Tax Tip

February 22, 2012

GOVERNOR CHRISTIE TOUTS HIS “COMEBACK” THEME IN 2013 BUDGET PRESENTATION

The Governor laid out his $32.1 billion New Jersey state budget yesterday for 2013. His address highlighted his past accomplishments and this budget's hallmark feature of an across the board 10% reduction in income taxes. Christie pointed out that his administration has reduced government spending, balanced the state budgets, and has not raised taxes for two years in a row. The state unemployment rate is down, from 10.1% when the Governor was sworn in, to a current 9%, and the state has added 60,000 private-sector jobs. The theme of the budget address was, "the New Jersey Comeback has just begun." The changes outlined in the budget are as follows:

For 2012, the maximum taxable wage base for Social Security taxes is $110,100 (up from $106,800 in 2011). So, the maximum 2012 tax savings from this break will be $2,202. The act also extends through the end of the year other provisions that had previously been extended for only two months:

• An across-the-board 10% cut in income taxes,
• An increase in the current state Earned Income Tax Credit (EIC) from 20% to 25% of the federal EIC,
• An increase in school aid by over $200 million, to $8.8 billion,
• A doubling of the state’s contribution to its pension system,
• Funding of the state's "Transportation Capital Plan" with an additional $89 million;
• Establishment of a "Governor's Urban Scholarship Program" with funding of $1 million,
• Increase of student financial assistance by $28 million, mostly going to tuition aid grants,
• Increase in aid to school districts by $213 million,
• Contribution of $5.6 million to the Division of Mental Health,
• Contribution of $10 million to the Department of Human Services,
• $24.7 million in funding for individuals with developmental disabilities to expand community placements,
• $986 million in funding for the state's hospitals,
• $2.5 million to establish a new court for nonviolent drug offenders,
• Creation of two new divisions in separate departments, one to focus on families with children with disabilities and another to focus on services for senior citizens.

The Governor emphasized that the state's economic standing has improved "somewhat," in the last two years, but he referenced a study conducted by Boston College which found that $70 billion of wealth has left the state in the last five years. Additionally, the "Tax Foundation," which the Governor did not mention, just released its 2012 "State Business Tax Climate Index" which is a ranking of all the state tax systems in the United States. New Jersey has once again claimed the bottom spot as the state with the least friendly business tax climate in the country. The Tax Foundation is a highly regarded nonpartisan tax policy research group based in Washington DC. While the Governor feels that the state has turned the corner, there is still obviously additional work that needs to be done to once again make New Jersey the "economic engine of the region."

If you have any questions please contact our National Tax Services Group at 609.520.1188 or e-mail Taxbriefs@withum.com