Another NJ Tax Increase? Budget Cuts? Here's Why Both Possible

The Murphy administation just got some bad financial news – and it could even have worse consequences for New Jerseyans as Gov. Phil Murphy gets ready for his State-of-the-State address.

Here's why New Jerseyans could face more tax increases, or steep budget cuts, if the state's financial fortunes don't turn around soon:

• Tax collections dipped way below expectations in December, falling $335 million – or 10.1 percent, – below the previous December's figure, according to the state Department of Treasury.
• Also, revenues grew at a modest 2.1 percent over the last year – well below what the Department of Treasury expected, which was 7.5 percent.
• That's the most significant number – because it means the state Department of Treasury expected to get $700 million more than it did. But it didn't.

All this news comes as Murphy is supposed to deliver his State-of-the-State address at 2 p.m. on Tuesday. You can watch it live here: WATCH LIVE: NJ Gov. Phil Murphy To Deliver State-Of-The-State

Murphy also has been struggling to gain traction on two of his signature initiatives: Raising the minimum wage to $15 an hour and legalizing marijuana. Read more: New Developments On 2 Big NJ Bills: Marijuana And Minimum Wage

New Jersey already approved tax changes that will make you dig deeper into your pocket this year. Read more: 5 New Tax Hikes, Fees In NJ Start Now

The state Department of Treasury blamed the revenue shortfall on a "change in tax planning behavior" caused by the federal tax reform law, which placed new caps on state and local income tax deductions.

The Tax Cuts and Jobs Act capped the state and local tax deduction, allowing filers to claim only up to $10,000 on their federal tax return.

"The capped federal SALT deduction may have prompted a change in tax planning behavior this year because it eliminated the incentive to prepay the estimated fourth quarter payment in December, which is due Jan. 15," according to the statement from the treasury department.

The dip in overall December collections is due primarily to a drop in the gross income tax receipts. Those tax receipts were down 35.2 percent from last December, with $1.182 billion collected, while year-to-date collections were down 6.5 percent, with $5.667 billion collected.

The sales and use tax, the largest general fund revenue source, reported $788.1 million in December, up 5.4 percent. Year-to-date, sales tax collections of $3.982 billion are up 1.2 percent from the same period last year, according to the statement.

The Corporation Business Tax, the second largest general fund revenue, brought in $596.1 million, 40.9 percent above last December. Year-to-date, the CBT has collected $1.536 billion, or 60.8 percent above last year.

Governor Murphy photo