New Jersey Gov. Phil Murphy on Thursday announced a new deal with fellow Democrats to hike taxes on the state's wealthiest individuals and couple that with a one-time tax rebate for lower-income households.
Under the plan, the state's gross income tax rate on earnings over $1 million will increase to 10.75% from 8.97%. Wages over $5 million are already taxed at the top marginal rate of 10.75%.
Murphy's administration estimates the tax increase will raise about $390 million in revenue from 16,491 state residents and 19,128 non-residents.
"We do not hold any grudge at all against those who have been successful in life," Murphy said during a press conference. "But in this unprecedented time, when so many middle-class families have sacrificed so much, now is the time to ensure that the wealthiest among us are also called to sacrifice."
In exchange, a $500 rebate check would go to families with at least one child and an annual income of less than $150,000 a year for couples and $75,000 for single parents. Murphy estimated that about 800,000 households would be eligible for the money.
The tax will begin this year, Murphy said, and the tax rebate will be based on 2020 tax filings, meaning that most people can expect to receive the cash next summer.
Republicans have warned the tax hike could trigger an exodus of the state's wealthy residents.
"Governor Murphy’s plan to raise taxes is a gift for the Florida economy and a nightmare for New Jersey," Jon Bramnick, the state's Republican assembly leader, tweeted.
The rebates are expected to cost about $350 million, leaving just $40 million in revenue from the tax increase for the government. Murphy said the leftover money will be put into "exactly what folks want" — such as school funding, health care and housing.
Murphy campaigned on a pledge to restore the state's millionaires tax, which sunsetted in 2010 with the departure of Democratic Gov. Jon Corzine. Democrats have since voted to increase the tax rate on top-earners to 10.75%, but then-Republican Gov. Chris Christie vetoed those efforts.
But the state's Democrats soured on the levy, arguing New Jersey's high-income earners are already taxed enough as a result of President Trump's Tax Cuts and Jobs Act, which prevents households from deducting more than $10,000 a year in state and local tax expenses from their federal tax bill.
Murphy twice failed to get the tax hike through the state's Democratic-controlled legislature.
"We've resisted — and I've vocally resisted —a millionaires tax for years," New Jersey Senate President Steve Sweeney, a Democrat, said during the press conference. "And it wasn't a political thing about the governor or me. I had a problem with it at the timing."
"But the pandemic hit," he continued, "and things have changed. We have to face the reality that a lot of families are hurting here."
The state faces a $5.7 billion budget shortfall as a result of the coronavirus-induced shutdown.