NJ Spotlight

Lawmakers Seek To Boost State Tax Credit For Low-Wage Earners

Earned Income Tax Credit has support from both Democrats and Republicans since it's believed to keep people employed and off government assistance

NJ Spotlight — November 15, 2019

By John Reitmeyer

A state tax credit to help combat poverty among some of New Jersey's lowest-paid workers would become more generous under a plan unveiled Thursday by two Democratic lawmakers.

Legislation introduced by Sen. Joseph Lagana (D-Bergen) and Assemblywoman Verlina Reynolds-Jackson (D-Mercer) would build on an ongoing effort launched last year by Gov. Phil Murphy to pump up the size of what's known as the Earned Income Tax Credit.

The tax break commonly referred to as the EITC has won support from both Democrats and Republicans in the past since it is thought to be a strong incentive for keeping low-wage workers employed and off government-assistance programs.

The tax break is currently worth 39% of the federal EITC, and it is expected to tick up to 40% next year under Murphy's expansion plan. But Lagana and Reynolds-Jackson want the state credit to grow to 50% of the federal benefit, which they estimate would provide a boost to more than 400,000 New Jersey residents.

"These people are working, they're here, and this just expands the opportunities for them to reinvest back into the local economy," Reynolds-Jackson said during a late-afternoon news conference in Trenton.

Increasing the pool of eligible recipients

The two lawmakers have also introduced legislation that would expand eligibility for the EITC, which right now is generally available to those under 25 only if they have children. The bill would make anyone who is 18 or older eligible regardless of their parental status.

"Obviously we find that to be an arbitrary number," Lagana said of the age limit. "We think it just makes sense (to expand eligibility)."

According to the Washington, D.C.-based Center on Budget Policy Priorities, New Jersey is one of 29 states that offer their lowest-wage workers a state EITC. The states typically base their credits as a percentage of the federal EITC, which in 2017 helped to keep an estimated 5.7 million people out of poverty nationwide, according to a recent CBPP analysis.

New Jersey already has one of the nation's most generous tax credits as Murphy, a first-term Democrat, has pushed to increase it from 35% of the federal benefit to 40% under a multiyear phase-in that will be completed during fiscal year 2021.

Eligibility for the state credit is based on income. The annual income limit is $15,270 for individuals age 25 or older with no children, and rises to $54,884 for married couples with three or more kids, according to the state Division of Taxation. The tax break works as a refundable credit for low-wage workers, meaning they can get a refund even if their credit is larger than what they owe in taxes.

Benefit comes with a price tag

The latest increase under Murphy's EITC expansion initiative pushed the credit up to 39% in fiscal year 2020, making the average benefit worth more than $1,000.

According to the Department of Treasury, the cost of the EITC program is projected to total $602.7 million in FY2020, out of a total state budget of $38.7 billion. Expanding the size of the credit to 50% and widening eligibility would cost an additional $77 million, according to New Jersey Policy Perspective, a Trenton-based think tank that has advocated for a more generous state EITC.

NJPP and other advocates for low-wage workers routinely argue that the EITC is a net winner for the state since its recipients have a track record of using refundable tax breaks to do things like pay bills or buy household products. That puts the funding for the tax break right back into the state economy, they argue.

Lagana and Reynolds-Jackson also highlighted the same "multiplier" effect Thursday while making the case for a continued expansion of the tax break to 50% of the federal credit by fiscal year 2023.

"It is the absolute moral obligation of our government to help those people the most, and help pull them out of poverty," Lagana said.

"They know what they're going to spend the money on," Reynolds-Jackson said. "The need is there."

A bipartisan favorite

In the past, the EITC has won praise in New Jersey from Republicans like former Gov. Chris Christie, who increased it to 30% of the federal benefit in 2015. Democratic legislative leaders also made another EITC increase a key element of tax-cut legislation enacted a year later as part of a broader plan to offset an increase in the state gas tax.

NJPP president Brandon McKoy said the importance of the EITC has only grown as economists are raising concerns that another downturn could be looming soon.

"Ensuring that working families have all the protections that they need to get by and prevent them from falling further into poverty is going to be incredibly critical," McKoy said.

Further EITC expansion would also complement other recent efforts to combat poverty and income inequality in New Jersey, including a phased-in $15 minimum wage, said Dena Mottola Jaborska, associate director of New Jersey Citizen Action, a group that provides tax-preparation assistance to thousands of low-income residents.

"This policy is the logical next step and something that we really need to do to close the wealth gap," she said.

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