New proposals include:
- Increasing the income tax rate from 6.37 to 8 percent on those earning between $400,000 and $500,000 for one year to generate $83 million.
- Increasing the income tax rate from 10.25 to 10.75 percent on those with incomes over $1 million for one year to generate $200 million. (For income over $500,000, the administration previously proposed increasing the current rate from 8.97 percent to 10.25).
- Increasing the HMO tax from 2 to 3 percent to generate $50 million.
- Increasing the insurance premium tax by .25 percent to generate $66 million.
- Suspending the property tax rebates for one year on all homeowners except seniors and the disabled, saving $459 million.
- Forgoing a new preschool program, saving $25 million.
- Decreasing special municipal aid by $25 million.
Impact on Small Business
The State Chamber is concerned about the impact that these tax increases will have on the employer community. The proposed income tax rate increases would impact small business owners as well as individual taxpayers. That’s because many small businesses, such as S Corporations, LLCs or Partnerships, pay taxes through their owner’s income, therefore making these income tax increases akin to business tax increases. This discourages them from creating and retaining jobs or expanding their investments in New Jersey. Additionally, as has been made all too apparent by the latest tax collections, the income tax is an extremely volatile revenue source and a significant source of the budget shortfall, so New Jersey cannot rely on income from high-earners as a predictable revenue stream.
These income tax increases are in addition to the tax changes proposed in March, which included an increased rate on income over $500,000, an extension of the 4 percent surtax that was imposed on businesses in 2006 as part of their overall corporate business tax (CBT) liability, and the suspension of the property tax deduction for non-seniors earning more than $150,000, which also impacts certain small businesses.
HMO and Insurance Premium Taxes
We also are concerned about the negative impact on the HMO and insurance industries if the proposals to increase the HMO and insurance premium tax rates go forward. There have been several laws enacted in recent years that have increased the tax burden on health plans, including doubling the HMO assessment in 2006. Further tax increases could discourage new plans from entering New Jersey, resulting in decreased competition. Increasing the tax burden on insurance companies is particularly detrimental to New Jersey’s domestic insurance companies, as the majority of states impose a “retaliatory tax” on out-of-state insurance companies, which require these out-of-state companies to pay either their state’s rate or New Jersey’s rate, which ever is higher. Since New Jersey’s rate is already one of the highest, the Garden State’s own insurance companies will be paying significantly higher rates in the majority of states where they operate. This proposed rate increase is a disincentive for insurance companies to choose New Jersey as their base.
UI Fund Payroll Tax Increase
We appreciate the administration’s commitment to providing $120 million to the Unemployment Insurance Trust Fund. The current shortfall in the fund is expected to trigger a payroll tax increase of approximately $87 per employee effective July 1, 2009. Those employers who have been forced to lay off employees will experience a double tax increase – an increase in their UI taxes because of an overall fund balance deficit, and an increase in their UI taxes due to an increase in their individual experience rating. If the $120 million is not appropriated, the deficit will trigger a payroll tax increase of roughly $140 per employee.
We continue to voice our concerns to legislators and the administration, and we will keep you updated as the budget negotiations progress.
*Information provided by the NJ State Chamber of Commerce
