Wall Street To Murphy: NJ Budget May Be Hurt By Christie Sales Tax Cut, Trump Tax Law
A pair of contrasting tax policies sets the stage for a revenue shortfall -- and major headache -- for Gov. Phil Murphy when he crafts his first budget, a Wall Street ratings agency says.
Moody's Investor's Service warned in a report Monday the state' economy isn't growing fast enough to pay for increased contributions for public worker benefits and that the state will lose out on hundreds of millions of dollars from a cut to the sales tax former Gov. Chris Christie signed as part of a gas tax hike plan.
The sales tax decreased from 7 percent to 6.875 percent on Jan. 1, 2017, and to 6.625 at the beginning of the year. That's $400 million in lost revenue for the current fiscal year, which ends June 30, and another $500 million at the end of Fiscal Year 2019, according to the report.
Baye Larsen, vice president and senior credit officer at Moody's, said the cut means "revenue will struggle to catch up over the next six months."
And then there's the other tax policy that will leave "many New Jersey taxpayers with less disposable income and wealth," according to the report.
Federal reforms drafted by congressional Republicans and signed by President Donald Trump that reworked state and local deductions are expected to drop home values by 7.5 percent on average, Moody's reported.
The bad news comes on the heels of Christie's administration boasting a 30 percent spike in income taxes collected by the state just before he left office compared to the previous year.
The Treasury reported FY 18 revenue was exceeding projections.
However, Moody's attributed the spike in income tax collections to people who moved up their payments to avoid the the changes under the new federal law. If that's the case, the state should prepare itself for offsetting declines in April 2018 tax payments.