Adjusting New Jersey income tax for inflation supported

A Republican budget plan for New Jersey includes adjusting the state income tax for inflation, an idea that a research and educational organization has been advocating the past year.

State Republican leaders planned to use the state’s huge surplus to send direct payments to consumers to offset high inflation, the New Jersey Monitor reports. They also want to make tax bracket adjustments to account for more than 20 years of inflation, increase state school aid, and stop the state from diverting municipal energy taxes away from its cities.

“Since last year, GSI has been advocating for New Jersey to index our tax brackets to inflation, to avoid the stealth tax of bracket creep," said William J. Smith, a spokesman for the Garden State Initiative. “Inflation indexing means that income tax brackets are revised annually to reflect price and wage increases that result from inflation.”

Higher wages can put workers into higher tax brackets even if that increase in income is more than consumed by higher prices caused by inflation, he said.

Adjusting income tax brackets to reflect inflation hasn’t been done since temporary tax hikes that were put in place by former Gov. Jon Corzine expired in 2007. Income thresholds for tax brackets by joint and married filers would be raised by approximately 71%.

“Since New Jersey last adjusted its brackets in 1996, the world has changed as incomes and prices have increased exponentially. That's especially true in our current inflationary economy where higher prices are outpacing income gains,” Smith said.

The Garden State Initiative and the New Jersey Business and Industry Association have called the plan for the sunset of the corporate business tax surtax important.

The Republicans' budget plan proposes ending the surcharge effective Jan. 1, Smith said. The state’s ranking as having the worst business climate in the United States for almost 10 years accelerated with a “temporary” surcharge that put New Jersey’s corporate tax into double-digits at 11.5%.

The Republican plan would leave the state with a surplus of between $6.9 and $7.8 billion, the New Jersey Monitor reported. Surging collections could guard against an economic downturn by bringing the surplus to a similar level, said Sen. Paul Sarlo, D-Bergen, the Senate budget chairman.

The best practice would be to hold a 10% surplus of the annual budget, Smith said. For New Jersey’s state budget, that would be $5 billion, he said.

“This plan takes that step to prepare for the inevitable economic downturn that’s looming,” Smith said. “While affordability and the state’s business climate remain buzzwords in Trenton, this proposal does offer meaningful steps to offer at least temporary relief to beleaguered taxpayers and businesses.”