It’s no secret that the last couple of fiscal years have been amongst the most challenging for businesses in living memory. COVID-related restrictions, staffing difficulties, supply chain issues, it hasn’t been easy for anyone responsible for keeping a business fiscally solvent or even viable.
That is not to say that the government hasn’t given help. The state has provided the EDA grants, the coming childcare grants, the federal government has doled out cash for business owners in the form of the ERC, EIDL, PPP, and assistance to individuals has come in the form of stimulus checks and updates to existing programs like the Child Tax Credit.
That being said, the NJ business community and Republican opposition are grumbling as the Murphy administration leans on businesses to replenish billions of dollars from the Unemployment Trust Fund that has been thoroughly depleted throughout the pandemic and the staggering levels of unemployment that followed.
In this article, I’ll quickly cover what’s been done, what’s going to happen next, and the various opinions surrounding this controversial decision on the governor’s part.
What’s Happening With the NJUI Tax Hike on Businesses?
As some business owners have already noticed, on October 1st, higher tax contributions to replenish the depleted unemployment trust fund began. Gov. Murphy signed a bill to spread this increase out over three years instead of slamming NJ business all at once.
Although this was supposed to occur on July 1st, the DOLWD announced, along with the specific employer rate increases, that the increase would begin in October. If you’re looking for a detailed explanation of the numbers, you can find that here.
The bill signed by Murphy, the tables provided by the DOLWD, and their “simplified” announcement/explanation are borderline unintelligible for almost anyone that doesn’t work in the accounting field. That’s not me taking a dig at anyone’s intelligence; that’s me pointing out the incredibly complicated, convoluted nature of legislation, particularly when it’s in regards to taxation. I would wager that the vast majority of those employed by Trenton, including the DOLWD, couldn’t explain what those documents mean.
With that said, I’ll outline the basics. For any Sharp clients that want a more detailed explanation, feel free to call us, but it’ll be helpful to read this overview first to get a bird’s eye view of the situation.
Explanation of the NJ UI Tax Hike
The health of the NJ Unemployment Trust Fund (NJUTF) is calculated by what’s called the Trust Fund Reserve Ratio. Depending on this ratio (measured in percent), there are corresponding tables (A, B, C, D, E, E+) with tax rates for employers and employees.
When the fund is healthy, the state’s UI, DI, WF, and FLI rates are lower, using table A. When the fund is unhealthy due to high levels of unemployment, tables B-E+ are used. What Murphy’s bill did was prevent businesses from being taxed based on table E+, instead only jumping up to table C for 2021-2022, D for 2022-2023, and E for 2023-2024.
The state needed to replace the $7.9 billion that was paid out in UI benefits; at the same time, it’s not a great financial time to be asking struggling business owners to pay more in taxes. This solution was supposed to soften the blow.
What Are Murphy’s Critics Saying About His Tax Hike?
Critics have lambasted Murphy for using billions of dollars worth of stimulus funds to invest in various construction, and environmental projects around the state instead of offsetting the tax increase asked of business owners.
The projects to be funded will cost roughly $700 million and include the following:
- $100 million to Hackensack University Medical Center to boost its public health preparedness.
- $40 million to create a state program to mitigate supply chain gaps in affordable housing and community development projects.
- $37.5 million to help tenants apply to an eviction prevention program and temporary staff to administer the program.
- $25 million to help the state buy an abandoned rail corridor spanning Essex and Hudson counties for a long-planned greenway.
- $20 million to help Inspira Health acquire the Salem Medical Center.
- $10 million to help boost urban areas with mass transit faced economic problems because of reduced commuters during the pandemic.
- $5 million to support RWJBH and Rutgers University Behavioral Health with programming related to the pandemic.
- $5 million for pandemic-related programs at the Wally Choice Community Center in Glenfield Park in Montclair.
- $5 million to help the state implement a marketing program to highlight doing business with the state as the economy recovers from the pandemic.
- $3 million to Atlantic Health to help modernize and renovate the Emergency Department at the Morristown Medical Center.
- $2 million to the Alexander Hamilton Visitor and Education Center at the Great Falls National Park in Paterson.
- $100,000 to help Vernon Township conduct environmental remediation.
State Senate minority leader Steven Oroho, R-Sussex, described the Murphy administration’s choice to use federal funds for the projects listed above as “grossly incomplete and fails to address key needs for New Jersey.”
With 28% of business owners interesting in closing or selling their businesses sooner rather than later, it’s understandable to question the logic behind asking them for any more in taxes. This is particularly the case when there is a cash infusion from the federal government, and it’s being used to fund projects that aren’t immediately necessary.
Last week at a panel of the NJBIA, Assembly Budget Chairwoman Eliana Pintor Martin was asked if she would force the Governor to hold firm on his promise of no new taxes; she waffled and said that should be the case.
The reality is that other states have used federal stimulus funds to offset their depleted state UI funds. The argument that the investments being made will help the state’s economic health in the long term is a great idea. Still, if increased taxes push businesses over the edge into the abyss, it won’t matter what ribbon-cutting happens. New Jersey should consider pulling back on investments in flashy new projects until the business community has had the time it needs to get back on its feet.