Gov. Christie has decided to keep a decades-long agreement between New Jersey and Pennsylvania that allows residents to pay income tax where they live, regardless of where they work — just months after he announced he would end it.
Christie said legislation passed Monday, among other recent measures, will help rein in health care costs for public employees, eliminating the need for the controversial tax policy change.
The legislation, aimed at reducing prescription drug costs, “will save State taxpayers hundreds of millions of dollars in health care benefit costs, and I’m proud my administration was again able to work with elected officials from both sides of the aisle and many labor union representatives to achieve these savings,” Christie said in a statement Tuesday.
“By addressing a potential $250 million budget deficit from growing healthcare costs, we are now able to save an income tax reciprocity agreement with Pennsylvania that protects tens of thousands of hard working New Jerseyans from having to pay more income taxes.”
Terminating the Reciprocal Personal Income Tax Agreement, reached in 1977, would have raised taxes for some New Jersey and Pennsylvania residents who commute across the Delaware River for work.
Christie had faced backlash from South Jersey-based businesses with employees who live in Philadelphia and surrounding suburbs. Employers such as Subaru said they were reconsidering multimillion dollar investments in New Jersey projects.
Debra P. DiLorenzo, president and CEO of the Chamber of Commerce Southern New Jersey, called Tuesday’s announcement “a major victory for the business community.”
The tax agreement “has become a vital part of many companies’ strategies to attract and retain the right workforce, while effectively increasing the number of jobs in New Jersey,” she said in a statement.
New Jersey Senate President Stephen Sweeney (D., Gloucester) said abrogating the agreement would have hurt efforts to spur business development in South Jersey.
Sweeney, joined by Assembly Majority Leader Lou Greenwald (D., Camden) and U.S. Rep. Donald Norcross (D., N.J.) at a news conference in West Deptford, noted the state had granted tax incentives to lure companies to Camden.
“It’s coming all together, and this would have been something that absolutely would have pushed us way back,” Sweeney said.
Gov. Wolf also opposed ending the agreement.
“We are pleased that Governor Christie has changed his mind about ending an arrangement that would have punished 125,000 Pennsylvanians working in New Jersey and cost the commonwealth approximately $5 million,” Eileen McNulty, the commonwealth’s secretary of revenue, said in a statement.
“For nearly 40 years this agreement has been in the mutual interest of creating jobs and opportunities in the region,” McNulty said. “We empathize with Pennsylvania employers and payroll companies that have been preparing for this change in policy and we regret the time and resources spent in order to be in compliance.”
At the end of fiscal year 2016 in June, Christie, a Republican, blasted the Democratic-controlled Legislature for sending him what he described as an irresponsible budget that assumed $250 million in health-care savings without actually achieving them.
He responded in September by nixing the tax agreement.
About 250,000 Pennsylvania and New Jersey residents commute across the Delaware River for work, according to Census Bureau estimates.
The Christie administration expected the change, which was set to take effect Jan. 1, would generate $180 million in gross income tax revenues annually, according to a bond disclosure this month.
That’s because of the difference in the two states’ personal income tax structures, which lets high-income Pennsylvania residents working in the Garden State pay a relatively low tax.
Pennsylvania imposes a flat rate of 3.07 percent, while New Jersey’s tax rate ranges from 1.4 percent for those earning $20,000 or less to 8.97 percent for those earning at least $500,000.
Had Christie terminated the agreement, Keystone State residents filing jointly who work in New Jersey and earn more than $113,000 would have paid more tax to Trenton.
Lower-income South Jersey residents who work in Pennsylvania and file joint returns also would have paid more tax — to Harrisburg, if they earned less than $113,000.