New Jersey Governor Lures Breakaway Democrats With Tax-Hike Compromises

(Bloomberg) -- Governor Phil Murphy dangled his compromise budget before supporters in Newark, scoring endorsements from the mayor of New Jersey’s largest city and swelling the ranks of Democratic lawmakers breaking from their colleagues’ spending plan.

In a letter to Senate President Stephen Sweeney and Assembly Speaker Craig Coughlin on Tuesday, Murphy offered to adjust his $37.4 billion budget to include lawmakers’ proposed corporate-tax surcharge and a millionaire’s tax smaller than he had originally sought.

Murphy, a Democrat who took office in January, also offered to phase in an increase in the sales-tax rate to 7 percent over two years, rather than immediately. The governor said he would accept several other legislative proposals, including a one-time tax-amnesty program, restoration of homestead-rebate funding and $195 million in savings.

Murphy’s offers, though, met resistance from Sweeney, who said the governor “didn’t really offer us anything.”

“I’m not comfortable raising the sales tax,” Sweeney said at news conference in Trenton moments before he was to meet with the governor for budget talks. “I’m not comfortable with the millionaire’s tax.”

That meeting was later canceled.

Lawmakers counter-offered a 1 percent increase in the realty transfer fee on property sales above $1 million, for a total $110 million. They also pitched a short-term property rental tax, which would include vacation rentals at New Jersey beaches, for $250 million.

Murphy at his appearance earlier in Newark stepped up the attack on their $36.5 billion proposal, one he says is riddled with unsustainable revenue that would worsen New Jersey’s finances.

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The millionaire’s tax, Murphy said, was “the obvious solution here,” given that Democratic lawmakers had voted for such a levy five times, only to be vetoed by his predecessor, Republican Chris Christie.

“It would be protecting 20,000 millionaires,” Murphy said of a potential budget that lacked the increase. “In exchange for that we would have to gut the budget or shut the state down.”

The governor and lawmakers must pass a balanced budget by the July 1 start of fiscal 2019 or risk a state government shutdown. Murphy has said he would line-item veto about $800 million in lawmakers’ proposed spending, to particularly harsh effect on Newark’s schools, mass transit and safety.

Alongside him today, in addition to Newark Mayor Ras Baraka, were Assembly Democrats Ralph Caputo, Cleopatra Tucker and Britnee Timberlake. At other public appearances this week, he was joined by more than 100 supporters who had contributed to his campaign, including members of the New Jersey Education Association and the Communications Workers of America, two of the state’s largest public-worker unions.

Democrats who control both houses of the legislature have objected to the extent of the tax increases in Murphy’s first budget. The governor had proposed raising the income-tax rate on millionaires to 10.75 percent from 8.97 percent. His compromise includes a “modest increase” in the tax rate, according to his letter, which didn’t provide more specifics.

“I believe this compromise fairly balances our mutual concerns while strengthening our fiscal foundation,” Murphy said in his letter Tuesday. He declined to add details in Newark.

“We didn’t get into levels,” he said of prior budget meetings with lawmakers.

Murphy’s letter also said he would accept a corporate business-tax surcharge that would “be in place on a recurring basis to stabilize our finances,” and was smaller than the one lawmakers had proposed. Legislation sponsored by Sweeney would levy a two-year surcharge to raise the overall tax rate for the biggest corporations to 13 percent, higher than any other state.

“My preferred plan is something that has a longer life but ultimately sunsets,” Murphy said in Newark. With economic growth, he said, the state years from now could afford to make the rate lower than today’s.

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