The tax changes should be made to deal with the economic fallout of the novel coronavirus outbreak, For the Many in New Jersey said in an open letter to Democratic Gov. Phil Murphy and state legislative leaders. The group also called for changing the state's combined reporting regime so interstate companies can't "hide" taxable income, approving an increase of the state's sales and use tax to 7% and allowing certain services, such as chartered flights and limousine rides, to be folded into the tax.
In a statement, Brandon McKoy, president of the left-leaning research group New Jersey Policy Perspective and co-convener of For the Many, said enacting the suggested tax changes would help the state recover faster from the pandemic.
"As we learned in the wake of the Great Recession, a cuts-heavy response will only worsen the economy's fall, exacerbate existing inequities and slow the state's ultimate recovery," McKoy said.
McKoy's group made a similar call in January, when the governor presented his budget. However, since then, the fallout from COVID-19, the respiratory ailment caused by the coronavirus, has wreaked havoc on state budgets nationwide.
In the letter, the group said new personal income tax brackets should be created for those annually making $250,000, $750,000, $1 million and $2.5 million. In addition, tax rates should rise for those at the existing $500,000 and $5 million annual tax brackets, the group said.
"Doing so would raise income taxes on just the top 6% of the state's households and would help ensure that the wealthiest New Jerseyans are paying their fair share on a yearly basis," the group said.
The group also said leaders should create an exemption for the state's taxes on inherited wealth for those with estates of less than $1 million. The state imposes a graduated inheritance tax of 11% to 16% on the transfer of real and personal property to certain beneficiaries with a value of $500 or more, according to the New Jersey Division of Taxation.
"For the inheritance tax, creating an exemption up to $1 million would exempt middle-class families and help guard against the deepening trend of concentrated wealth in fewer and fewer hands," the group said.
For the estate tax, which was fully repealed in 2018, the group said state leaders should reinstate the tax on estates worth more than $1 million.
New Jersey should also switch its combined reporting method from its current Joyce approach to a Finnigan approach, the group said. Joyce treats each entity of a combined group individually while under Finnigan, members of a business group are treated as one taxpayer.
"If New Jersey switched from an entity-by-entity approach (Joyce) to a group approach (Finnigan) to determine state corporate income tax jurisdiction, the state would collect significantly more revenue from multistate corporations," the group said.
State leaders should consider enacting worldwide combined reporting in order to combat what the coalition said was tax haven abuse, and should consider legislation to require subsidiaries of businesses that may be used as tax shelters to be included in combined reporting. The group said the measure could raise $95 million to $233 million, depending on how many tax havens are included.
The group said New Jersey should increase its sales and use tax rate to 7% and tax more high-end services as part of that tax. The state reduced its sales and use tax in 2016 from 7% to 6.625%. The cut cost the state an estimated $2.5 billion for the 2019 to 2022 fiscal years, the group said.
Richard McGrath, a spokesman for Senate President Steve Sweeney, D-West Deptford, declined to comment.
Murphy's office didn't respond to requests for comment Wednesday. But the state's Department of the Treasury said Wednesday that New Jersey saw an unprecedented $3.5 billion decrease in its April revenue collections for major taxes, 59.7% below collections from April 2019.
Treasury noted the collections largely reflected March economic behavior and the state pushing back the filing and payment deadlines for personal and corporate income taxes from April 15 to July 15, making the full impact of the COVID-19 pandemic on state revenue still unclear.
Treasury expects to have an updated revenue forecast by May 22.
Tom Bracken, president and chief executive of the New Jersey Chamber of Commerce, told Law360 on Wednesday that talking about taxing businesses more right now, when they are under the most severe financial distress they've likely ever been in because of the pandemic, was "absurd."
"We have a million people who have filed for unemployment out of a workforce of 4.2 million," Bracken said. "To do anything but encourage companies to get up and running and support them so they can hire these people back ー anything short of that is just ridiculous. I find it laughable."
Sen. Steve Oroho, R-Sparta, the Republican budget officer, said that before any additional taxes should be considered, other areas of government that should be looked at first.
"Before you say anything about needing any additional taxes or additional borrowing, it's incumbent upon everybody to say, 'OK, how can we operate more efficiently or how can we change our cost structure?'" Oroho said.
Danielle DeSisto, a spokeswoman for Assembly Speaker Craig Coughlin, D-Woodbridge, said the speaker had not seen the letter and therefore had no comment.
--Editing by Neil Cohen.
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