State lawmakers have been considering a tax reform proposal to shift the costs of running vital public services away from the wealthiest residents in New Jersey and onto everyone else. In the end, the state assembly passed a bill that maintains the state estate tax, a progressive levy on the wealthiest residents, and instead passed a gas tax increase and 1 percent sales tax cut.
An infrastructure crisis spurred the action—the state’s Transportation Trust Fund is expiring and requires immediate action to avoid letting transportation infrastructure fall further into disarray.
The proposal on the table from a bipartisan group of legislators would have eliminated the state’s estate tax and replaced this revenue with higher taxes on gasoline. Eliminating the estate tax would have essentially provided a handout to the residents who need it least at the expense of those who need it most.
The often-maligned yet vaguely understood estate tax has been a topic of great debate in recent years. Even though fewer than 5 percent of the New Jersey’s wealthiest residents pay the estate tax, it raises hundreds of millions of dollars in much needed revenue. This revenue funds public schools, roads and bridges, public transit and a slew of other important infrastructure and community services in the state.
The bill that passed the state assembly on June 28 instead includes a one percent cut to the state sales tax from 7 to 6 percent and raised the gasoline tax by 23 cents per gallon. The new legislation will raise $2 billion over eight years for the transportation trust fund. It will also leave a $1.2 billion budget shortfall in general revenue resulting from the sales tax cut.
This bill is still far from perfect. The gas tax hike will inevitably fall harder on low income residents, many of whom have to commute long distances, than on the well-off. And the decrease in the sales tax will take much needed revenue off the public books setting up a future budget showdown on issues other than transportation.
A statement from the New Jersey Policy Perspective points out that, “This proposal, on the surface, is a fairer plan, in that it’s not a tax shift primarily from the wealthy to the working- and middle-class. But that advantage evaporates as soon as the gaping budget hole causes New Jersey to cut vital services, lay off employees or shrink the social safety net.”
According to a recent study by the Economic Policy Institute, the richest 1 percent in New Jersey makes 25.3 times the income than the bottom 99 percent. At a time when those at the top are doing phenomenally well while many families struggle to find their way in the wake of the Great recession, cutting revenue for vital public programs seems misguided at best and downright cruel at worst.
Preserving the estate tax is a victory worth celebrating. State legislators can and should find ways to ensure revenue is raised in a progressive way. Ensuring a strong social safety net for the neediest residents of New Jersey will be a fight for another day.