Credit: (NJ Legislature)

Lawmakers continued Wednesday to ask questions about raising the state sales tax as part of the next annual budget amid strong opposition to a proposed new tax on high-earning businesses.

The sales tax was last increased in New Jersey nearly 20 years ago, and only after a grueling government shutdown.

But the idea of changing the current rate of 6.625% is once again being raised as key lawmakers have said they must keep “everything on the table” during their evaluations of the $56 billion budget proposed by Gov. Phil Murphy for the fiscal year that begins July 1.

Murphy is already asking lawmakers to approve several tax increases to support his proposed budget. Among them is a corporate tax add-on that a group of about 600 of the state’s most profitable companies would be forced to pay to bring in about $1 billion in new revenue.

However, that proposal — dubbed a “corporate transit fee” since Murphy wants to earmark the revenue for New Jersey Transit — has drawn strong pushback from business-lobbying groups.

Meanwhile, nonpartisan analysts from the Office of Legislative Services have also raised concerns that the proposed tax, if enacted, could leave NJ Transit with an unsteady source of revenue upon which to balance its own budget given New Jersey’s corporate-tax collections have a history of volatility.

Not ruling in, not ruling out

No formal proposals calling for a sales tax increase or a higher tax on top-earning corporations have come up for consideration in either house of the Legislature so far this budget season.

But lawmakers have also not ruled out either proposed tax hike as budget talks now shift behind closed doors in the run-up to the July 1 deadline for a new annual spending plan — a deadline written into New Jersey’s Constitution.

During state Treasurer Elizabeth Maher Muoio’s final appearance before the Assembly Budget Committee on Wednesday, Chair Eliana Pintor Marin delicately asked how much revenue could be raised annually by restoring a 7% sales-tax rate that was last levied in New Jersey in 2016.

“Again, everything is a hypothetical,” Pintor Marin (D-Essex) stressed before being told such a rate would yield about $800 million in new revenue annually.

A careful exchange

Wednesday’s line of questioning followed a similarly careful query at a key moment during Muoio’s appearance Tuesday before the Senate Budget and Appropriations Committee.

During that hearing, Chair Paul Sarlo (D-Bergen) asked whether the administration was open to hiking the sales tax instead of enacting the new corporate tax, but he also added a qualifier, saying “nobody should read into any of this.”

In response to Sarlo, Muoio said raising taxes on top-earning businesses remained the administration’s policy goal, and she reiterated that point to the Assembly hearing on Wednesday.

“This was all just a hypothetical . . . so it wasn’t ‘news of the day.’” — Assembly Budget Committee Chair Eliana Pintor Marin

As for talk of a sales tax hike, which came up earlier during that hearing, Muoio said, “I want the record to note that’s not proposed in our budget.”

Studies generally show sales taxes are regressive in that those with lower incomes tend to pay a larger share of their annual income on taxable items than more wealthy individuals. A heavy reliance on sales tax revenue can also worsen racial inequities since communities of color are often overrepresented among lower-income groups.

Asked about concerns about hiking taxes on New Jersey’s lower-income residents, instead of wealthy corporations, Sarlo stressed to reporters after Tuesday’s Senate budget committee hearing that he was “not saying I support it.”

‘I’m just saying’

“I’m just saying, we, as a Legislature, should look at all of the options available. The business community has mentioned it, a lot of folks have mentioned it, so I just put it out there,” Sarlo said.

Pintor Marin offered a similar qualification as Wednesday’s hearing progressed, including after Republicans suggested the continued exploration of a sales tax increase by majority Democrats should serve as “the real news of the day.”

“This was all just a hypothetical . . . so it wasn’t ‘news of the day,’” Pintor Marin said. “It’s just good for us to have those numbers in order for us to analyze.”

The last time the sales tax rate was changed in New Jersey was 2018, when the rate dropped from 6.875% to 6.625%. That culminated a two-step reduction authorized in a 2016 law enacted by then-Gov. Chris Christie under a broader deal with lawmakers that also involved hiking the state gas tax and phasing out the estate tax.

The last time the sales tax was increased was in 2006, when then-Gov. Jon Corzine called for raising the rate from 6% to 7%, as part of a plan to repair state finances following years of heavy borrowing and overreliance on one-shot revenue gimmicks.

Corzine ultimately prevailed, but only after an impasse with lawmakers brought on a government shutdown that stretched into mid-July that year.

In 2018, Murphy, then in his first year in office, proposed restoring the 7% rate, calling the cut authored by Christie a “gimmick.” Murphy backed away from that proposal after it failed to gain support in the Legislature.