New Jersey officials agreed Thursday to make the state one of the first to adopt a millionaires tax to alleviate shortfalls caused by the pandemic, intensifying a national debate over whether to increase taxes on the rich to help address widening income gaps.
Three years after taking office with a pledge to raise taxes for the state’s wealthiest residents, Gov. Phil Murphy, a Democrat, announced a deal with legislative leaders to increase state taxes on income over $1 million by nearly 2 percentage points. The agreement also includes an annual rebate of as much as $500 for families making less than $150,000.
“We do not hold any grudge at all against those who have been successful in life,” said Murphy, a former executive at Goldman Sachs. “But in this unprecedented time, when so many middle-class families and others have sacrificed so much, now is the time to ensure that the wealthiest among us are also called to sacrifice.”
Republicans and some business leaders warned that higher taxes will lead to an exodus of affluent residents, draining the state of revenue needed to pay for basic services like education and health care.
The issue of requiring higher earners to pay more has also become an issue in the presidential race. Joe Biden, the Democratic nominee, has proposed raising taxes on people earning more than $400,000 to finance a slate of programs, including expanded day care.
Last month, Murphy proposed giving children born into families earning less than $131,000 a $1,000 nest egg to use when they turn 18. That proposal, which would cost about $80 million a year, has not gained traction during negotiations over the state budget, which is due Oct. 1.
In New Jersey, the millionaires tax was an initiative the Democrat-led Legislature had symbolically approved for years before Murphy took office in 2018, knowing that it would never be signed into law by Chris Christie, then the Republican governor.
But Murphy, a self-avowed progressive who arrived in Trenton with few legislative allies, had been unable to win support for the idea from Senate President Stephen M. Sweeney, a political rival, or Assembly leader Craig J. Coughlin.
Facing a fiscal crisis brought on by the urgent health needs of the pandemic and the monthslong shutdown of businesses, lawmakers agreed to raise the tax rate on earnings over $1 million to 10.75%, up from 8.97%. Individuals earning more than $5 million were already taxed at the higher rate.
The deal underscores the shifting political climate and a recognition that the wealthy may need to contribute more to the state’s recovery with so many residents out of work and struggling to feed their families.
More than 1.5 million residents have filed for unemployment benefits since Murphy implemented a lockdown to help stop the spread of the virus, which has led to the deaths of more than 16,000 New Jersey residents.