Op-Ed: Don’t Delay Restoration of Low-Income Tax Credit

This op-ed by NJPP senior policy analyst Raymond Castro ran in the April 4, 2012 edition of the Bergen Record.

Governor Christie says he wants to lower taxes for low-income working families, but, unfortunately, his actions have spoken louder than his words.

The governor proposes to reduce state income taxes 10 percent across the board. This, he said in his budget address, would help “every New Jerseyan, up and down the income scale.” But a half-million hard-working families with children barely surviving on low-wage jobs across our state would have to wait two years to see even one tax-cut penny.

That’s because the part of the tax cut that affects the lowest-income New Jersey workers comes in the form of increasing the amount of money they can claim from the state Earned Income Tax Credit. But, while the income tax cut Christie proposes would take effect this year, the EITC increase doesn’t start until 2013 and wouldn’t actually be received by families until 2014.

The state tax credit is modeled after the federal Earned Income Tax Credit, President Ronald Reagan’s favorite anti-poverty tool. It goes only to people who work; by letting them keep more of their money it sets them on a path out of poverty and off of welfare.

Most states set their EITCs as a percentage of what families get from the federal program.

And although Christie now supports cutting taxes for low-income people, he raised them before he cut them. When he took office, New Jersey’s EITC was 25 percent of the federal EITC. He cut the state EITC to 20 percent, which amounted to a yearly tax increase of up to $300 for EITC households. No other New Jerseyans have had a state tax increase since the governor was elected.

Gradual roll-out

Worse, the EITC increase Christie proposes – really just a restoration of the cut he made — will be doled out gradually: nothing in 2012, 22.5 percent of the federal EITC in 2013, and 25 percent in 2014. By contrast, all other New Jersey households will receive an immediate state income tax cut.

For the top 1 percent of taxpayers, the cuts will be substantial. Those with income of $1 million a year will receive $14,500 in tax breaks over the next three years. And that’s on top of the tax break Christie gave them in 2010, when their income tax rates were reduced.

Unfortunately, the tax proposals offered by leaders in the Legislature aren’t much better for the lowest-income working families. Neither of the current proposals offered by the majority Democrats in the Senate and the Assembly restores the tax credit for the working class, even though the governor at least has opened the door for restoration in his tax proposal.

Given that Democrats have supported the EITC in the past, they should take a strong stand in support of full restoration of the EITC effective this year.

Bringing the state Earned Income Tax Credit back up to where it was before last year will help families that, despite their hard work, are struggling in these tough economic times.

With well-paying jobs hard to find, this tax credit is more important than ever. Without it, families will have less money to pay for food, utility bills, transportation to and from work and other basic necessities.

Strengthening the state EITC will also boost New Jersey’s economy. Local businesses are able to grow and create jobs when families have money to spend. Lower-income families spend their income right away on necessities, since they do not have the luxury to save for a rainy day. For these families, it is always raining.

Makes tax system more fair

Restoring the Earned Income Tax Credit helps make New Jersey’s overall tax system fairer. Today lower-income families pay a far greater percentage of their income in New Jersey state and local taxes than anyone else does; this tax credit is a step toward leveling the playing field.

By proposing to restore the credit, the governor shows that he understands its effectiveness in encouraging work, helping families lift themselves out of poverty and boosting the economy. So why wait?