The proposal would affect any item subject to New Jersey's sales tax, from restaurant meals to automobiles.
Republican leaders planned to announce the proposal at a Tuesday afternoon news conference.
Two Republican officials familiar with the plan say it would jump-start the economy by allowing customers to pay less for merchandise and increasing retail sales.
The officials, who spoke on condition of anonymity because legislation to enact the plan was still being prepared for introduction in the Assembly on Thursday, said most of the estimated $500 million in lost tax revenue would be offset by the increased business activity. They said the rest could be recouped through budget cuts.
Gov. Jon Corzine plans to outline his own economic stimulus package on Thursday. Speaking on "Meet the Press" Sunday, Corzine, who once headed investment giant Goldman Sachs, said his proposal will include plans to protect neighborhoods by buying foreclosed homes and create energy-sector and highway construction jobs.
The governor predicted that the economy would get worse before it gets better, and said higher unemployment is nearly inevitable. However, he said New Jersey is in better financial shape than some of its neighbors because $600 million was pared from the current state budget.
Corzine also has asked members of his Cabinet to draft plans to cut an additional 5 percent from their budgets. The across-the-board cuts would save $500 more if implemented.
Republicans say their sales tax proposal is unique. Though 16 other states sometimes suspend their sales tax or a portion of it, those "holidays" last no longer than a week and typically exempt some, but not all, taxable goods.
Half of New Jersey's 7 percent sales tax goes to the state and the other half is collected by municipalities. The state waives its share in Urban Enterprise Zones to encourage economic development.
The governor and lawmakers in both houses have been concerned with how to blunt the impact of the recession in New Jersey in recent weeks.
Corzine convened an emergency economic summit last month, and has called the Legislature into a joint session on Thursday. The Assembly recently devoted an entire session day to the economic crisis, and the state Senate budget committee has scheduled hearings.
Assembly Speaker Joe Roberts acknowledged at the start of the Assembly session that there isn't much New Jersey lawmakers can do about the global economic situation. However, he said lawmakers are obligated to do what they can to help New Jerseyans through it.
Among the ideas being considered in the Legislature are proposals to make New Jersey more business-friendly. A recent Tax Foundation report ranked the Garden State last among the 50 states in its business climate index.