New Jersey Newsroom

Any Gas Tax Increase Should Include Tax Credit for Low-Income New Jerseyans

New Jersey Newsroom — Wednesday, January 21, 2015


As New Jersey policymakers close in on a deal to boost New Jersey's transportation funding, a bold solution that raises at least $1 billion a year is essential if New Jersey wants to take advantage of one of its greatest economic assets — its location — and rebuild a strong state economy. Equally essential, policy experts and advocates said on a press conference call today, is offsetting the disproportionate impact a gas tax increase would have on low-income households by strengthening a key tax credit for working families — the Earned Income Tax Credit (EITC).

Without an EITC restoration, households earning less than $45,000 a year would proportionately pay more towards any substantial new gas tax than everyone else, according to a new report by New Jersey Policy Perspective (NJPP). Those making under $23,000 a year would be hit the hardest, seeing a 0.5% increase in tax paid as a share of income, while those making slightly more but less than $45,000 would see a 0.4% increase. Families in the middle, earning between $45,000 and $121,000 a year, would see a 0.3% increase.

By reversing the 2010 cut to the state's EITC, policymakers would level the impact for most, changing the tax increase as a share of income to 0.3% for all households earning under $121,000 a year — or 8 out of 10 New Jersey households.

"New Jersey faces an emergency with its crucial transportation network in dire need of maintenance and improvement," said NJPP president Gordon MacInnes. "Equally emergent is the need of the state's low-income working families, who would be asked to chip in a larger share of their earnings towards any gas tax hike. That's why lawmakers must consider restoring the EITC as part of any solution to reinvigorate the ailing Transportation Trust Fund."

While it is essential that an EITC restoration be considered with any gas tax package, advocates were quick to point out that boosting this essential tax credit, which encourages work and improves economic outcomes for low-income children, should be a policy priority regardless of the transportation fix.

"If New Jersey wants to change our status as one of only three states with rising poverty rates, we need to ensure that we are empowering our lowest wage workers and increasing their access to opportunity," said Serena Rice, executive director of the Anti-Poverty Network of New Jersey. "The Earned Income Tax Credit is a proven, bipartisan program that does just that."

The 2010 cut to the state EITC has resulted in a cumulative tax increase of about $250 million on about 500,000 Garden State working families. The average family has lost $124 in tax credits each year, while some have lost as much as $350 a year.

"Every year we do thousands of tax returns for low-income working people and we see their struggles to get by. Losing a couple of hundred dollars may not seem like a lot, but it's huge — it's a month of groceries for these families," said Ann Vardeman, associate director of organizing and advocacy at New Jersey Citizen Action. "To add insult to injury, these families are the only folks who've seen their state income taxes go up under the watch of a governor who is constantly bragging about not raising taxes. If policymakers are going to consider a tax increase that disproportionately affects low-income people, it would be unconscionable not to fully reinstate the EITC."

Just as important as including a low-income tax credit as part of a gas tax package is not including a reduction in or elimination of New Jersey's estate or inheritance taxes as part of any deal. Pairing a tax hike that disproportionately impacts low-income New Jerseyans with a tax cut that mostly benefits their wealthy neighbors makes little sense and would only serve to make New Jersey's tax system more backward, according to the NJPP report.

Attempts to tack cuts to the estate or inheritance tax on to an emerging gas tax deal is irresponsible policymaking at its best.

Lawmakers truly interested in 'tax reform' and fairness should instead turn their attention to an EITC boost to accompany a gas tax hike.

Jon Whiten is the Deputy Director of New Jersey Policy Perspective

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