In recent months, we have twice addressed the reciprocity agreement between New Jersey and Pennsylvania. In August, we explained that for some time, New Jersey’s Gov. Chris Christie had been considering terminating it in order to save revenue, and in September, we pointed out that he actually did so, effective January 1, 2017.
The crux of the arrangement, known formally as the PA/NJ Reciprocal Income Tax Agreement (Agreement), is that employers in Pennsylvania and New Jersey are excused from withholding income tax from employees who live in one state but work in the other.
Gov. Christie himself did not issue a written press release to publicize this decision to withdraw from the bi-state pact. But Pennsylvania’s Gov. Tom Wolf did, opining angrily that Gov. Christie had “erred significantly” to the detriment of 125,000 Pennsylvania taxpayers, and the states’ mutual interests in creating jobs and opportunities.
Numerous others agreed with Gov. Wolf that ending the Agreement was a bad idea, including former New Jersey Treasurer Andrew Sidamon-Eristoff. Their concerns, however, have been put to rest now that Gov. Christie has reversed course. Just two days before Thanksgiving, he announced via press conference that “he is now able to save the income tax reciprocity agreement with Pennsylvania, thanks to health benefit reforms enacted since the [fiscal year 2017] budget passed.”
The turnabout came when lawmakers passed S-2749/A-4328, which Gov. Christie signed into law on November 21, 2016. According to his announcement, the legislation will streamline and modify the New Jersey’s pharmacy benefits system, and is expected to save Garden State taxpayers up to an additional $200 million in calendar year 2017: “[b]y addressing a potential $250 million budget deficit from growing healthcare costs, we are now able to save an income tax reciprocity agreement with Pennsylvania that protects tens of thousands of hard working New Jerseyans from having to pay more income taxes.”
Philly.com reported that Gov. Christie’s termination of the Agreement stemmed from an “irresponsible [fiscal year 2017] budget” that the Democratic-controlled Legislature sent him over the summer, and that “nixing the tax agreement” was his response. The pharmacy legislation, purposed in reducing prescription drug costs, thus made the reversal possible.
While praising the shift, a Daily Record editorial expressed surprise that “Christie did something that favors the working class. He’s helping those who need the help. That’s a rare thing in an administration that has so often ignored the interests of ordinary workers while trying to keep the wealthy happy.” Even so, the piece asserts, the governor’s motive was more likely the pushback from the business community.