New Jersey officials projected a multimillion-dollar boost in tax revenue to state coffers on Monday, just weeks before the June 30 budget deadline.
The NJ Treasury Department reported that “the state’s fiscal position is remarkably strong,” citing the rapid recovery in revenues last year, followed by the continued rise in revenues this year.
From a low of $38 billion in fiscal year 2020 when the pandemic hit, state revenues began to climb to about $51.4 billion in fiscal year 2022 – a $13.4 billion jump, up 35.3% in just two years, an unprecedented increase for the state of New Jersey.
By comparison, after the Great Recession, it took the state of New Jersey seven years to return to its pre-recession peak in income. Today, NJ not only returned to the pre-pandemic peak, but climbed $8.8 billion above the pre-pandemic trend line.
NJ’s revised FY22 revenue forecast of $51.4 billion is $4.5 billion higher than the state’s early March forecast
State’s FY23 revenue forecast of $50.6 billion is $3.3 billion higher than March forecast
NJ’s combined two-year forecast is $7.8 billion higher than the state’s two-year forecast from just a few months ago. Additionally, the combined two-year forecast is also $4.7 billion higher than the April forecast made by colleagues at the Office of Legislative Services (OLS).
The combined two-year forecast is now $919 million higher than the revised OLS forecast – $452 million higher in FY22 and $467 million higher in FY23.
So what happened?
According to the OLS, the federal government as well as a number of states, including New Jersey, saw huge spikes in tax payments in April.
Probably the best explanation for the rise in income has to do with the boom in financial markets and the overheating economy over the past 12 months.
According to David Drescher, Head of Revenue, Finance and Credit at OLS, “Retail investment capital gains, mergers and acquisitions and conventional capital gains are all high. In light of the year-to-date decline in equity markets, we shouldn’t expect this kind of revenue gain to continue.
According to the NJ Treasury Department, “Most of the upward revisions to revenue are due to very strong collections in March and April of the PTBAIT – the Alternate Transient Business Income Tax – and the gross income (GIT).
Together, these two sources of revenue account for $6.2 billion of the upward revision over the two fiscal years. About 1/3 of PTBAIT revenue came from new taxpayers who had never paid PTBAIT before.
The state’s forecast for a number of other revenues is also up $1.6 billion over the two fiscal years.
Here are some highlights during Combined Exercise 22-23:
- Sales tax up +$394 million
- CBT forecast is up +$541m
- Real estate transfer fee forecast is up +$87 million
- Insurance premium tax forecast is up $135 million
- Casino revenue increases by $97 million
According to the NJ Treasury Department, most of this increase in tax revenue is due to the very strong taxpayer year in 2021.
Last year was a banner year for the New Jersey labor market, as 212,400 jobs were restored and created. Additionally, through the end of March 2022, the state of NJ has recovered 92.7% of the jobs lost at the start of the pandemic, and the unemployment rate has fallen back to 4.2%.
In 2021, wages and salaries increased by 8.4% and nominal state GDP by 8.7%. Boosted by rising incomes and federal stimulus payments, retail sales soared 20.5% according to Moody’s. Additionally, New Jersey’s housing market continued to grow and prices for single-family homes rose 14.4%.
Nationally, corporate profits jumped about 36% in 2021, the S&P 500 index rose 26.9% and Wall Street bonuses rose 20%.
But NJ is not alone, New York State recently closed its fiscal year 21-22 with revenue 33% higher than forecast, an increase of $30 billion. Reports are also coming in from many other states of surprisingly strong April revenue collections. For example, Pennsylvania said it exceeded its April tax revenue target by $1.8 billion and was $4.5 billion over its year-to-date target.
But this surge in income also comes with warnings!
Longtime state revenue expert Lucy Dadayan of the Urban-Brookings Tax Policy Center says states are in a “tax bubble” and current collection patterns are unsustainable.
Home sales declined year-over-year for many months and the Federal Reserve began a series of interest rate hikes aimed at curbing inflation.
Major economic forecasters have lowered their GDP growth projections for 2022 and 2023.
- U.S. real GDP fell 1.4% in the first quarter of 2022.
- The S&P 500 index is down about 15% so far in 2022.
National year-over-year retail sales growth slowed significantly in March to 6.9%, below the national CPI inflation rate of 8.5%, which suggests that real consumer spending growth has peaked and is beginning to decline.
In New Jersey, April sales tax collections growth of about 7% will be the weakest growth so far this year, and a marked slowdown from the 17% growth seen in March .
Also in New Jersey, estimated quarterly GIT payments in April actually fell 24%, suggesting high-income taxpayers are cautious about the year ahead.
For the year ahead, the NJ Treasury Department agrees that current growth is unsustainable, and as a result, the state’s forecast for FY23 is down 1.6% from FY22. NJ Treasury is also seeing sales tax increase a slower 2%.
On the other hand, the NJ Treasury forecasts lower GIT, CBT, PTBAIT, estate tax and real estate transfer fees.
“New Jersey is enjoying a remarkable increase in revenue over two years. We have achieved, at least for now, a certain structural balance between income and expenditure. We have spent a significant amount of debt reduction to improve the government’s long-term fiscal conditions. – New Jersey Treasury Department
With additional revenue at its disposal, the NJ Treasury now aims to fix the state’s underfunded retirement system, dramatically increase property tax relief through the new ANCHOR program, provide record amounts school aid and building up a vital surplus to help protect the state in an emergency. and future negative recessions.
“We are in a very good position today, better than anyone could have hoped for 24 months ago. It is a good problem to have, but it will clearly serve as a temptation. We must be aware of the economic news that arrive daily.” New Jersey Treasury Department
“The rich have had a very good year, thanks to soaring corporate profits across the world last year, and that is reflected in our tax revenues. On the other side of the coin, we have seen an increase in requests for help from our most vulnerable. – New Jersey Treasury Department