Restoring the EITC Will Help Working Families and New Jersey's Economy

Hard-working low-income families have been the only group of New Jerseyans to be penalized with a tax increase during the economic downturn, even though they are struggling the most. It means for each of the last two years a family earning the minimum wage has lost about $300 in the EITC which is equivalent to a week’s pay. We have released today a new break out of where the half million families who are affected by the EITC cutback reside by county and the financial impact (see map at the bottom of this post). No matter how wealthy or suburban a county is, there are still many families who are unable to make ends meet and have been harmed by the 25 percent cut in the EITC.

The governor is to be commended for recognizing the importance of the EITC and proposing that it be restored in his budget – but the proposal does not go far enough. These low-income working families with children cannot wait until 2014 to have their credit restored. The state needs to recognize the dire situation in which these families live today. Since the recession started, there has been a staggering 25 percent increase in families with children living in poverty in New Jersey. One of the most effective ways that the state can start to address this problem is to fully restore the EITC this year.

The EITC is the state’s best anti-welfare program because it promotes work, upward mobility and family stability. One of the reasons that the state established the EITC in 2000 was that it was considered an essential component of an overall strategy to prevent welfare. This strategy has proven even more effective than was originally expected. Since the state EITC was established, the welfare rolls for families has gone down by over a third. That progress benefits parents who can enjoy the independence and dignity of work and helps their children who are less likely to get caught up in a cycle of dependency. Reduced state welfare costs also benefit taxpayers creating a win-win situation.

Restoring the EITC will also help our economy get on its feet. Research on federal programs has shown that providing direct assistance to low income families is one of the most cost-effective actions that can be taken to stimulate economies because these families spend EITC funds on short to medium term needs like clothes for their children or paying past due rent. The city of San Antonio for example estimated that $1 in EITC generated $1.58 in local economic activity and each additional $37,000 created one job. Many cities benefit more in federal and state EITC than they do through traditional urban programs like Community Development.

The state EITC also creates more tax fairness. The typical household making $30,000 a year in New Jersey pays about $2,850 in property, sales and other taxes. Contrary to popular opinion, even with New Jersey’s progressive income tax, low income households still pay a higher percentage of their income on taxes than the wealthy when all taxes are considered (10.7 percent for the lowest 20 percent income group vs. 7.4 percent for the top 1 percent). The state EITC offsets about a fourth of those taxes, which helps tremendously.

New Jersey should support work, families and New Jersey’s economy by restoring the EITC.

This map shows the number of households and individuals in each county who lost Earned Income Tax Credit funding in 2011 and 2012 after Gov. Christie reduced the state EITC funding from 25 to 20 percent. It also shows the total amount of EITC funding lost in each county. Click on the county and the information will pop up.

Blue Counties: Loss of less than $1 million
Green Counties: Loss between $1 million and $5 million
Yellow Counties: Loss between $5 million and $10 million
Red Counties: Loss of more than $10 million