New Jersey to adopt ‘millionaires tax’ to address widening income gap

New Jersey officials agreed on Thursday to make the state one of the first to adopt a so-called millionaires tax to alleviate shortfalls caused by the pandemic, intensifying a national debate over whether to increase taxes on the rich to help address widening income gaps.

Governor Phil Murphy, a Democrat, announced a deal with legislative leaders to increase state taxes on income more than $1 million by nearly 2 percentage points, giving New Jersey one of the highest state tax rates on wealthy people in the country. The agreement also includes an annual rebate of as much as $500 for families making less than $150,000.

“We do not hold any grudge at all against those who have been successful in life,” said Murphy, a former executive at Goldman Sachs. “But in this unprecedented time, when so many middle-class families and others have sacrificed so much, now is the time to ensure that the wealthiest among us are also called to sacrifice.”

The tax deal comes at a moment when the country is enduring its worst economic crisis in decades and Washington has been unable to agree on a stimulus bill to provide more help to cities and states, which have resorted to cuts in services and other fiscal maneuvers to stay solvent in the face of mounting deficits.

Projected state revenues have plummeted, including declines of as much as $31 billion in California, $10 billion in New Jersey and $3.4 billion in Florida.

At least eight other states — including California, Massachusetts and New York — have considered proposals to increase taxes on high-income residents, according to the National Conference of State Legislatures.

The new tax in New Jersey, the nation’s second wealthiest state, is expected to generate an estimated $390 million this fiscal year; 16,491 New Jersey residents and 19,128 nonresident taxpayers will now pay the higher rate, state officials said.

Facing a fiscal crisis brought on by urgent health needs and a months long shutdown of businesses, lawmakers agreed to raise the tax rate on earnings over $1 million to 10.75%, up from 8.97%. Individuals earning more than $5 million were already taxed at the higher rate.