Credit agency says scrapping tax deal with Pa. is good for NJ
TRENTON - Gov. Christie's decision to end a decades-long agreement with Pennsylvania that allowed taxpayers to pay income tax where they lived instead of where they worked is a positive development for the Garden State's credit, a Wall Street ratings agency said Monday.
TRENTON - Gov. Christie's decision to end a decades-long agreement with Pennsylvania that allowed taxpayers to pay income tax where they lived instead of where they worked is a positive development for the Garden State's credit, a Wall Street ratings agency said Monday.
The new tax arrangement is scheduled to take effect Jan. 1, though Christie, a Republican, has suggested he might abandon the change if the Democratic-controlled Legislature cuts health-care costs for public workers.
In a confirmation hearing Monday, acting state Treasurer Ford M. Scudder said the State Health Benefits Program Plan Design Committee had achieved $100 million in savings for the current fiscal year.
Christie has said he needed to scrap the tax agreement to help fill a $250 million budget hole, after unions didn't agree to the cuts he wanted.
His administration is battling the state's largest teachers union in court to try to extract concessions from the School Employees' Health Benefits Design Committee. Union members have been boycotting meetings.
Lawmakers on the Judiciary Committee did not ask Scudder about the tax agreement during the 90-minute hearing. The committee voted 11-1 in favor of confirming him; the nomination now goes to the full Senate.
Scrapping the agreement will raise taxes on low- and moderate-income New Jersey residents who work in Pennsylvania, many of them in Philadelphia, as well as on higher-income Keystone State residents who commute across the Delaware River.
The Judiciary Committee does not include any representatives from South Jersey, though Senate President Stephen Sweeney (D., Gloucester), who wants to maintain the tax agreement, could have sat in and asked questions. Sweeney spoke with lawmakers in the committee room but did not stay for the hearing.
A spokesman for Sweeney didn't comment.
Scudder, who previously worked for the macroeconomic research firm founded by the famous supply-side economist Arthur Laffer, did field questions on the minimum wage, estate tax - and, bizarrely, his use of a fake ID to try to enter a bar while underage years ago.
Moody's Investors Service said Monday that Christie's tax reciprocity decision was "credit positive" but did not warrant an upgrade of the state's debt rating.
"New Jersey's move to end the longstanding tax agreement comes amid ongoing budget challenges brought on by the state's slow economic recovery, optimistic revenue forecasting, and rapidly growing pension obligations and contributions," Moody's said in a report.
Another ratings agency, Standard & Poor's, said last week that New Jersey would gain $180 million annually by nixing the agreement. Pennsylvania expects to lose $5 million a year, which Moody's said was negligible in the context of the Commonwealth's $32 billion budget.
New Jersey has a $35 billion budget.
The Christie administration has declined to say how much revenue it expects to reap from ending the tax agreement. However, Treasury spokesman Joseph Perone told reporters, "We're not disputing the number that's out there," referring to the $180 million figure.
S&P said Thursday that ending tax reciprocity would "put the tax relationship between New Jersey and Pennsylvania in a similar position as that which exists between New Jersey and New York, or for that matter, between most states."
About 250,000 people commute across the Delaware River for work, according to census data.
Moody's said a Pennsylvania analysis found that Keystone State residents who work in New Jersey earn an average of $62,874 a year, compared with $52,147 earned by Garden State workers who commute across the river.
"Therefore, Pennsylvania will lose more from its higher-income taxpayers who will pay New Jersey first than it will gain from lower-income taxpayers paying Pennsylvania first," Moody's said.
Taxpayers will file returns with the state where they work first and then claim a credit on their home-state filings.
Pennsylvania's income tax rate is flat at 3.07 percent, while New Jersey's marginal tax rates range from 1.4 percent for income up to $20,000 to 8.97 percent for income above $500,000.
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