New Jersey Legislature Passes $56.6 Billion Budget with Corporate Tax Hike

Income Tax

New Jersey’s Democrat-led Legislature approves a $56.6 billion budget, increasing taxes on high-earning corporations to fund education, property tax relief, and public pensions. Governor Phil Murphy is expected to sign the bill.

New Jersey, Bollywood Fever: New Jersey’s Democrat-led Legislature passed a $56.6 billion budget on Friday, which includes increased taxes on high-earning corporations. The measure now heads to Governor Phil Murphy, who is anticipated to sign it.

The Legislature successfully passed the budget two days before the constitutionally mandated deadline, thereby averting a government shutdown.

The budget allocates substantial funds for K-12 education, property tax relief, public pensions, and various other programs. For businesses earning over $10 million annually, the budget increases the top corporate tax rate to 11.5%, up from the previous 9%.

Income Tax

Governor Murphy, also a Democrat, proposed this corporate tax increase to support the financially strained New Jersey Transit, which has historically used capital funds for its operational budget. While the tax increase aims to provide dedicated funding for the transit agency, it is uncertain how effectively it will meet this goal, as future budget commitments will be necessary.

The new budget represents a 4% increase from the previous year’s budget signed by Murphy, a relatively modest rise compared to past years.

Key elements of the budget include an increase in state funding for K-12 education to over $11 billion, nearly $1 billion more than the previous allocation. This funding is intended to fully implement an aid formula approved by the state Supreme Court.

Additionally, the budget sets aside approximately $2.5 billion for direct property tax relief, continuing initiatives from 2022 and 2023 to aid residents, renters, and older individuals. The average property tax in New Jersey in 2022 was around $9,500.

The budget also covers all aspects of state government operations, including executive departments and public universities. Notably, the Legislature approved a 67% pay raise for lawmakers, their first increase since 2002, to take effect in 2026. The budget includes various expenditures, often referred to as Christmas tree line items, for specific constituencies such as homelessness programs, re-entry support for formerly incarcerated individuals, fire departments, arts programs, and life skills education through tennis in one city.

This budget is the second to last for Murphy ahead of next year’s gubernatorial election, where he will be term-limited. Since taking office in 2018, Murphy and the Democratic Legislature have significantly altered the state’s finances, increasing funding for K-12 education, public pensions, and the state’s rainy day fund. They have also implemented tax increases on individuals earning over $1 million annually and briefly raised business taxes, though the surcharge expired this year.

The new budget reinstates this tax for companies making more than $10 million. Republicans and business groups have criticized the tax increase, arguing it hinders economic growth and penalizes responsible corporate citizens.

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