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TRENTON -- New Jersey is poised to lose its claim to the second-lowest gas taxes in the nation.
The state Legislature on Friday passed legislation raising the tax on gasoline sold in New Jersey by 23 cents a gallon, the centerpiece of a controversial tax package that also includes $1.4 billion in tax cuts.
As part of the deal, lawmakers voted to give a tax break for people with pension and retirement income, low-income workers and veterans. In addition, they voted to eliminate the estate tax over the next 15 months and roll back the sales tax slightly.
The most recent iteration of the tax bills never got a public hearing. The deal was struck last Friday afternoon by Gov. Chris Christie, a Republican, and Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vincent Prieto (D-Hudson).
The 23-cent increase to 37.5 cents a gallon will drive the state's gas tax from second-lowest to seventh-highest, though still below neighboring Pennsylvania and New York. The tax has not been raised since 1988.
The Senate passed the tax package 24-14, with 19 Democrats and five Republicans in favor, and the Assembly, 44-27, with 37 Democrats and seven Republicans in favor, sending it to Christie's desk.
It will go into effect Nov. 1 or two weeks after it is signed by the governor, whichever is later.
Lawmakers say the increase will finance an eight-year, $16 billion Transportation Trust Fund, which pays for road, bridge and rail projects across the state.
"Today, that difficult vote will allow us to make a significant investment in a crumbling infrastructure," said Sen. Paul Sarlo (D-Bergen), a bill sponsor. "Our state is ranked at the bottom when it comes to investment in our roads, our bridges, our utilities. We are at the bottom. For a state that has so much promise, so much wealth to be ranked at the bottom ... is not a good position to be."
The compromise tax package comes after years of growing concern about the future of funding for a declining transportation network and after months of political wrangling.
Once signed by the governor, the legislation will bring to an end a summer-long construction freeze and avert a prolonged transportation funding crisis.
But opponents of the tax deal say it will create a new budget crisis. The state already underfunds education, public worker pensions and other programs by billions of dollars and will struggle to absorb such a revenue loss, they argue.
Negotiations between the lawmakers pitted Christie's demand for "tax fairness" and broad-based tax cuts against Sweeney's vow to spare the budget too much pain.
In the end, Christie yielded on the size of his sales tax cut but pushed Democrats to accelerate the timeline for eliminating the estate tax, and the budget will take a bigger hit than Sweeney previously deemed viable.
The tax cuts will roll out over several years, pulling increasing amounts of revenue from the budget. Next year, the state's nonpartisan Office of Legislative Services estimated the price tag will be $645 million, and it will reach $1.4 billion by the time they're fully implemented in 2021.
"Regarding tax cuts that are part of this bill, they will in fact create a bigger hole in our budget. We need to admit that," said Assemblyman Declan O'Scanlon (R-Monmouth), who voted for the legislation. "But for once, if we create a hole in our budget because we let taxpayers keep more of their money, rather than create a hole in the budget, as we've done over and over and over again for 20 years by promising more of taxpayers' dollars to other special interest to curry political favor, I'm willing to deal with that."
The elimination of the estate tax and the three-eights of a percentage point reduction in the sales tax account for the vast majority of the tax relief.
Progressive opponents of the tax deal say it's the wrong kind of tax relief. The estate tax cut will predominantly benefit wealthy New Jersey households and a consumer would have to spent about $45,000 a year on taxable goods for the trim to the sales tax to counteract the higher prices at the pump, argued the New Jersey Working Families Alliance.
Sen. Nia Gill (D-Essex), who voted against the tax package, said the Senate had voted to "give tax breaks to the wealthy on the backs of the middle class."
The Earned Income Tax Credit, however, assists about a half million New Jerseyans, three quarters of whom earn less than $20,000 a year.
The sales tax cut will deliver but a small savings and consolation, said Sen. Jennifer Beck (R-Monmouth), who held rallies against the gas tax increase throughout the summer, "and has a detrimental impact on our state budget, a dramatic one."
"Don't underestimate the rage people will have as they go day by day, week by week, trying to support their families, filling up their gas tanks and knowing that we ignored their plea," she said.
The complete elimination of the estate tax was key to recruiting Republican support for the deal. Long considered a thorn in the state's tax code, they and some Democratic lawmakers hope its elimination will retain residents and ultimately boost tax collections.
The gas tax hike would be the first tax increase Christie signs during his tenure, and he has boasted that his support for it demonstrates a political spine his predecessors did not possess.
In addition to the 23-cent increase in the petroleum products gas receipts tax, diesel fuel tax will rise 4 cents a gallon next year, and the tax on non-motor fuels will rise from 2.74 percent to 7 percent.
Christie said that he will urge voters to approve a referendum on the Nov. 8 ballot constitutionally dedicating this new revenue to the Transportation Trust Fund.
All told, the trust fund will be infused with $1.23 billion a year. The trust fund ran out of money for new projects over the summer, with all money coming in from current gas taxes dedicated to paying off debt.
The governor idled more than 900 road and bridge projects and hundreds more rail projects to ration the money remaining in the trust fund, taking thousands of workers off the job at the height of construction season. He followed up with an executive order freeing money in the state treasury to pay for any emergency road or rail work.
Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.