N.J. Democrats' budget: Increase taxes to boost pension fund

TRENTON - New Jersey Democrats on Monday unveiled the broad contours of the budget they will submit to Gov. Christie, saying they would make a full contribution to the underfunded pension system by raising taxes on businesses and the state's highest earners.

Christie, a Republican who says he will announce whether he is running for president by the end of the month, has vowed not to raise taxes. The state constitution requires the Legislature to pass, and the governor to sign, a balanced budget by next Tuesday.

The proposal set off the perennial debate in Trenton about the so-called millionaires tax, over how much it would raise and what impact, if any, it would have on small businesses.

Privately, some lawmakers lament that the budget process is amounting to nothing more than political theater: Democrats satisfy their labor allies and liberal base by promising to fund the pension system and their favorite social programs, while Christie gets to boast on the presidential campaign trail that he vetoed another round of taxes back home in New Jersey.

Among other initiatives, the Democrats' budget proposal is to include $50 million for higher education, in part for a medical school at Seton Hall University, and funding for a tax credit for the working poor.

The spending plan will total $35.3 billion, including a tax increase on income above $1 million and a one-year surcharge on the Corporation Business Tax, Senate Budget Committee Chairman Paul Sarlo (D., Bergen) told reporters. Democrats, who control the Legislature, had similar proposals last year, only to see them vetoed by Christie.

The budget process for fiscal 2016 began in February, when Christie proposed a $33.8 billion spending plan. The Legislature held hearings over months, hearing from executive branch officials on the proposal.

The Legislature is modifying that plan and will send it back to the governor. Christie can veto any line item in the budget, but he cannot add to it. His office said it would not comment before a budget is formally introduced.

"Nobody wants to take these measures," Sarlo said. "But at the end of the day, we have an obligation to make this pension payment."

Democrats project the millionaires tax would raise $690 million in new revenue, Sarlo said.

Senate President Stephen Sweeney (D., Gloucester) has introduced legislation that would raise the top marginal income tax rate from 8.97 percent to 10.75 percent for four years. That top rate would only apply to income above $1 million, Democrats said. (The current top rate applies to income of $500,000 or more.) Lawmakers previously adopted a 10.75 percent bracket for one year under Gov. Jon S. Corzine in 2009.

The business tax rate, now 9 percent, would go up to 10.5 percent, raising $438 million.

"This is a budget that projects our values by protecting the middle class and the working poor, investing in higher education, and providing for the needs of the most vulnerable in our society," Sweeney said.

Also, Democrats said, the nonpartisan Office of Legislative Services now projects that revenue growth for the current fiscal year will exceed the Christie administration's May estimates by $300 million.

Sweeney and Assembly Speaker Vincent Prieto (D., Hudson) said Monday they would include that revenue as part of their pension contribution for fiscal year 2016.

Democrats have pledged to make a full contribution of $3.1 billion to the pension system, as required by a 2011 law that overhauled retiree benefits. Their payment assumes revenue growth that exceeds Christie's expectations for 2016.

Assemblyman Declan O'Scanlon (R., Monmouth) accused Democrats of attempting a "sleight of hand that would amaze even Houdini."

"They are essentially stealing FY '15 revenues to falsely lower the FY '16 pension obligation," he said in a statement.

Republicans in the Legislature and business leaders blasted the Democrats' budget proposals, saying the threat of new taxes creates uncertainty for businesses and makes New Jersey less competitive in the regional economy.

"Once again we are here to say, enough is enough," Tom Bracken, president of the New Jersey Chamber of Commerce, said at a Statehouse news conference. The tax increases, he said, "are counterproductive, will not solve the economic problems of our state, and in fact will make matters worse."

Some 4,500 S-corporations that file business taxes on personal income tax forms would be hit by the millionaires tax, based on 2012 estimates, said Michele Siekerka, president of the New Jersey Business and Industry Association.

But the left-leaning research group New Jersey Policy Perspective said Monday that the vast majority of small business owners who reported business income on their personal tax returns for the years 2009 to 2012 earned less than $1 million.

"The Democrats know the governor is going to veto this," said Assembly Minority Leader Jon Bramnick (R., Union). "And I have to tell you, thank God for the governor, who's got the guts to stand up for the average person working in this state and protecting their job."

Democrats have acknowledged that Christie will almost certainly veto their proposed tax increases, as he has before, and that they don't have a big enough majority to override a veto. But they say the measures are needed to meet the state's obligation to fund the pension system.

Public-sector unions sued Christie in June 2014, alleging he violated that law when he shorted the pension system amid a revenue shortfall.

But the state Supreme Court this month struck down a provision in the law that said public workers had a contractual right to a specific amount of pension funding.

The decision gave Christie the legal authority to continue to short the pension system for nearly 800,000 active and retired public employees. The system has an unfunded liability of $40 billion, according to state figures.

Christie's budget proposal for fiscal year 2016 includes a $1.3 billion pension contribution.

Sarlo said the Budget Committee would vote on the spending proposal on Tuesday and send it to the floor for a full vote on Thursday.