SENATE BUDGET AND APPROPRIATIONS COMMITTEE
SENATE, No. 1147
with committee amendments
STATE OF NEW JERSEY
DATED: JUNE 21, 2012
The Senate Budget and Appropriations Committee reports favorable Senate Bill No. 1147, with committee amendments.
As amended, this bill increases the rate of the New Jersey gross income tax for taxpayers with taxable incomes exceeding $1,000,000 in taxable years beginning on or after January 1, 2012. The bill provides for adjusted income taxation at the following bracket at the following rate: over $1,000,000 is adjusted from 8.97% to 10.75%. The bill permanently imposes the tax rate at this $1,000,000 income bracket that was temporarily imposed during taxable year 2009.
The bill also dedicates the gross income tax revenue collected from the "millionaires'" tax increase for annual real property tax relief to be provided directly to real property taxpayers. All income tax revenue collected from the increase in the gross income tax rate imposed on taxable income in excess of $1,000,000 will be deposited in a subaccount in the constitutionally established Property Tax Relief Fund. All revenue derived annually from the tax rate increase is pledged to be used annually for direct real property taxpayer relief. This subaccount, to be known as the Direct Taxpayer Property Tax Relief Fund, is the revenue and budget account that will ensure that direct tax relief continues to be funded from this source.
The committee amendments clarify the authority of the Director of the Division of Taxation to fairly administer a tax rate change during tax year 2012, and eliminates the proposed establishment of a dedicated account, and instead links the operative date of this bill to the enactment of pending bills that provide the supplemental appropriations of the "millionaire's tax" anticipated tax revenue for significantly enhanced property tax relief payments under the Homestead Benefit Program for the State’s homeowners and tenants.
The Office of Legislative Services (OLS) estimates that an increase of the top marginal tax rate from the current 8.97% to 10.75% on income above $1.0 million may raise between $754 million and $836 million in Fiscal Year 2013, assuming an effective starting date of January 1, 2012. Part of the estimate is a one-time boost from revenues that would have been collected in the first 6 months of 2012 for FY2012 (between $186-$203 million) had the rate increase been enacted before the beginning of the tax year. Accordingly, FY2013 will effectively receive 18 months of revenue. After FY 2013, the estimated amount from such a rate increase would return to a 12-month level, or between $570 million and $664 million in FY2014 and between $597 million and $728 million in FY2015.
These estimates are based on extrapolations from Tax Year 2009 data from the Statistics of Income, as published on-line by the New Jersey Division of Taxation. Based on reported overall revenue growth, the OLS assumes that higher income taxpayers experienced 20% income growth in TY 2010. For subsequent years, the OLS assumes between 5% and 10% growth income for those taxpayers. Higher income taxpayers have historically seen greater income growth rates than average taxpayers, particularly in years when the stock markets are growing. However, the OLS also notes that due to the volatility of incomes at high levels, the revenue estimates are also subject to significant upward and downward movement. For example, prior to the Great Recession, taxpayers reporting incomes greater than $1.0 million saw income growth of 17% in Tax Year 2006 and 23% in Tax Year 2007; during the Great Recession that income declined by 21% in Tax Year 2008 and declined by 28% in Tax Year 2009.