May 21, 2004 |
2004-R-0430 | |
NEW JERSEY GOVERNOR’S PROPERTY TAX REFORM PROPOSAL | ||
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By: Judith Lohman, Chief Analyst | ||
You asked for a summary of a property tax reform plan recently announced by Governor James E. McGreevey of New Jersey.
SUMMARY
Governor McGreevey announced his “Fair and Immediate Relief” (FAIR) plan in a speech to a joint legislative session on April 29, 2004. It includes the following:
• Increase the state income tax rate on upper-income taxpayers and earmark additional revenue to increase property tax rebates for qualifying homeowners and tenants.
• Cap annual increases in state, local, and school district administrative spending.
• Eliminate unnecessary state mandates on local school districts.
• Reduce school district surplus accounts.
• Establish a pilot program to regionalize local administrative services.
• Establish a Citizen’s Task Force to gather additional spending reduction proposals from the public.
• Ask the legislature to call a constitutional convention in 2005 to enact long-term property tax reform.
A fuller summary of the governor’s plan appears below. Information on the plan is taken from the governor’s speech and the accompanying press release. A summary of the plan issued by the governor’s office is attached.
The New Jersey legislature is currently considering the plan and has not yet taken action on any part of it.
INCOME TAX INCREASE
Proposal
The governor proposes a “millionaire’s tax” that would increase state income tax rates on taxable income over $ 500,000 by 2. 6 percentage points. The governor’s speech is not specific, but presumably the $ 500,000 income threshold applies to married couples filing jointly and the tax increase threshold for singles and married people filing separately would be $ 250,000.
The governor estimates the tax increase would raise $ 800 million in additional revenue and affect 28,500 taxpayers (less than 1% of state taxpayers).
Background
New Jersey’s income tax currently has six brackets, with a bottom rate of 1. 4% on taxable income over $ 20,000 for joint filers and $ 10,000 for singles and married people filing separately. The state’s top rate is currently 6. 37% on taxable income over $ 150,000 for married people filing jointly and over $ 75,000 for singles and married people filing separately.
If enacted, the governor’s proposal would give New Jersey’s tax seven brackets and a top rate of 8. 97%.
New Jersey’s personal exemptions are $ 2,000 for married couples, $ 1,000 for singles, and $ 1,500 for each dependant child.
Proposal
The governor’s plan proposes to use 100% of additional revenue from the tax increase on upper income taxpayers to enhance an existing program under which the state gives qualifying taxpayers rebates on their property taxes. The plan would:
1. increase maximum homestead rebates for senior citizens from $ 750 to $ 1,200,
2. increase rebates for families from an average of $ 250 to a maximum of $ 800, and
3. increase average rebates for singles from $ 250 to $ 500.
Background
A New Jersey taxpayer is eligible for a state rebate of property taxes paid if he meets all the following conditions.
1. He maintains a principal residence in New Jersey as either a homeowner or tenant during the tax year.
2. He is age 65 or over or blind or disabled and has a gross annual income of $ 100,000 or less or, is under 65 and not blind or disabled and has a gross annual income of $ 40,000 or less.
3. His principal residence, whether owned or rented, is subject to local property taxes, and property taxes are paid on that residence either as actual property taxes or through rent.
4. His principal residence is a full living unit with its own separate kitchen and bathroom.
In addition to income tax and property tax rebate increases, Governor McGreevey’s plan includes the several proposals designed to reduce spending. The plan asks the legislature to:
1. limit annual increases in state, local, and school district administrative spending to a maximum of 2. 5%;
2. reduce the maximum allowable amount school districts can maintain in surplus accounts from 6% to 3% of their budgets, with savings dedicated to property tax relief;
3. pass a specific bill that would eliminate unnecessary state education mandates identified in the report of an Education Mandate Review Study Commission (see attached summary of SB 1533); and
4. require the State Education Department to establish a pilot program to regionalize local administrative services.
McGreevy also plans to appoint a Citizen’s Task Force to (1) hold public hearings and forums to gather additional savings ideas from the public and (2) determine the scope of, and procedures for, a state constitutional convention (see below).
McGreevey’s plan endorses a proposal for a state constitutional convention to be held in 2005. Under the plan, the convention’s scope would be limited to property tax reform, but it would be expected to consider both spending and revenues. The Citizen’s Task Force (see above) must make recommendations to the legislature concerning scope and structure of the convention, including ways to select delegates and ensure public input. The recommendations must be ready for submission to the legislature for action in its 2005 session.
JL: ro