What You Need To Know About New Jersey’s Millionaire’s Tax

New Jersey has approved a millionaire’s tax, making it the fourth state (including Washington, D.C.) to do so. The agreement reached Thursday between Gov. Phil Murphy and his fellow Democrats in the legislature increases the state taxes on income over $1 million by nearly 2 percentage points.

The new tax rate in the nation’s second wealthiest state, is expected to generate an estimated $390 million this fiscal year, according to state officials. It comes as New Jersey is facing a projected $10 billion drop in revenues amid the worst economic crisis in decades.

The tax hike will apply to 16,491 New Jersey residents and 19,128 nonresident taxpayers, the New York Times

NYT
reported.

Here’s what else you need to know:

This was a long time coming.

The state legislature actually enacted a millionaire’s tax back in 2017 when former Republican Gov. Chris Christie was in office. That bill, which was promptly vetoed by Christie, was more of a gesture to incoming Democrat Murphy who had talked about a millionaire’s tax in his campaign.

However, during Murphy’s first year in office that millionaire’s tax got watered down a bit to a $5-million-aire’s tax, which doesn’t roll off the tongue quite as nicely. That law in 2018 increased the top tax rate to 10.75% and created a new tax bracket of $5 million and higher. But it kept the rate for those with incomes between $1 million and $4.99 million at 8.97%.

This week’s deal now would apply that top tax rate to those with incomes higher than $1 million.

Who else has a millionaire’s tax?

Three states and D.C. already have tax brackets for millionaires.

• California’s top tax bracket of 13.3% applies to single taxpayers earning $1 million or higher, or joint filers with incomes above roughly $1.1 million.
• Connecticut’s top tax bracket of 6.99% applies to joint filers with incomes of $1 million or higher, or to singles with incomes of at least $500,000.
• New York’s top bracket of 8.82% applies to singles with incomes of $1,077,500 or higher, and to joint filers with incomes of at least $2,155,350.
• In Washington, D.C., joint or single filers with incomes in excess of $1 million are taxed at the top rate of 8.95%.

This is just a blue state thing, right?

Yes and no. So far, millionaire’s taxes have only been enacted in Democrat-led states. But they’ve been proposed and have failed in red and blue states.

In 2018, a citizen-led effort in Arizona managed to get an initiative on the ballot proposing a millionaire’s tax that would help fund education. The rapid success of the measure, which produced an astounding 270,000 signatures in 10 weeks in then-solidly-red Arizona, was reflective of the impact that teacher strikes had there at the time. In fact, early polling commissioned by its backers showed wide public support for the idea.

But voters never got to weigh in. With the support of then-Gov. Doug Ducey, a Republican, the state chamber of commerce challenged the measure. Two months before the election, the Arizona Supreme Court knocked it off the ballot with it’s ruling that the wording in the petition to get the measure on the ballot was misleading.

A millionaire’s tax in Massachusetts also failed that year in similar fashion. Business groups succeeded in getting the so-called Fair Share Amendment removed from the ballot after the state supreme court ruled it was unconstitutional.

What state will be next?

Undaunted by the defeat, Massachusetts lawmakers in 2019 passed another state constitutional amendment to raise taxes on millionaire’s. That ballot proposal goes before the voters in 2022.

There have been calls in New York, which already had a millionaire’s tax, to create a new tax bracket for the super-rich. Legislation is pending that would raise New York state’s top rate — now 8.82 percent — to 11.82 percent for people making more than $100 million a year. But Gov. Andrew Cuomo appears unlikely to support it. This week he again shot down the idea of a tax hike on the state’s wealthiest.