New Jersey is in unenviable company. It is one of just three states that has raised income taxes on working-poor families in recent years, making it harder for these families to work their way toward the middle class, according to the annual report on state income tax trends released today by the Center on Budget and Policy Priorities.
Taxing the incomes of working-poor families makes no sense, and is contrary to decades of bipartisan efforts at both the federal and state levels to help such families work their way into the middle class, the Center’s report shows.
Many states have used state Earned Income Tax Credits (EITC) to reduce or eliminate the income tax obligations of the working poor. Modeled after the highly successful federal version, state EITCs reward work by allowing struggling families to keep more of what they earn.
New Jersey cut its EITC to 20 percent of the federal credit (from 25 percent) beginning in 2010, thereby raising taxes on families of four by $266 per year. Since then, Democratic legislators have pushed to restore the credit, and Governor Chris Christie has included an EITC increase in his budget package this year, but it has not been passed yet.
“These are families that ‘play by the rules,’” says Gordon MacInnes, president of New Jersey Policy Perspective. “New Jersey is punishing working families with tax increases to help finance tax cuts for businesses and wealthy families.”
Even as it has raised taxes on these working families, New Jersey has cut taxes on the state’s wealthiest residents, allowing a temporary rate increase for taxpayers with incomes above $400,000 to expire.
“Exempting working-poor families from state income taxes is good for New Jersey’s economic future,” says Phil Oliff, co-author of the report and policy analyst at the Center on Budget and Policy Priorities. “Raising the income of poor families boosts children’s chances of academic success and their earning potential in adulthood.”
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