- Associated Press - Tuesday, June 23, 2015

TRENTON, N.J. (AP) - The drama over New Jersey’s spending blueprint is heading to Act 2, with lawmakers saying the Legislature’s budget will result in Gov. Chris Christie cutting out Democratic tax increases to help make a pension payment.

Assembly and Senate budget committees approved the Democratic leadership’s $35.3 billion plan on Tuesday, setting up votes in each chamber on Thursday. A new budget is required by July 1.

Christie, who is considering seeking the Republican nomination for president, line-item vetoed tax increases in last year’s budget and has vowed to oppose income tax increases this year. Republicans in the Legislature have guaranteed the same result this year.

Here’s a closer look at the issue.

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TAXES AND PENSION

The Democrats’ budget includes tax increases on income over $1 million as well as on the corporate business tax. But it also makes a $3.1 billion public pension payment.

Christie’s budget proposal calls for a pension payment of $1.3 billion. The pension fight in part stems from last year’s budget, when Christie reduced the statutorily mandated payment because of lower-than-expected revenues.

Unions and the Democratic leadership sued and recently lost before the state Supreme Court, which ruled that while pensioners are entitled to their benefits, the court could not mandate how much money the Legislature and governor paid into the fund each year.

Despite the court loss, Democrats vowed to make the multibillion payment in their own budget, which explains why they’re raising taxes.

“The question for us becomes, how does one pay one’s bills?” said Budget Committee Chairman Gary Schaer, adding that Democrats are not happy about proposing a tax increase.

Democrats want to raise the tax rate on income over $1 million from 8.97 percent to 10.75 percent for four years. They say this will bring in almost $700 million.

They’ve also proposed a 15 percent surcharge on the state’s corporate business tax, which they say will bring in more than $400 million.

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POLITICAL CONSIDERATIONS

The Democratic proposal comes as Christie considers a run for the White House in a crowded GOP field. He has a powerful weapon in the line-item veto, which he’s wielded before.

Cutting out the tax increases would also be popular with the state Chamber of Commerce and other business organizations, which have already denounced the proposal as threatening to companies in the state.

For their part, Democrats say they’re fulfilling an obligation to pensioners by making the payment with their plan. Traditionally labor support plays a key role in the Democratic Party, and legislative leaders rallied alongside unions throughout the recent court fight with Christie.

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THE END RESULT

If the governor uses his line-item veto to cut out the surcharges, his $33.8 billion budget would become law. Democrats have said they would consider an override attempt, but Republicans have never crossed the political aisle to overrule Christie.

The governor’s proposal, unveiled in February, keeps education funding flat, does not raise taxes and makes what the administration says is the largest pension payment in state history.

Some issues are left unaddressed by Christie and Democrats alike, including the state’s transportation trust fund, which is heading toward insolvency in the coming fiscal year. Christie has proposed using authorized but unused bonding power to get the fund through June 30, 2016.

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