By Kate King 

New Jersey lawmakers passed a $32.7 billion budget Thursday, which will be funded in part by increased income taxes on the state's millionaires.

Democratic Gov. Phil Murphy has long pushed to increase taxes on millionaires, but it wasn't until the coronavirus pandemic delivered a body blow to state revenue that the legislature's top leaders, also Democrats, agreed. Under a bill passed Thursday, tax filers earning between $1 million and $5 million will pay 10.75% in income tax, up from 8.97%, on earned income above $1 million. All income above $5 million is already taxed at the higher rate.

The increased tax rate is expected to bring in at least $390 million in annual revenue and would take effect during the 2020 tax year. The legislation also provides for annual rebates of up to $500 for families earning below $150,000. The rebate program is expected to cost the state at least $300 million a year starting in 2022.

Republican state Sen. Declan O'Scanlon said the rebate would give away nearly all the funding generated by the millionaires tax. Some Republicans opposed the bill because they said it would force wealthy residents to move out of the state. "The lame rebate scheme, tied to this massive job and economy-killing tax increase does no favors for the beleaguered taxpayers of New Jersey," Mr. O'Scanlon said.

Lawmakers also voted to increase and extend until the end of 2023 a surcharge on businesses earning more than $1 million. The move is expected to bring in more than $200 million in additional revenue next fiscal year, which begins Oct. 1.

Both chambers of the Demoratic-controlled legislature voted largely along party lines to approve the budget. Mr. Murphy was expected to sign it into law.

State Sen. Paul Sarlo, a Democrat, said the increased taxes were necessary to help the state weather a fiscal crisis worse than what it experienced after the terrorist attacks of Sept. 11, 2001, the recession that started in 2008 or superstorm Sandy in 2012.

"This is not a normal budget, and these are not normal times," he said. "This is a COVID budget that we have to do to contend with the crisis conditions created by the pandemic conditions on the economy."

State Sen. Tom Kean, a Republican, voted against the spending plan.

"This budget is a wasted opportunity to restructure our state's finances in a way that will safely and responsibly rebuild our state's economy," he said.

Write to Kate King at Kate.King@wsj.com

(END) Dow Jones Newswires

September 24, 2020 16:17 ET (20:17 GMT)

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