The nation’s highest business tax could be reinstated in New Jersey

A year ago, Governor Philip D. Murphy of New Jersey spoke proudly of his plan to eliminate the corporate tax. He framed this as a promise kept in a state that strives to compete for entrepreneurs.

“Eliminating this fee will mean more money for them to create jobs, invest in new and more efficient equipment, lower costs for consumers and stay here,” said Murphy, a Democrat. unveiled his budget blueprint last February.

He was successful. And the tax expired two months ago.

On Tuesday, Mr Murphy will propose reversing course and reintroducing an 11.5 per cent corporate tax – the the highest percentage in the country — for the state’s most profitable companies, according to several of his aides. He is expected to present the tax restoration as part of a permanent solution to the dire financial state of New Jersey’s statewide transit system during his annual budget address at the State House.

There is a key difference in this proposed corporate surcharge: The 11.5 percent rate, if adopted, would only apply to companies with profits of more than $10 million per year, an increase from the previous threshold of $1 million.

The Murphy administration said between 600 and 700 businesses would be required to pay the additional 2.5 percent surcharge on top of the state’s basic business rate of 9 percent. (Until January, when the old tax formula expired, about 3,000 businesses paid the top rate.) Still, the governor’s aides said this would raise about $800 million a year in revenue.

Beginning in mid-2026, that additional revenue would go to New Jersey Transit, which is facing large and growing deficits. But Murphy does not see the tax – he calls it the “corporate transit fee” – as an alternative to the fare increases that New Jersey Transit wants to impose.

The agency proposed increasing all train, bus and light rail fares by 15 percent on July 1 and by another 3 percent annually thereafter. The agency’s board will vote on that proposal, which would be the first rate increase since 2015, after a series of public hearings next week.

Transit advocates and some Democratic officials have criticized the fare increase proposal, saying it will unfairly place an additional burden on workers who take trains and buses to work.

“We have known about NJ Transit’s budget problems for years and we have sounded the alarm,” said Alex Ambrose, an analyst at New Jersey Policy Perspective. “We have yet to see a solution from lawmakers that does not balance the budget on the backs of hardworking New Jerseyans.”

Ms Ambrose argued that Mr Murphy should not have allowed the corporation tax surcharge to lapse in the first place, and should instead have sent the resulting money to the transport company.

The governor’s new tax proposal aims to address a long-standing criticism of the state’s transit funding policies.

Transit advocates have been calling on the state for years to provide more annual funding that New Jersey Transit can rely on. Without sufficient dedicated resources, the agency was dependent on annual budget allocations.

For the current budget year, the state provided about $140 million, up from $100 million the year before. That allocation was in addition to $440 million from tolls on the New Jersey Turnpike and $70 million from the state’s clean energy fund.

That mix amounted to the state’s largest annual contribution to New Jersey Transit, but was far from enough to cover the agency’s operating costs. So the agency had to subtract $334 million from its budget for infrastructure improvements and equipment upgrades. Such annual transfers hamper the agency’s ability to provide reliable service, advocates say.

New Jersey Transit has suffered a continued decline in ridership since the arrival of Covid and has had to survive on more than $4 billion in federal pandemic aid in recent years. That money helped New Jersey Transit maintain service levels, but it will run out next year.

Despite the agency’s financial instability, Mr. Murphy has taken credit for a long list of improvements there, including hiring hundreds of machinists and bus drivers, purchasing new equipment, improving timeliness and reducing cancellations of trains.

Tuesday’s presentation by the governor is the opening offer in what will now be a months-long negotiation with the state Legislature to finalize a spending plan for the fiscal year that begins July 1.