Want ‘Tax Fairness’? Boost the Earned Income Tax Credit

mckoy200x150These are prepared remarks, on A-40, set to be delivered to the Assembly Appropriations Committee this afternoon.

Mr. Chairman and members of the committee, good afternoon and thanks for the opportunity to testify in front of you today. New Jersey Policy Perspective wholeheartedly supports increasing New Jersey’s Earned Income Tax Credit – or EITC – to 40%, as proposed in A-40.

The EITC is a tax credit designed for families where people are working but not being paid enough to get by. Working families with qualifying children and earned incomes up to $52,247 are eligible for this tax credit; adults without children are eligible with earned incomes up to $14,590. These families – and there are nearly 600,000 of them in New Jersey – receive an essential boost at tax time each year from the federal EITC. The state credit supplements the federal one at a rate of 30%, and adds about $675 to the average New Jersey family’s credit. This is essential for low- and moderate-income working families in high-cost states like New Jersey.

Increasing the EITC to 40% would boost the annual take-home pay for the state’s lowest earners by as much as $600, enough to cover most of one month’s rent for some families. The average New Jersey recipient of this credit would get about $225 more each year.

The extra dollars that these low-wage workers and their families receive each year help keep many of them out of poverty. The EITC keeps more than 150,000 New Jerseyans out of poverty each year, including 79,000 New Jersey children.

This credit also has a proven track record of helping working families, boosting the economy and increasing kids’ chances at success.

The latest academic research on the effects of the EITC finds that parents who receive the EITC work and earn more, which helps not only them but also helps their children. These kids then do better in school, and – as they grow up – are more likely to attend college and to earn more as adults.

And on the economic side, the EITC is a direct shot in the arm for local economies, since families tend to spend these tax credits immediately and locally on short- to medium-term needs like buying clothes for their family, repairing the family car, replacing household items like furniture or catching up on past-due rent or utility bills. Due to this immediate and local spending, economists estimate that every dollar of EITC ends up generating $1.50 to $2 in local economic activity.

Increasing the state EITC to 40 percent will further boost this economic impact, generating about $120 million in new tax credits each year that will spur at least $180 million in economic activity. Like the credit itself, this economic boost will be spread around the state, bringing millions of dollars of spending to almost every county.

Unlike some of the other high-profile tax proposals being discussed right now by the legislature, boosting the EITC truly represents “tax fairness.” It is highly targeted to those who need it most, and it has an outsized impact. Investing in a program that does so much to help low-income families across New Jersey is common sense. Thank you for your time.