New Jersey is the latest state to pass legislation to boost revenue for the state’s bond fund and to phase in a tax on deferred annuity payments that are currently exempt.
The New Jersey legislature passed the bill on Thursday, according to a news release from the state senate Finance Committee.
The bill includes a one-time increase of 1.5 percent in the rate for annuity tax payments made to employees of state or local governments, and another 1 percent increase in the tax for deferred annuities, which are generally taxable to the individual making the payments.
The tax increase would be phased in over five years, starting in 2019.
It would also phase in the increase on all taxable annuites of the same type that are taxable to employees.
The bill, which is being opposed by New Jersey’s pension funds, would require the state to take a 10 percent hit in its bond fund revenues from 2021 through 2023, when the state has a two-year window for collecting the $20.9 billion bond funds tax, according the release.
The governor said he would veto the bill.
New Jersey’s move comes as other states have tried to curb tax avoidance schemes, including California and New York, and some hedge funds have been sued by the Securities and Exchange Commission for allegedly avoiding taxes.
In New York state, the hedge fund billionaire David Tepper is facing federal civil fraud charges related to his investments in a hedge fund that was taken over by his wife, who had previously run the firm.
Tepper has denied the allegations.
State lawmakers passed the plan with a simple majority in the Senate, but Republican lawmakers blocked the bill in the Assembly, which passed it on a party-line vote in late March.
Democrats also oppose the tax increase, saying it would raise taxes for families with lower incomes and people who live in low-tax states like New Jersey.
“We are not going to allow hedge fund managers to avoid paying taxes by selling their investments to hedge funds and then using the proceeds to pay lower taxes to taxpayers who pay higher taxes on their income,” state Sen. Anthony Portantino, a Democrat from East Meadow, New Jersey, said in a statement.
The state has about $1.1 trillion in assets and $3.9 trillion in debt.
New Jersey will face a $4 billion state bond tax hike in 2022 and a $2.2 billion tax increase in 2022.
The governor said in February that he was “uncomfortable” with the tax hike.
In the letter to lawmakers, Portantinos staff wrote that “the bill has been crafted to provide a relief to New Jersey families, while also helping fund state government in the long term.”
The state Senate also approved a bill Thursday that would raise the state sales tax rate from 7 percent to 9 percent and eliminate the state income tax.