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Competing Tax Proposals Put Transporation Trust Fund Renewal At Risk

Jul 01, 2016

Phase Out Of Estate Tax Caught In The Crossfire

Everyone agrees that New Jersey’s roads, bridges, mass transit and overall infrastructure is in disrepair and in desperate need of improvement. A bipartisan group of legislators worked for months to create a proposal that would have funded the nearly bankrupt Transportation Trust Fund (TTF) with $20 billion over the next ten years through a 23-cent per gallon hike in the gas tax. The increase would have been offset by various tax cuts, including a complete phase-out of New Jersey’s estate tax, as well as cuts for the working poor, charitable donations and retirement income. However, when Governor Chris Christie indicated he would veto the bill because it did not incorporate enough tax cuts, the plan stalled because the Legislature could not muster enough votes to overcome the threat.

In a flurry of activity earlier this week, an alternative proposal was quickly constructed that would generate $16 billion for the TTF over the next eight years. The new proposal would still increase the gas tax by 23 cents per gallon, but that increase would be offset by a reduction in State sales tax from 7% to 6% over the next two years. The new proposal, which also includes a tax cut on retirement income, but no estate tax relief, was passed by the Assembly in an early morning vote on June 28 and awaits a vote in the Senate. Governor Christie has indicated he will sign the new proposal, if passed by the Senate.

The proposed new gas tax increase would go into effect as soon as the bill is signed by the Governor; the sales tax reduction would be phased in, first dropping to 6.5% on January 1, 2017, and then to 6% on January 1, 2018.

Proponents of the “gas tax-sales tax” proposal recognize it will cost the average driver about $140 a year in increased gas taxes, but will save every resident approximately $135 per year in sales tax. New Jersey residents also benefit from $2 billion per year in road, bridge and mass transit improvement projects.

While the initial “gas tax-estate tax” proposal was the result of months of bi-partisan negotiations, lawmakers on both sides of aisle began to voice their concern with elements of the compromise as the deadline approached. Some legislators felt that eliminating the estate tax would benefit the state’s wealthiest residents, while raising taxes on ALL residents. Other legislators supported eliminating the estate tax, but felt raising the gas tax would kill New Jersey’s competitive advantage over neighboring states.

The new proposal, passed by the Assembly and supported by Governor Christie, has met with pushback in the State Senate. Critics say State tax revenue will take a dramatic hit (nearly twice the dollar amount, compared to the initial proposal). They worry that this shortfall will create significant budget concerns in the future. The Senate is scheduled to meet today, but it is unlikely they will take up the Assembly bill and, as a result, there is no long-term funding plan for the TTF at this time.