8/14/2019 Tax Reform and Budget

1/13

1

Tax Reform and Budget Solutions

8/14/2019 Tax Reform and Budget

2/13

2

Tax/Budget Principles

Make New Jerseys tax systemcompetitive

End overreliance on property taxes Rein in public sector salary,

pension and benefit costs Reduce unfunded pension and

health care liabilities and long-termdebt

Invest in job growth Fight for fair share of federal

revenue

8/14/2019 Tax Reform and Budget

3/13

3

A Tax System Out of Whack

PropertyTaxes

$23.7 Billion

Sales Taxes

$8.1 Billion

IncomeTaxes

$11.7 Billion

Corporate Tax$2.7 Billion

$22.5 Billion

8/14/2019 Tax Reform and Budget

4/13

4

Rebalancing the Tax System

Property Taxes$24 Billion

Sales Taxes$ 8 Billion

Income Taxes$11.7 Billion

Corporate Taxes

$2.7 Billion

Property Taxes$20 Billion

Sales Taxes$ 12 Billion

Income Taxes$11.1 Billion

Corporate Taxes$2.0 Billion

8/14/2019 Tax Reform and Budget

5/13

5

Making NJ Competitive

Property taxes in New Jersey becomecompetitive with neighboring states.

Hard cap placed on school district,municipal and county budgets andemployee contracts.

Low and middle income tax rates remainamong lowest in the nation.

Upper income tax rate cut from 10.75% to8.97% -- rank drops from 3rd to 7th in nation.

Corporate tax rate drops from 9.36% to7% -- rank drops from 6th in the nation to 25th,below NY, PA and other competitive states.

Sales tax rate remains at 7% -- tied for 12thin the nation (combined state/local and salestaxes).

8/14/2019 Tax Reform and Budget

6/13

6

Daggett Plan: Following the Money

$4 Billion Property Tax Cut

$620 Million Income Tax Cut

$750 Million Corporate Tax Cut

$130 Million Dedicated Funding for

Open Space, Tourism, Free Beaches

8/14/2019 Tax Reform and Budget

7/13

7

Sources and Uses

$1.6B Existing Property Tax Relief $3.9B Broadening Sales Tax

$5.5B Total Sources

$(4.0)B Property Tax Cut$(.62)B Income Tax Cut$(.75)B Corporate Tax Cut

$(5.37)B Total Uses

$130m Net to be dedicated for open space,tourism, free beaches

8/14/2019 Tax Reform and Budget

8/13

8

The Daggett Tax Cut

PROPERTY TAX INCOME TAX CORPORATE TAX

25%PropertyTax Cut up to$2,500 for allHomeowners.All Seniors get

$2,500.

Top BracketCut from

10.75% to8.97%

Corporate TaxRate Cut from9.36% to 7%

SALES TAX

Broadened to Tax MoreServices: Rate Stays at7% with No Tax onNecessities

8/14/2019 Tax Reform and Budget

9/13

9

Broaden Sales Tax Base

Growing service sector now makes up60% of economy, yet sales tax is primarilylevied on goods and has been shrinking asa share of NJ tax base.

Plan would extend sales tax to broad

array of household, personal andprofessional services rendered toindividuals.

This results in an additional $3.9 billion inrevenues

Plan would continue to exempt food,clothing, educational, medical, funeral andbusiness-to-business services.

Sales tax rate of 7 percent still ranks 12thin nation in state-local sales tax rate.

8/14/2019 Tax Reform and Budget

10/13

10

A Hammer to Cap Property Tax Growth

Property taxes grew an average of 5.9%from 1998 to 2008, more than twice the2.8% average CPI increase.

Plan limits annual growth in schooldistrict, municipal and county budgets andemployee contracts to the CPI index.

Any jurisdiction approving a budget oremployee contract exceeding the CPIwould forfeit property tax cut.

Left unchanged, property taxes will risefrom $24 to $42.7 billion over the nextdecade. Under the Daggett cut and cap,property taxes would grow to just $27.7billion, a savings of $15 billion.

8/14/2019 Tax Reform and Budget

11/13

11

Open Space, Tourism & Beaches

Sales tax expansion includes a $205 million tax onseasonal rentals.

Only 19% of vacation rental taxes would be paidby New Jersey residents.

Dedicates $100 million annually to preserve open

space. Allocates an additional $20 million for tourismpromotion, tripling guaranteed funding to promoteNJs second-largest industry.

Creates a $10 million fund to offset annual loss ofbeach badge fees for any shore town or countywilling to make any beach free.

Like existing hotel-motel tax, shore and ski townscan levy 3% local option tax to cover cost oftourism services or reduce property taxes.

8/14/2019 Tax Reform and Budget

12/13

12

The $8 Billion Budget Gap

Expiring Tax Revenue ($1.1B)Property Tax Rebate ($1.6B)Pension Contribution ($2.5B)Federal Stimulus Dip ($1.6B)

Forecast Budget Growth,Non Recurring Revenue ($2.0B)

Forecasted Revenue Growth $0.8B

TOTAL GAP ($8.0B)

Note: Estimates by OLS

8/14/2019 Tax Reform and Budget

13/13

13

Addressing the Gap

Expiring Tax Revenue ($1.1B)Property Tax Rebate ($1.6B)

Pension Contribution ($2.5B)

Federal Stimulus Dip ($1.6B)Forecast Budget Growth,Non Recurring Revenue ($2.0B)

Forecasted Revenue Growth $0.8B

TOTAL GAP ($8.0B)

Note: Estimates by OLS

Addressed throughtax plan

Salary growth reduced

lowering liabilities

Freezing cost increasesthrough budget process