamon-Eristoff, has estimated that ending the agreement could generate $180 million annually for New Jersey. To a lesser extent, it also would help Pennsylvania, according to Sidamon-Eristoff.

The governor's office declined to provide a revenue estimate on Friday.

New Jersey Senate President Stephen Sweeney (D., Gloucester), who opposed the change, said he hoped Christie would be open to renegotiating the agreement with Gov. Wolf. "The burden falls completely on working families in New Jersey, especially those in South Jersey who work in Philadelphia, and will have a very real impact on their quality of life," Sweeney said.

A spokesman for Wolf, a Democrat, said in a statement that Christie had "erred significantly in his decision to unnecessarily punish 125,000 Pennsylvanians and cost the commonwealth $5 million annually."

"Gov. Wolf continues to hope that Gov. Christie will change his mind and reverse his decision today," the statement said. "Unfortunately, it seems that Gov. Christie is committed to making Pennsylvania and our residents working in New Jersey suffer the consequences of his failure to enact a responsible budget in a bipartisan way."

Either state can withdraw from the Reciprocal Personal Income Tax Agreement, reached in 1977, by simply providing 120 days' written notice. Christie's decision did not require approval of the Legislature.

The Christie administration on Friday notified officials in Harrisburg that the governor was nixing the agreement.

New Jersey has six marginal income tax rates for individuals, ranging from 1.4 percent for those earning $20,000 or less to 8.97 percent for income greater than $500,000. There are seven rates for married couples filing joint returns.

Pennsylvania's rate is flat at 3.07 percent, regardless of income.

New Jersey residents who earn up to about $113,000 and file jointly pay less in state taxes than they would to Pennsylvania, according to an Inquirer analysis.

Conversely, without the reciprocity agreement, Pennsylvania residents would have to pay higher taxes if they earn more than $113,000.

Median household income across both states is less than the $113,000 threshold, according to census data.

"This is one of these deals where there's winners and losers on both sides," said Ralph Thomas, executive director of the New Jersey Society of Certified Public Accountants.

Taxpayers also can expect more paperwork: They'll have to file two returns instead of just one to their home state, said Tom Martin, managing partner of the accounting firm Klatzkin & Co.

"It would be a hassle," he said in an interview Friday. "I guess it's good for accountants."

What's more, South Jersey residents who work in Philadelphia will no longer be able to claim a credit for paying the city's wage tax, which is 3.47 percent for nonresidents. While claiming such a credit was permissible under New Jersey law, Pennsylvania prohibits such credits.

About 20,000 Philadelphia residents work in New Jersey, while 90,000 residents of Camden, Burlington, and Gloucester Counties work in Pennsylvania, according to Census Bureau estimates.

Previous governors in search of revenue, such as Democrat Jim McGreevey in 2002, had considered abrogating the agreement but did not follow through.

Anticipating Christie's decision, elected officials in the Philadelphia area in recent days had nudged the governor to maintain the status quo.

On Wednesday, State Rep. Steve Santarsiero (D., Bucks) said he had gathered about 3,500 signatures from Pennsylvanians who opposed ending the reciprocal income-tax agreement.

About 40,000 Bucks County residents work in New Jersey.

aseidman@phillynews.com

856-779-3846 @AndrewSeidman