Lawmakers consider $600M plan to lessen NJ business tax hikes
TRENTON – State lawmakers are advancing a plan to spend perhaps $600 million from New Jersey’s share of federal COVID recovery funds to repay a federal unemployment loan and lessen related tax hikes that are on the horizon for businesses.
The tax rate paid by employers into the unemployment insurance fund depends on how much money is in the fund and whether they have laid people off recently. The fund had a healthy balance until the pandemic upended the economy and is now $590 million in debt to the federal government.
The Legislature and Gov. Phil Murphy enacted a law more than a year ago that gradually phases in the increase in taxes on businesses. A bill, S733, endorsed Monday by the Senate Labor Committee would go one step further and erase the third, and biggest, of those consecutive years of tax hikes.
“The reality is I try to ensure that we get a hit when we pass a bill, and I think this bill is a – it’s very rational at this particular time,” said Sen. Fred Madden, D-Gloucester.
“Any assistance will go a long way in helping businesses because that’s a huge hit,” said Michael Egenton, executive vice president of government relations for the New Jersey State Chamber of Commerce.
The bill wouldn’t prevent the approximately $297 million tax hike on businesses scheduled for fiscal year 2023, when the column from which contribution rates for employers are applied would move from C to D. But it would prevent the final step, from D to E, now scheduled for fiscal 2024.
Christopher Emigholz, vice president of government affairs for the New Jersey Business and Industry Association, said the move to Column E packs the hardest wallop for businesses, over $336 million, as even companies that haven’t laid off workers would see their tax rate double.
Emigholz said that by paying off the state’s federal unemployment fund loan, the state would also avoid a federal tax increase on businesses that could take effect in November and avoid accruing more interest on its loan, which is now approaching $4.3 million.
“Not paying off a federal loan when we’re sitting on billions of dollars is akin to putting money under your mattress when you have giant credit card payments out there that you’re paying interest on,” Emigholz said.
The state has allocated around $3.1 billion of its $6.2 billion in federal funds through the American Rescue Plan.
The state Department of Labor and Workforce Development said last spring that it projected it would pay off the federal loan in May 2023. But it also projected the balance would be around $300 million larger now than it actually is, so perhaps it would be repaid sooner.
Sen. Anthony Bucco, R-Morris, said the state should go beyond paying off the federal loan and use the money to bring the fund back to its pre-pandemic level. The fund had a balance of $2.95 billion in February 2020, before the pandemic lockdown forced colossal job losses.
“We should put some money behind this legislation,” Bucco said. “Let’s bring that fund back to the pre-pandemic level. Let’s stop the column shift altogether. And let’s send the right message to the state.”
Sheila Reynertson, a senior policy analyst for New Jersey Policy Perspective, criticized the bill and said allocating the federal funds that way isn’t in the spirit of the federal recovery funds program, although more than half the states have spent some of that aid for that purpose.
“Paying back a $580 million loan with federal emergency aid meant for the most immediate needs of workers, who experienced a substantially more severe impact from the pandemic, is worse than shortsighted,” Reynertson said. “It’s inequitable and it’s insulting to the essential workforce.”