Gov. Chris Christie will contemplate ending a 38-year-old agreement with Pennsylvania that allows New Jersey and Pennsylvania residents who work across the river to pay income taxes where they live.
In an executive order Thursday night, the governor instructed state officials to explore the consequences of withdrawing from that income tax pact.
Christie's order comes 12 years after former Gov. James E. McGreevey proposed to end the reciprocal tax agreement, but dropped the plan after angering south Jersey residents and lawmakers who said many New Jerseyans who worked in Pennsylvania would have paid more in taxes.
Currently, New Jersey doesn't collect income taxes from people living in Pennsylvania and working in New Jersey. Christie's former treasurer has estimated the Garden State would reap $180 million in revenue from Pennsylvania residents forced to pay taxes here.
The treasurer and attorney general, Christie said in an executive order, are to explore what it would take to pull out of the agreement and "prepare an estimate of the effects such a withdrawal would have on New Jersey's revenue collections."
Under the reciprocal agreement, a resident of New Jersey who works in Pennsylvania need only file a tax return in New Jersey. The same is true for a Pennsylvania resident working in New Jersey.
If the deal were scrapped, either resident would have to file two tax returns and claim a credit against taxes owed where they live for taxes paid in the state where they work.
Higher income Pennsylvania residents working in New Jersey are likely to pay much more. That state has a flat 3.07 percent income tax rate, while New Jersey's graduated income tax tops out at 8.97 percent. A highly paid executive living in Pennsylvania but working in New Jersey now can pay Pennsylvania's 3.07 percent flat tax. But an end to the reciprocal agreement means they'd have to pay New Jersey taxes, experts say.
But low- and middle-income New Jerseyan working in Philadelphia and other spots in the Keystone State would owe more.
A legislative analysis at the time found that it would cost a New Jersey resident who earns $75,000 a year working in Philadelphia hundreds of dollars more a year in taxes.
Assembly Majority Leader Lou Greenwald (D-Camden), who opposed McGreevey's plan in 2002 predicted Friday it would "hit South Jersey residents especially hard."
"If we were against it before, we're against it now," added Assemblyman John Burzichelli (D-Gloucester).
In a column in NJ Spotlight last year, former Treasurer Andrew Sidamon-Eristoffpredicted ending the arrangement would bring $180 million into the state.
"New Jersey's losses from not being able to tax wealthy Bucks County residents who commute to high-paying jobs in New Jersey far outweighs the taxes New Jersey collects on low- and moderate-income Camden and Gloucester County residents who work in Pennsylvania, typically Philadelphia," he wrote.
He said it wouldn't take an act of the Legislature to cancel the pact, and that the state can terminate it with 120 days notice.
Senate President Stephen Sweeney (D-Gloucester) said Friday that he's willing to consider the exit, so long as it doesn't adversely affect New Jersey residents.
"Hopefully, it's not going to do something to hurt New Jersey residents," he said.