A 23-cent per gallon hike of New Jersey's gas tax was approved early Tuesday morning by the state Assembly, along with a reduction of the state's sales tax to 6 percent from 7 percent over the next 18 months.

The sales tax cut was a surprise, last-minute addition to the months-long debate over the Transportation Trust Fund. Democrats couldn't muster enough Republicans to support the original tax plan to achieve a veto-proof majority in the Assembly, so most of the tax cuts in that incarnation of the plan were shelved -- including a phase-out of the estate tax.

Instead a cut in the sales tax was added in negotiations with Gov. Chris Christie. The change will cost the state around $1.3 billion in revenue when fully implemented. The plan also retains a exemption from income taxes for more retiree income, which will cost the state around $100 million a year when fully in place.

Christie said he was pleased with the Assembly's 53-23 vote and looks forward to working with the Senate, which prefers a different plan and had left Trenton many hours before the Assembly's post-midnight vote.

"This is the first broad-based tax cut for all New Jerseyans since 1994. I think it was needed, necessary," Christie said.

The original plan would have eventually cost the state $870 million a year in revenue, and some lawmakers and liberal activist groups criticized it for being too costly for a state budget that's perennially short of cash. Now the tax cut is bigger, plus being hatched behind closed doors and approved without public input late at night.

"Quite frankly, we're doing budgeting on napkins at the last minute," said Doug O'Malley, director of Environment New Jersey. "This is the kind of the worst instincts of the Legislature writ large. This is not good government, and it's not good budgeting."

Assemblyman John Wisniewski, D-Middlesex, said the tax cut could lead to another downgrade of the state's credit rating -- one he says would be blamed on lawmakers, not Christie.

"We heard earlier in this season that the Office of Legislative Services said that we were expecting a $500 million shortfall this year. We're going to make that worse," said Assemblyman John Wisniewski, D-Middlesex. "We're talking about fully funding our pension obligations, which start in a year or two at $1.5 billion. We're making that worse. We have not ever fully funded our education formula. We're going to make that worse. We ask hospitals to give away healthcare services for free because we don't fully fund charity care. We're going to be making that worse."

Assembly Speaker Vincent Prieto, D-Hudson, said it's important to fund the TTF.

"This is something that is so important to the state of New Jersey, to be able to take care of road infrastructure and invest in New Jersey, to create jobs and help our economy," said Prieto. "And at the same time creating some tax fairness. We're going to lower a tax that will affect 9 million residents in the state of New Jersey, every resident that pays sales taxes in the state of New Jersey. And I think that's additional money that will be in the pocket of the working poor, especially, and the middle class."

In exchange for those tax cuts, Christie agreed to approve a 23-cent per gallon hike of the gas tax that's projected to cost drivers and fliers -- since the plan includes a hike in the state's tax on jet fuel -- around $1.4 billion annually. Those revenues would help fund a $2 billion a year construction program for roads, bridges and rail projects.

With the following exceptions, the 53-23 vote on the tax bill was along party lines with Democrats in favor and Republicans opposed:

  • Democrats who voted no: Bob Andrzejczak, Joann Downey, Eric Houghtaling, Bruce Land, Vince Mazzeo, John Wisniewski, Andrew Zwicker
  • Republicans who voted yes: Jon Bramnick, Chris Brown, Rob Clifton, BettyLou DeCroce, Joe Howarth, Sean Kean, Nancy Munoz, David Rible, Maria Rodriguez-Gregg, Scott Rumana

Four lawmakers didn't vote: Declan O'Scanlon, Brian Rumpf, Adam Taliaferro and Cleopatra Tucker.

The tax on aviation fuel would be set at 4 cents per gallon -- higher than the current rate of 0.4 cents per gallon, but less than the approximately 10 cents a gallon that the original proposal included.

The sales tax would drop to 6.5 percent on Jan. 1, 2017, then drop to 6 percent on Jan. 1, 2018.

The Assembly reconvened its voting session shortly before midnight. (Michael Symons/Townsquare Media New Jersey)

The cut in the sales tax mostly erases a hike approved almost exactly 10 years ago, ending a state government shutdown in Gov. Jon Corzine's first year in office. The rate would return to 6 percent, as it had been from 1992 to 2006, but the expansion of the sales tax base of 2006 to include things such as landscaping and membership fees remains.

The change in the exclusion for retirement income would be a five-fold increase phased in over four years. Currently, a married couple can exclude $20,000 in retirement income from taxes and a single person can exclude $15,000. That would increase gradually to $100,000 for married couples and $75,000 for individuals starting in 2020.

Starting in 2021, taxpayers with income between $100,000 and $150,000 would become eligible for partial exclusions -- 50 percent if their incomes are $100,000 to $125,000 and 25 percent if it is between $125,000 and $150,000.

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