New Jersey governor Phil Murphy has reached a deal with the leaders in the state legislature to raise taxes on millionaires. The announcement made Thursday ends a fight within his own Democratic Party and allows him to pass his top priority since taking office in 2018.

The governor is negotiating a pandemic-delayed state budget with the legislature, and the millionaires tax deal clears the biggest roadblock to reaching an agreement and avoiding a state shutdown. (The state must reach a budget deal by midnight September 30th -- a delay of three months caused by the pandemic -- or the government is constitutionally forced to shut down.)

The tax would only affect earnings over $1 million, raising the current rate from 8.97 percent to 10.75 percent. New Jersey residents who earn more than $5 million already pay the higher rate. It is expected to generate $390 million per year.

The money is not earmarked for anything in particular, but Murphy says his priority is to boost funding for schools, health care and housing.

Assembly Speaker Craig Coughlin brokered the deal between Murphy and his chief political nemesis, Senate President Steven Sweeney.

“Well, I bet a lot of you didn’t expect to find me here today,” Sweeney said at a press conference Thursday. “And, you know, I’m surprised I am.”

Sweeney has blocked the millionaires tax for two years, despite having voted for it several times when former Republican Governor Chris Christie vetoed it. But now the COVID pandemic has shifted the debate. Murphy’s leadership has won him the support of voters -- his approval rate was at 67 percent, according to a poll taken in July -- and the state shutdown has blown a $10 billion hole in the budget.

“Now is the time to ensure that the wealthiest among us are also called to sacrifice,” Murphy said.

But Sweeney and other Democratic leaders also got a face-saving concession. The state will give a $500 rebate to families that earn less than $150,000 a year. That constitutes about 800,000 families in New Jersey, costing the state $340 million. Future rebates would have to be passed again as part of the budget process in any subsequent years, while the millionaires tax becomes part of the permanent tax code.

Murphy says he supports keeping the rebate.

“This is a big day for the middle class in this state and I can say collectively, with unanimity, that we are gratified we could get to this day,” Murphy said.

There is an extra bonus for Murphy. The checks will arrive in the mail next summer, just months before he faces re-election in November 2021.

The announcement cements Murphy’s support among progressive groups, and draws a sharp contrast with New York Governor Andrew Cuomo, who continues to resist calls to raise taxes on the wealthiest New Yorkers.

“The overwhelming majority of billionaires and millionaires in this state live or work in New York City,” New York State Budget Director Robert Mujica said in a written statement. “The combined state and city income tax rate is already 12.6 percent -- which is higher than New Jersey's new top rate or a proposed 12 percent 'billionaire/millionaire tax rate.'"

Critics of the millionaires tax have long predicted that raising taxes on the wealthy would drive them out of state.

“The state has added millionaires consistently over the past three decades,” said Brandon McKoy, president of New Jersey Policy Perspective, a think-tank that focuses on budget priorities. “The only time we have lost millionaires was during the recession.”

McKoy opposes austerity measures to close the budget gap, arguing that New Jersey cut its budget during the recession of 2009 and paid dearly for it. The state had the second highest foreclosure rate in the country and one of the slowest recoveries.

McKoy and other progressives are happy about today’s announcement, but they see it as a step in the right direction, and by no means a fix to all of New Jersey’s fiscal problems.