Should NJ Keep This Controversial Business Tax? Fierce Debate Rages On

NEW JERSEY — The clock is ticking on a controversial business tax in New Jersey, but a fierce debate surrounding it continues.

An extra surcharge on the state’s corporate business tax (CBT) – which is among the highest in the nation – is set to automatically expire on Jan. 1, 2024 unless it’s extended by new legislation. That prospect seems dim, as Gov. Phil Murphy and other high-ranking lawmakers have said they’re planning to let it go the way of the dodo.

With new state tax collection data showing lagging revenues and agencies such as NJ Transit facing severe budget gaps, some advocates are renewing their calls for lawmakers to keep the CBT surcharge intact.

However, business groups argue that it’s way past time for the “temporary” surcharge to expire, and that – in the words of Gov. Murphy – “a deal is a deal.”

Here’s what the debate is about.

WHAT IS THE ‘CBT,’ ANYWAY?

New Jersey has a 9 percent tax on businesses, with smaller companies earning less than $1 million taxed on a sliding scale that bottoms out at 6.5 percent. It’s expected to raise a whopping $5 billion during the next fiscal year, making it one of the state’s meatiest sources of revenue.

New Jersey also charges an extra 2.5 percent “surtax” for companies that top $1 million in earnings – the source of the controversy.

The surcharge rolled out in 2018, the year after Gov. Phil Murphy was first elected. It was originally scheduled for step downs in 2020 and 2021, but it was extended by the state Legislature.

In January, the CBT extension will sunset as originally planned. But whether that’s a good thing or bad thing depends on who you ask.

Some arguments in support of extending the surcharge include:

• Ending the surcharge will mostly benefit mainly wealthy corporations – not “mom and pop” shops
• The loss of revenue will come at a time when the state needs all the funds it can get
• The money supports public services such as transportation, schools and affordable housing, which all make New Jersey a more attractive place for businesses

Some arguments against extending the surcharge include:

• Lawmakers designed it to be temporary
• It’s harming the state’s business climate and hamstringing economic development
• A lower tax rate may create more economic growth – and more overall tax revenue

ADVOCATES: KEEP THE SURCHARGE

Advocates such as the nonprofit New Jersey Policy Perspective (NJPP) have pointed to the latest numbers from the state Treasury department as proof that the CBT surcharge should be extended.

According to Peter Chen, a senior policy analyst with the NJPP, the latest data shows exactly what budget experts have been warning: New Jersey will need more revenue to balance its books and pay for the public investments that keep its communities running.

“Lower-than-expected tax collections are always a concern, but this latest trend is even more alarming since the current budget was already set to spend more money than the state would collect,” Chen said.

“This structural deficit threatens New Jersey’s fiscal health and will make it harder to fund public schools, NJ Transit, child care, and other areas supported by federal pandemic aid that’s about to expire,” he added.

• See Related: NJ Residents Approve Of This Tax Hike, New Poll Says

New Jersey would lose $1 billion in annual revenue if it eliminates the CBT surcharge, state estimates show. The change would only benefit a few “highly profitable corporations,” providing an average tax cut of $5 million to companies with more than $100 million in annual profits, advocates say.

The vast majority of New Jersey businesses - about 98 percent – do not pay the surcharge at all because their annual profits fall below the $1 million profit threshold.

The NJPP has argued that New Jersey’s strong CBT revenue collections in the last few years are a clear indicator that big corporations are thriving, and that the surcharge hasn’t hurt their bottom line or driven them out of the state. Read More: 'Young And Rich' People Are Flocking To New Jersey, Study Says

According to the NJPP, corporate tax revenue in New Jersey increased by 212 percent between 2009 and 2021 – with the largest increase happening between 2020 and 2021.

• See Related: Report Blasts NJ Companies, Billionaires For Being ‘Pandemic Profiteers’

BUSINESS GROUP: END THE SURCHARGE

If you ask the New Jersey Business and Industry Association (NJBIA) what they think about the situation, you’ll get a much different answer.

“Supporters of extending the CBT surtax either don’t understand or acknowledge the full context of it,” NJBIA president and CEO Michele Siekerka said.

“Firstly, the surtax was always intended as temporary,” Siekerka said. “And as Governor Murphy has repeatedly stated: ‘A deal is a deal.’”

“Secondly, as misrepresented by supporters and misreported by some in the media, New Jersey’s corporate business tax is not ‘going away,’” Siekerka continued. “After the temporary 2.5 percent surtax sunsets, our largest employers will still have a 9 percent CBT rate – which is the fourth highest in the nation.”

“The argument for being an extreme, national outlier on business taxes ignores the most important principle of state tax policy -- which is New Jersey competes with other states for job creation,” Siekerka asserted. “It also ignores the proven economic benefits other states with lower CBT rates enjoy.”

And allowing big businesses to earn big profits? That’s not a bad thing at all, she added.

“It is wholly appropriate for businesses to seek profits,” Siekerka argued. “If other states allow for greater profits, we run the very real risk of those job creators moving investments and jobs elsewhere, which is not good for New Jersey. In neighboring Pennsylvania, for example, the CBT rate is on a course to go down to 4.9 percent.”

The group applauded a recent statement from the Murphy administration that the governor’s stance on the CBT surcharge hasn’t changed – and that he still plans to let it expire.

According to Siekerka and the NJBIA, even NJ Transit’s looming budget shortfall isn’t nearly a good enough reason to keep the surcharge tax alive.

“New Jersey spends and taxes way more than most states already,” Siekerka said, adding that the state should “observe how it spends” instead of seeking to “further penalize job creators.”

• See Related: Bitter Struggle Over New Jersey Corporate Business Tax Heats Up
• See Related: 3 Problems New Jersey Kicked Down The Road With Latest Budget
• See Related: How NJ's Plummeting Tax Revenue Will Impact Your Budget
• See Related: NJ Among Worst In Nation For Tax Rate, New Study Says

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