Tax Cut for Working Poor Added to Bargaining over New Jersey Gas-Tax Hike
Throw another tax cut into the Transportation Trust Fund mix.
Lawmakers haven’t committed to a plan for replenishing the fund for rail, road and bridge projects, although the eventual solution is likely to include a hike in the gas tax.
To make such a move politically palatable, it might be paired with cuts in taxes – on estates, on retirement income, on charitable giving.
And now, another increase in the earned income tax credit has moved front and center.
The EITC, which is paid to the working poor even if they don’t make enough money to owe income taxes, used to equal 25 percent of the federal tax credit. In 2010, Gov. Chris Christie and lawmakers cut it to 20 percent. Last year, they raised it to 30 percent. And now, it might jump to 40 percent.
Senate President Stephen Sweeney, D-Gloucester, announced Tuesday that the plan would be approved quickly. It was already passed by the Assembly in March. While the initials TTF were not uttered in the formal part of the news conference, the phrase "tax fairness" was – which has become the catch-all code for the tax cuts that will be enacted as part of the grand bargain on the gas tax.
“You hear a lot of talk about tax fairness. Well, tax fairness is when everybody benefits,” Sweeney said.
“The point is if there’s going to be a discussion on tax cuts, if there’s going to be that conversation, that the working poor are not going to be left out,” Sweeney said.
“What I’m saying is we’re not going to have a conversation on anything unless this is part of it. This has to be part of it, and I think this was a critical piece that was missing,” he said.
Sen. Shirley Turner, D-Mercer, the primary sponsor of the Senate version of the bill passed by the Assembly, said the recession was more like a depression for the working poor. She said earned income tax credit money is an economic boost because recipients need and spend the money.
“They will not put in the bank. They will not buy [certificates of deposit]. They will spend that money, and in effect they will create new jobs,” Turner said.
“That was five years later. So these very people who needed the help most, they lost precious economic ground during that time. So it’s only fitting that the governor makes it up to them and now increase the earned income tax credit to 40 percent.”
“This battle of the budget has been borne by poor and middle-income families,” said Turner, who said working poor residents “lost precious economic ground” during the five years the EITC was reduced.
Increasing the earned income tax credit from 30 percent to 40 percent would cost an estimated $122 million the first year, followed by projected increases of 2 percent a year. The average benefit would climb by $255, from around $708 this year to around $963 next year.
That’s real money, particularly for the working poor, said Jim Jacob, the board president of the Anti-Poverty Network of New Jersey.
“The families who benefit from EITC are the working poor. They are home health aides, janitors, adjunct professors, daycare workers – working hard at jobs that just don’t pay the bills,” Jacob said.
“They are families for whom an unexpected car repair can mean they can’t pay their electric bill and for whom a child’s growth spurt can mean a budget crisis,” he said. “In short, they’re families for whom a few hundred dollars a year can make the difference between making it and failing through the cracks.”
The income eligibility threshold for qualifying for the earned income tax credit varies according to whether a person is single or married and how many children he or she has. A single person without children qualifies if his or her 2016 income is $14,880 or less. A married person with three children or more qualifies with an income of $53,505 or less.
Dena Mottola Jaborska, the associate director of New Jersey Citizen Action, said her organization runs a tax preparation center in Newark that does free tax returns for thousands of people earning less than $50,000.
“We see very concretely on the ground how important this program is to low-income people. People often are planning ahead on their way in the door. They’re thinking about how they’re going to spend their refund. It’s already spent in their mind,” Jaborska said.
“It’s going to go towards usually things like obviously clothes or shoes for the kids, maybe a down payment on a used car — basic needs that families have that they need to keep it all together and make ends meet,” she said.
Sweeney, Turner and their backers said the earned income tax credit would be especially helpful if New Jersey also raises its minimum wage to $15 an hour, either through legislation or an amendment to the state constitution on track to be put on the 2017 general election ballot.
“We believe that a combination of increased earned income tax credit with an increase in the minimum wage is what's actually needed to help New Jersey’s working poor begin to break the cycle of poverty,” said Bruce Davis, the economic development chair for the New Jersey NAACP.
It’s unclear how Christie will react to the idea. His spokespeople didn’t respond to a request for comment Tuesday. He vetoed repeated attempts by lawmakers to restore the EITC to 25 percent, then surprised them last June by proposing an increase to 30 percent that came around the time he launched his run for president.
Christie ended his presidential bid in February. He endorsed businessman Donald Trump and is now chairing the presidential transition operations for the presumptive Republican presidential nominee. Christie is also considered a potential vice presidential running-mate for Trump.
Assemblyman Anthony Bucco, R-Morris, said he has a less expensive proposal – adjusting income-tax brackets to account for inflation, so people wouldn’t move into higher tax brackets if their increase in income didn’t change their wealth but merely kept pace with the cost of living.
The Assembly passed the EITC expansion 51-22, with four voting to abstain, on March 14.
"I’ve said all along this progressive bill represents real tax fairness and should be a centerpiece of our effort to combat poverty," Prieto said. "The Assembly passed this bill in March, so hopefully we can now get this bill to the governor’s desk sooner rather than later.”