New Jersey Should Build on Minimum Wage Increase by Restoring Earned Income Tax Credit

Last year New Jersey voters took a big step to improve the lives of hundreds of thousands of low-wage workers when they overwhelmingly approved the state’s first minimum wage increase in 9 years. But there is another way to help working low-income New Jersey families, one that works best in conjunction with raising the minimum wage, that’s been stalled for 4 years: restoring the state’s Earned Income Tax Credit (EITC) to its 2009 level.

Restoring the EITC would reverse a de facto tax hike of about $50 million a year on approximately 500,000 New Jersey families with members who are working hard but not making enough to get by. The state EITC piggybacks off the successful federal EITC, which has enjoyed broad bipartisan support. The legislature and governor cut New Jersey’s credit from 25 to 20 percent in 2010. Since then, New Jersey’s low-income families have lost about $300 million in crucial tax credits that boost income, widen the path out of poverty, reduce income inequality and put their children on a better path.

Strengthening New Jersey’s EITC is an essential second ingredient in a recipe for boosting low-income working families in one of the most expensive states in the nation, and it should remain a policy priority for any New Jersey lawmakers who want to help struggling Garden State families. As a new report from the Center on Budget and Policy Priorities notes, while strengthening either a state’s minimum wage or a state EITC will boost incomes for low-wage working families, these policy improvements are particularly effective in combination.

Here’s why:

State minimum wages and EITCs reach overlapping but different populations. Each supports families and individuals that the other does not reach. For example, EITCs primarily target low-income families with children and are available to working families earning more than three times a full-time minimum wage worker’s annual salary of $14,500. The minimum wage targets the very lowest-wage workers, regardless of factors like total family income, family status, or age.

Increasing both at the same time provides added support to the working families who need it most. Together, a minimum wage boost and a robust state EITC can move families beyond poverty and further down the road to economic security. Also, a minimum wage increase provides the added benefit of increasing the EITC for some families.

The benefits of the two policies are timed differently. An expanded minimum wage increases every paycheck, which helps with routine expenses, like food, monthly bills, and rent. State EITCs are paid at tax time and can be used for larger, one-time expenses, like car repairs or a security deposit.

• Improving both together allows the public and private sectors to share the cost of boosting incomes for those who work. The EITC is a cost largely borne by state government, and by extension state taxpayers. The state minimum wage is borne principally by the private sector, especially employers and consumers. Improving both policies spreads the cost of making work pay more broadly than does either policy alone.