NJCPA Responds to Governor Murphy’s Proposed FY2020 Budget
Statement by Ralph Albert Thomas, CPA (DC), CGMA, CEO and Executive Director, NJCPA
The headlines are bleak and all too familiar:
- “New Jersey’s Budget Mess is Getting Even Worse” (March 4, 2019, Bloomberg)
- “New Jersey Governor Again Seeks Higher Taxes on Wealthy” (March 4, 2019, Wall Street Journal)
- “On the budget, Governor Murphy’s not being fair to the English language” (March 5, 2019, NJ.com)
The message is clear: New Jersey is facing a fiscal crisis, and we are not committing ourselves to the difficult decisions that will put the state on sound financial footing. While the New Jersey Society of Certified Public Accountants (NJCPA) commends Governor Murphy for addressing issues such as health care spending, high property taxes and the growth of small businesses in his budget presentation, there’s more work to be done.
According to a recent report by the New Jersey Business & Industry Association (NJBIA), state expenses have significantly outpaced state revenues, and state debt has increased by 382 percent over the last 10 years. For this fiscal year, which ends June 30, Governor Murphy counted on 7.5 percent overall revenue growth to balance the budget. Through January, growth was 3 percent, putting the state $740 million behind, according to a Feb. 25 report by S&P, which ranks New Jersey debt A-, the seventh-highest investment grade.
Governor Murphy needs to take a closer look at pension and benefit reform. New Jersey’s combined net pension liability and post-employment benefit obligation is currently $151.6 billion — four times the state’s annual budget. Without changes to the pension and benefit structure, the cost of pensions and benefits will rise from a current $6.6 billion to about $11 billion in 2023, according to New Jersey Treasury projections submitted to the Senate Budget and Appropriations Committee and other health benefit reports. That would be 27 percent of the state budget.
The NJCPA strongly endorses the pension and benefit reform recommendations spelled out by the New Jersey Economic and Fiscal Policy Workgroup in its “Path to Progress” report. The report cited the need to shift from the current defined benefit pension system to a sustainable hybrid system that combines the best elements of both a defined benefit and a defined contribution system.
Last year, the state budget forced $1.6 billion in higher taxes on New Jersey businesses and residents to cover state expenses. Businesses have also faced absorbing other costly state mandates, including an increase in the minimum wage, enhanced paid sick leave and expanded paid family leave mandates, higher energy delivery costs and fees from renewable energy efforts.
The expansion of the millionaires’ tax proposed by the Governor directly impacts small businesses that flow their income taxes through personal returns. We already have some of the highest personal income and business taxes in the nation, and our rates compare unfavorably with neighboring states. The proposed marginal tax rate of 10.75 percent on income above $1 million would put New Jersey well above New York State’s rate (8.82 percent) and would be more than three times Pennsylvania’s flat rate (3.07 percent).
NJCPA members often hear objections about New Jersey’s high taxes from clients who are looking to leave New Jersey. In a member survey, 75 percent of respondents said they have recommended to some clients that they move out of state. In short, the proposed budget plan will be counterproductive.
The NJCPA has long advocated for policies that will generate economic growth and supported a fair tax system that enables companies and individuals to thrive. We are concerned that the increased spending and revenue raisers in the Governor’s budget will have far-reaching consequences, affecting New Jersey’s ability to grow and attract business.
We need to work together to provide an environment that not only fosters growth but adapts quickly to changing business needs. The NJCPA stands ready to be a resource to the Governor, his administration and the Legislature.