Governor proposes New Jersey budget cuts and tax policy changes for fiscal year 2026

The New Jersey Assembly Budget Committee convened on April 2, 2025, to discuss the proposed budget for fiscal year 2026, focusing on revenue projections and significant tax policy changes. The budget aims to cap new discretionary spending while implementing nearly $2 billion in appropriation reductions, reflecting the need for fiscal tightening in light of current economic conditions.

Key highlights from the budget proposal include tax increases on various sectors, such as realty transfer fees, sports betting, alcohol, adult-use marijuana, and cigarettes. Additionally, the budget seeks to broaden the sales tax base to include new items, including participatory sports. These measures are intended to align state revenues more closely with expenditures, despite the challenges of increasing taxes.

The revenue outlook for fiscal year 2026 anticipates a slight decline in total appropriations, projected at $58.05 billion, down from $58.12 billion in fiscal year 2025. However, state revenues are expected to grow by approximately $1.9 billion, or 3.5%, reaching $56.8 billion. This growth is attributed to stable employment levels, income growth, and a recovering economy, which has seen a resurgence in stock market performance.

The committee also reviewed adjustments to the fiscal year 2025 revenue forecast, noting an increase in gross income tax estimates and a decrease in sales tax projections. The corporate business tax is expected to decline due to the expiration of a surtax, while collections from a new corporate transit fee are anticipated to rise.

In addition to the tax increases, the budget includes exemptions for small business investments and certain baby supplies, aiming to support families and stimulate economic growth. The proposed changes are designed to address a structural budget gap, which has improved from $2.2 billion to approximately $1.2 billion since the last appropriations act.

The committee plans to reconvene in May to provide updates on revenue forecasts and the impact of the spring income tax filing season. As the state navigates fiscal challenges, the proposed budget reflects a commitment to balancing revenue generation with the needs of New Jersey residents.