The New York Times

Legislature Votes To Raise Taxes Of New Jersey's Richest

The New York Times — Tuesday, June 22, 2004

By LAURA MANSNERUS

TRENTON, June 21 — After 18 months of debate over raising the taxes of the state's wealthiest residents, both houses of the New Jersey Legislature easily approved the measure known as the millionaire's tax on Monday.

The tax, which despite its name applies to all income over $500,000 a year, will pay for additional property tax relief for households earning less than $200,000 a year. The top rate rises to 8.97 percent from 6.37 percent, affecting about 1 percent of taxpayers.

The income tax increase is the first since 1990, when a broader increase by Gov. Jim Florio and the Democratic Legislature set off a punishing backlash from voters. Proposals for a millionaire's tax won few adherents in the Legislature last year, but this year opposition began to melt quickly.

Gov. James E. McGreevey suddenly embraced the idea this spring. He cast the plan as a property tax relief measure, promising that the $800 million in expected new revenue would be dedicated to rebates. And he stressed that the proposed increase would take a small fraction of the savings that high earners were realizing from President Bush's tax cuts.

The governor's plan included measures to cap local expenditures to keep down property taxes and to assign a study group to consider a state constitutional convention on the property tax system. Those measures were also approved Monday.

The tax increase affects about 30,000 households and benefits about 1.8 million households. The maximum rebate for elderly, disabled and low-income people will rise to $1,200 from $775, and for most other households will increase to $800 from $250.

While some Republicans supported the measure, most called it a soak-the-rich plan intended for political expediency. "This policy reeks of envy and class warfare," said Assemblyman Michael Patrick Carroll, a Republican from Morristown. They also contended that raising the tax would drive high-income people out of the state and discourage new business.

One Democratic assemblywoman, Bonnie Watson Coleman of Trenton, responded with figures comparing the federal tax cuts with the proposed state tax increases: "If I were fortunate enough to make $550,000 and get a $19,000 windfall, I would be glad to give the citizens of New Jersey an additional $846."

The new bracket makes New Jersey's income tax, already one of the most steeply graduated in the nation, much more so. New Jersey's lowest bracket, at 1.4 percent, compares with 4 percent in New York and 3 percent in Connecticut, for example; the top rates in New York and Connecticut are 7.7 percent and 5 percent, respectively. The top bracket would be the fifth-highest in the nation, behind Vermont, California, Oregon and Iowa. In those states, however, the top brackets start at income levels well under $500,000.

The new tax would be retroactive to Jan. 1, although the new fiscal year begins July 1.

The measure was approved 56 to 24 in the General Assembly and 25 to 13 in the Senate. The votes fell generally along party lines, although 10 of the Assembly's 33 Republicans supported it, as did four Senate Republicans.

Jon Shure, the leader of a coalition of nonprofit groups, the Fairness Alliance that first proposed the tax 18 months ago, said he was gratified by the Legislature's turnabout. "I've been arguing for a long time that the politicians are behind the curve," Mr. Shure said. "What we've needed in New Jersey for a long time is a grown-up discussion about taxes."

The Legislature is expected to approve Mr. McGreevey's $26.3 billion budget before the June 30 deadline. In contrast to the last two budgets, this year's presents few contentious issues, and the Democrats control both houses for the first time since Mr. McGreevey was elected.

The Republicans oppose Mr. McGreevey's plan to borrow $1.5 billion to finance his budget, however. The Senate minority leader, Leonard Lance, said on Monday that they would challenge the borrowing in court "as soon as the ink is dry" as a violation of the State Constitution's requirement of a balanced budget.

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