Christie Ending Decades-Old Tax Agreement With Pennsylvania

TRENTON (AP) -

New Jersey Gov. Chris Christie said Friday he is pulling out of a nearly 4-decade-old income tax agreement with Pennsylvania, all but ensuring that thousands of residents in each state will see their tax burdens go up.

The Republican governor said his hand was forced because the Democrat-led Legislature failed to find $250 million in health insurance savings for public workers despite assuming the savings when planning the budget.

“I am left with the least painful option I have to fulfill my constitutional duty to balance the budget for New Jersey taxpayers,” Christie said in a statement.

The 1977 agreement allows residents who work in either state to pay income taxes at their home state’s rate. Either governor can pull out of the deal at the start of the year but must give 120 days’ notice. The deadline for notice this year was Friday.

A spokesman for Pennsylvania Gov. Tom Wolf, a Democrat, said that Christie “erred significantly” and that his action punishes Pennsylvanians.

“It seems that Governor Christie is committed to making Pennsylvania and our residents working in New Jersey suffer the consequences of his failure to enact a responsible budget,” spokesman Jeffrey Sheridan said in a statement.

With the agreement ending, the tax consequences will hurt high-earning Pennsylvanians who work in New Jersey and low-income New Jerseyans who work in Pennsylvania.

Pennsylvania has a flat 3.07 percent income tax rate; New Jersey has a more progressive tax structure, with rates from 5.53 percent to 8.97 percent on income from $40,000 and above.

For example: A Pennsylvania resident who works in New Jersey and earns over $40,000 files a return in Pennsylvania, pays her taxes, then files a return with New Jersey. If taxed at 5.53 percent in New Jersey, she would owe that amount minus what she had paid already to Pennsylvania.

Likewise, a low-income New Jersey resident would file at home, then with Pennsylvania. Since New Jersey’s rates are lower than Pennsylvania’s at 1.75 percent for income from $20,000 to $35,000, the taxpayer would get a credit for taxes paid at home but then pay some fraction to Pennsylvania.

It’s not the first time a New Jersey governor considered ending the deal. Democrat Jim McGreevey made the same proposal in 2002 but drew criticism from lawmakers who represent workers in southern New Jersey.

About 60,000 New Jersey residents commute to work in Pennsylvania and about 49,000 Pennsylvanians work in New Jersey.