Category: Report

A $15 Minimum Wage Would Help Over 1 Million Workers and Boost New Jersey’s Economy

Posted on by Brandon McKoy

Raising wages would help fight poverty and improve the well-being of workers & their families

To read a PDF version of this report, click here.

Raising New Jersey’s minimum wage to $15 an hour would reduce poverty while boosting the state’s economy by ensuring that more working people have more dollars to spend on essential goods and services. Unemployment has decreased significantly as New Jersey slowly emerges from the Great Recession, but wages have stagnated, and hardship and economic insecurity have increased. In other words, more people are working now but they aren’t earning enough to make ends meet for themselves or their families.

Gradually increasing the minimum wage to $15 by 2023 would boost wages for 1.2 million of the state’s 4.2 million workers and pump $4.5 billion in increased wages directly into the state’s economy. For the state to fully realize the many benefits of a stronger wage floor, it must include all workers, no matter who they are or the type of work they do.

Poverty Persists in an Uneven Economic Recovery; Raising Wages Would Help Ensure that Growth is More Broadly Shared

Low-income workers across high-cost New Jersey are not paid enough to reliably provide for themselves and their families. These low wages in turn depress our economy, dilute the quality and value of our jobs, and exacerbate poverty and inequality across the state.

Many policymakers look to decreased unemployment as the key to shared prosperity – the idea being that the rising tide of fuller employment will lift all boats. But when basic worker standards like the wage floor fail to keep up with economic and productivity growth, we clearly see the limits of reduced unemployment in providing a pathway out of poverty.

While New Jersey’s unemployment rate fell by 45 percent – from 10.9 to 6 percent – from 2011 to 2016, the share of Garden State residents facing economic hardship did not follow suit; this metric barely budged. In fact, the share of New Jerseyans living below 100 percent of the federal poverty level (or $25,100 for a family of 4)[1] was the same in 2016 that it was in 2011: 10.4 percent, or approximately 900,000 people. And the share of New Jerseyans experiencing true hardship – living below 200 percent of the federal poverty level (or $50,200 for a family of 4) – decreased by just 4 percent from 2011 to 2016, falling from 24.7 percent to 23.8 percent, representing more than 2 million New Jerseyans.

Why has there has been significant reduction in unemployment but hardly any change in the share of struggling New Jerseyans? While drops in the poverty rate typically lag drops in unemployment, the facts remain: the poverty rate is far too high and too many hard-working New Jerseyans are not paid adequate wages for their work, in large part because the state’s minimum wage remains far below a survivable wage, never mind a living wage. Low-wage workers are not the only victims. Low wages and widespread hardship also hurts businesses and the state’s economy. How can anyone expect a robust economy when 1 in 4 workers have insufficient incomes? How can any business expect to thrive when so many would-be customers aren’t paid enough to purchase their products or services?

Of course, there are solutions that would help workers, reduce poverty and boost the economy. Chief among them is to gradually increase the state’s minimum wage to something more approaching a living wage. In 2016, the New Jersey legislature passed a bill to do just that, but Gov. Christie vetoed the measure.[2] Fortunately, the state’s new governor, Phil Murphy, made raising the wage to $15 an hour a core piece of his campaign platform. As the new administration and legislature move forward with this critical economic policy solution, it’s important to remember how widespread the need is and why such an increase would be a boon for New Jersey workers, families, businesses and the state’s economy at large.

Raising the minimum wage directly puts more money in the pockets of low-income workers who cannot meet their basic, everyday needs. With more take-home pay, these workers will spend that money immediately and locally on goods and services they were previously unable to afford. Essentially, their increased income is liquid, meaning that it is revolving through the economy instead of sitting stagnant in an investment account or stashed offshore, which is what typically happens when tax breaks are given to the wealthy.

Raising the Wage Would Have Positive Health and Social Effects, Too

Much of the conversation on increasing the wage focuses on the economic impact, but it is important to note the other positive effects that such a change would have on New Jersey workers and their families.

Academic research on the effects of the minimum wage shows that increases help lead to reductions in recidivism,[3] reductions in domestic violence and child abuse,[4] and reductions in teen pregnancy rates,[5] all of which – in addition to the positive effects of reducing poverty – have substantial benefits of improved public health and savings of taxpayer dollars.

On the flip side, scores of economic and health studies have shown a clear link between low incomes and serious health problems including diabetes, heart disease, arthritis and infant mortality.

There is a growing consensus that income is one of the most important determinants of health outcomes. Not only does the amount one is paid directly affect that person’s access to basic health needs (insurance, doctors, etc.), but as the American Public Health Association notes, income also shapes one’s access to other “social determinants of health, such as housing, education, and job opportunities.”[6]

New Jersey’s minimum wage of $8.60 an hour is a guaranteed poverty wage given the state’s high cost of living. Raising the wage to a survivable level that enables workers in low-income jobs to escape poverty will reduce the number of individuals reliant upon safety net programs – which frees up taxpayer dollars for use in other important areas – and lower the demand for various health services, helping to mitigate rising healthcare costs.[7]

Taken together, the long-term and far-reaching benefits of increasing the minimum wage to $15 will easily outweigh any of the costs or supposed negative impacts that its opponents broadcast when the idea is discussed.

Raising the Wage Would Benefit a Large & Diverse Group of Workers

The number of New Jersey workers who would benefit from a minimum wage increase to $15 an hour will depend on how quickly the increase is phased in.

For now, we assume that lawmakers would follow a similar (but not identical) phase-in schedule incorporated in the 2016 bill vetoed by Gov. Christie. For the sake of simplicity, we assume that the minimum wage would be increased to $10.10 an hour in the first step, on January 1, 2019, with four annual $1.25 increases to follow, bringing New Jersey’s minimum wage to $15.10 an hour by 2023.

This increase would equal a $4.5 billion raise for 1.2 million New Jersey workers, or 28 percent of the state’s workforce.

Of those workers, 865,000 – those who currently make less than $14.39 (the current-dollar equivalent of $15.10 in 2023) – would be directly affected by the increase and another 285,000 – those who earn slightly more than the new minimum and would likely see their pay also increase – would be indirectly affected.

These workers are nearly all adults, most are working full time, many have pursued a higher education and they are raising an estimated 458,000 children.

Most of the New Jersey workers who would benefit are in the retail, food service, and health care industries.

Today’s Minimum Wage Falls Short for New Jersey Working Families

On January 1, 2018, New Jersey’s minimum wage rose 1.9 percent to $8.60 an hour. While this is higher than the federal minimum wage of $7.25 an hour it is still a poverty wage in New Jersey. For example, a full-time minimum wage worker who doesn’t miss even one hour of work for the entire year will only earn $17,888.

A single New Jersey worker with no dependents cannot afford her basic needs on a wage less than $15 an hour. This is true in every region of the state.

The Economic Policy Institute’s family budget tool estimates what it takes to maintain a basic budget that accounts for major expenses – housing, food, transportation, health care, child care and taxes – and a modest amount for other necessities like clothing, household supplies, and entertainment. This proposed budget does not include money for other typical expenditures like modest weekend trips or savings.

In the least expensive part of the state, the Ocean City metro area, a single adult would have to earn $15.15 an hour – $31,512 per year – to afford this basic budget; in the most expensive part of the state, the Bergen and Passaic metro area, a single adult would have to earn $20.83 an hour – $42,243 per year – to afford the same.

Meanwhile, the income gap between New Jersey’s very wealthy residents and the rest of us – particularly the poorest residents – persists and is growing. New Jersey now ranks 7th in the nation in income inequality, with the top 5 percent of households having average incomes 15.6 times higher than the bottom 20 percent of households. This inequality has intensified in recent decades: between 1979 and 2013, incomes for the wealthiest 1 percent of New Jersey households grew by 190 percent – a rate 9.5 times higher than the income growth for the bottom 99 percent.[8]

Low wages not only pose a danger to workers and our economy, they also result in the expenditure of taxpayer dollars to support programs that too many low-paid workers need to get by. New Jersey spends an estimated $726 million a year on basic safety net programs for working families. This cost estimate is a significant undercount, since it includes Medicaid, the Children’s Health Insurance Program (CHIP) and Temporary Assistance for Needy Families (TANF) but not the state’s share of the Earned Income Tax Credit, the tax credit for working families who aren’t paid enough to make ends meet.[9]

While a robust safety net is important to assist all families who have fallen on hard times, the state has a critical role to play in ensuring that these programs aren’t subsidizing profitable corporations that are paying poverty wages. In a state with significant budget problems, $726 million is a serious amount of money that could be spent on other priorities and public services.

Tipped Workers Deserve A Raise Too

Recent conversations around raising the minimum wage in New Jersey have left out some of the state’s lowest-paid and most vulnerable workers: those who rely on tips.[10] These workers must be included in any minimum wage increase.

Currently, New Jersey’s wage floor for tipped workers is tied to the federal tipped minimum wage: $2.13 an hour. If a worker doesn’t make the $6.47 in tips necessary to bring them to the state’s $8.60 an hour minimum wage, their employer is required to make up the shortfall – this is called a “tip credit.” Unfortunately, asking for the difference falls to workers, many of whom may feel like their jobs are at risk if they speak up. Not surprisingly, there is significant evidence to show that tipped workers suffer from higher rates of wage theft than other workers.[11]

Additionally, recent action by the Trump administration has made wage theft even more likely. In December 2017, the Department of Labor proposed a rule that would allow restaurant owners to legally take the tips earned by their workers as long as those workers earn the minimum wage – a move that could lead to New Jersey’s tipped workers losing $120 million every year.[12]

The median wage of American tipped workers is $10.22 an hour, compared to $16.48 an hour for the general workforce.[13] Tipped workers are more likely to be women (66.6 percent of tipped workers vs. 48.3 percent of the total workforce) and people of color (38.5 percent of tipped workers vs. 33.9 percent of the total workforce). And the women who work for tips make less, with a median wage of $10.07 an hour compared to $10.63 an hour for male tipped workers.[14]

New Jersey should do away with the tipped wage altogether. This two-tiered wage system has been around since 1966, when amendments to the Fair Labor Standards Act introduced a “subminimum wage” for workers who receive tips. Seven states – Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington – do not have a subminimum wage for tipped workers. Another 31 states, plus the District of Columbia, have tipped minimum wages that are above the federal level of $2.13 an hour.

When increasing the minimum wage, lawmakers must address New Jersey’s tipped wage – if not by eliminating it, at least by raising it to a higher share of the minimum wage.

Failing to act would create a $12.87 gap that employers are theoretically expected to make up for their tipped workers, nearly double what the current gap is. Seven other states have shown that having a separate and lower wage for tipped workers is unnecessary, and doing away with it would simplify labor regulations, mitigate income inequality, and bolster the state’s economy by helping more workers move closer to a livable wage.

Misleading Myths About Wage Increases & Job Losses

When lawmakers work to increase the minimum wage, opponents line up to say doing so would hurt the economy and lead to a significant loss of jobs. These claims are as old as wage increases themselves, but decades of real-world experience show that they are false.

In fact, the overwhelming majority of rigorous research shows that increasing the minimum wage increase the earnings of workers with little to no adverse impact on employment.[15]

An exhaustive report by the National Employment Law Project in 2016 looked at the effects of federal minimum wage increases over the past 70 years and found that, even for industries which are most affected by higher minimum wages, there was no correlation between those increases and lower levels of employment.[16] And two recent meta-studies ­– “studies of studies” that pooled the results of 91 separate analyses – have similarly found essentially no employment effects from minimum wage increases.[17]

And New Jersey’s own history belies opposition claims of economic harm – the last time the state increased the minimum wage through the ballot in 2013 from $7.25 to $8.25, opponents claimed we would lose 30,000 jobs;[18] instead, we gained 90,000.[19]

The Seattle Situation

Seattle implemented a phased-in minimum wage increase starting in April of 2015 that reached $15 for large employers – those with more than 500 employees – this year and will reach that level for small employers between 2019 and 2021 depending on whether they pay toward their workers’ health benefits.[20]

A recent and widely cited University of Washington study claimed that Seattle’s minimum wage increase resulted in a significant loss of jobs, leading some to suggest that $15 an hour – even in a thriving and high-cost economy like Seattle’s – was simply too high of a minimum wage. But the study’s methodology has raised a lot of questions and critiques from economists and researchers,[21] [22] [23] [24] including:

  1. The study was limited to single-site establishments, excluding workers at multi-site chains such as Starbucks or Walmart where positive effects of minimum wage increases are often realized, and leaving out 40 percent of the city’s workforce;
  2. By excluding workers employed by multi-site chains, the study incorrectly counted a worker who left a job at a small business for a job at a larger company as a job loss;
  3. The study focused on jobs that pay $19 or less, assuming that a reduction of jobs in that bracket equaled a loss of opportunity for workers and counted as lost jobs, when instead it should have recognized that many jobs that were formerly in that pay range have seen a wage increase raising them above it;
  4. The study used other cities in Washington state as a control for its experiment with Seattle, instead of using other cities from around the country that are similar to Seattle in important characteristics like size, population, and economic activity – as other more reliable studies have done.

It is also notable that the study’s findings are not in line with the large amount of research related to minimum wage increases – even the research that has found job losses.

The UW study also flies in the face of how Seattle’s economy has actually performed since it began phasing in its minimum wage increase. While the unemployment rate has varied but remained largely the same since the ordinance took effect in 2015, the city’s poverty rate has dropped from 14.4 percent in 2014 – the year before the minimum wage ordinance took effect – to 11.5 percent in 2016. That represents an estimated 14,708 fewer people in poverty just within Seattle alone, a fact made even more remarkable when you consider that the city’s population has grown by 36,389 people over the same period of time.[25]

One of the primary points of opposition to Seattle’s minimum wage increase was that it would lead to widespread restaurant closings. Tom Douglas, a notable restaurateur who owned 15 restaurants in Seattle at the time, predicted that he would “lose maybe a quarter” of his restaurants in the city.[26] But, just like many of the other predictions made by opponents, such doom and gloom has not materialized. Instead, the opposite has occurred: more restaurants have opened in Seattle than previous years.[27] Douglas himself has contributed to this trend, having opened more restaurants and recanted his previous prediction.

Another claim of opponents is that raising the minimum wage will lead to drastic price increases for food and groceries. In 2014, prior to the implementation of the wage increase, the Seattle Metropolitan Chamber of Commerce released a survey, revealing that 50 percent of participating companies believed they would need to “increase prices to offset a $15 minimum wage.”[28] Once again, this concern by-and-large has not been realized.

A 2017 study by the University of Washington School of Public Health looked at grocery store prices from the month before the wage increase took effect to two years after it began and found no significant change.[29] “There is no evidence of change in supermarket food prices by market basket or increase in prices by food group in response to the implementation of Seattle’s minimum wage ordinance,” it concludes.[30]

Despite what many opponents want lawmakers and the public to believe, Seattle’s economy has continued to grow while its minimum wage has risen. The many predictions of lost jobs, shuttered restaurants, increased food prices, and all around economic disaster never came to fruition – not even close.

Low Wages & Income Inequality Are Damaging New Jersey

The rising dangers of poverty and its closely linked partner of income inequality pose a serious danger not just to New Jersey, but the country at large. The High Commissioner for Human Rights at the United Nations recently finished an investigation into extreme poverty in the United States. The report’s findings should give pause to all those who believe in a strong and prosperous nation.[31]

“The American Dream is rapidly becoming the American Illusion, as the United States now has the lowest rate of social mobility of any of the rich countries,” the report reads. The report is exhaustive in its detail and historical context, painting a dispiriting picture of the nation’s economic landscape and the damage it wrecks on such a large portion of the population. Unsurprisingly, many of the hardships described show their hallmarks here in the Garden State through rising inequality and deep poverty, and they grow more conspicuous by the day.

New Jerseyans continue to struggle to make ends meet in an economy where whatever gains that have been made since the Great Recession have gone to the already wealthy. Poverty is stubbornly high, and income inequality poses a great threat to our economy and society. Taken together, the arguments against raising the minimum wage ring hollow in contrast to the threats we face if we fail to act. Raising the minimum wage is an absolute necessity to strengthen New Jersey’s economy and spread prosperity to every worker, family, and business in this state.

Endnotes


[1] U.S. Department of Health & Human Services, U.S. Federal Poverty Guidelines Used To Determine Financial Eligibility For Certain Federal Programs, 2018. https://aspe.hhs.gov/poverty-guidelines

[2] New Jersey Policy Perspective, Gov. Christie Rejects Pay Boost for Nearly 1 Million Workers, August 2016. https://www.njpp.org/blog/gov-christie-rejects-pay-boost-for-nearly-1-million-new-jerseyans

[3] Agan, A. Y. and Makowsky, M. D., The Minimum Wage, EITC, and Criminal Recidivism, January 2018. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3097203

[4] Raissian, K. M., Bullinger, L. R., Money matters: Does the minimum wage affect child maltreatment rates?, January 2017. http://www.sciencedirect.com/science/article/pii/S0190740916303139?via%3Dihub#!

[5] Bullinger, L. R., The Effect of Minimum Wages on Adolescent Fertility: A Nationwide Analysis, March 2017. https://www.ncbi.nlm.nih.gov/pubmed/28103069

[6] American Public Health Association, Improving Health by Increasing the Minimum Wage, November 2016. https://www.apha.org/policies-and-advocacy/public-health-policy-statements/policy-database/2017/01/18/improving-health-by-increasing-minimum-wage

[7] Economic Policy Institute, Raising the minimum wage could improve public health, July 2016. http://www.epi.org/blog/raising-the-minimum-wage-could-improve-public-health/

[8] Center on Budget and Policy Priorities, How State Tax Policies Can Stop Increasing Inequality and Start Reducing It, December 2016. https://www.cbpp.org/research/state-budget-and-tax/how-state-tax-policies-can-stop-increasing-inequality-and-start

[9] UC Berkeley Center for Labor Research and Education, The High Public Cost of Low Wages, April 2015. http://laborcenter.berkeley.edu/pdf/2015/the-high-public-cost-of-low-wages.pdf

[10] New Jersey Policy Perspective, Raising the Tipped Minimum Wage Would Increase the Economic Security of Many Hard-Working New Jerseyans, July 2014. https://www.njpp.org/reports/raising-the-tipped-minimum-wage-would-increase-the-economic-security-of-many-hard-working-new-jerseyans

[11] Economic Policy Institute, Employers steal billions from workers’ paychecks each year, May 2017. http://www.epi.org/publication/employers-steal-billions-from-workers-paychecks-each-year-survey-data-show-millions-of-workers-are-paid-less-than-the-minimum-wage-at-significant-cost-to-taxpayers-and-state-economies/

[12] Economic Policy Institute, Employers would pocket $5.8 billion of workers’ tips under Trump administration’s proposed ‘tip stealing’ rule, December 2017. http://www.epi.org/publication/employers-would-pocket-workers-tips-under-trump-administrations-proposed-tip-stealing-rule/

[13] Economic Policy Institute, Twenty-Three Years and Still Waiting for Change, July 2014. https://www.epi.org/publication/waiting-for-change-tipped-minimum-wage/

[14] Ibid. XXIV

[15] Business for a Fair Minimum Wage, Research Shows Minimum Wage Increases Do Not Cause Job Loss, 2018. https://www.businessforafairminimumwage.org/news/00135/research-shows-minimum-wage-increases-do-not-cause-job-loss

[16] National Employment Law Project, Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels, May 2016. http://www.nelp.org/publication/raise-wages-kill-jobs-no-correlation-minimum-wage-increases-employment-levels/

[17] See pages 4-6 in Center for Economic and Policy Research, Why Does the Minimum Wage Have No Discernible Effect on Employment?, February 2013. http://cepr.net/documents/publications/min-wage-2013-02.pdf

[18] Watchdog, New Jersey’s minimum-wage question poses maximum complexity, October 2013. https://www.watchdog.org/new_jersey/new-jersey-s-minimum-wage-question-poses-maximum-complexity/article_3e1f3a4a-a943-549c-8568-e5639189b72d.html

[19] NJPP analysis of data from the Bureau of Labor Statistics. State and Area Employment, Hours, and Earnings, New Jersey, Total Non-Farm, 2013-2015.

[20] Office of Seattle Mayor Edward B. Murray, $15 Minimum Wage. http://murray.seattle.gov/minimumwage/

[21] The Washington Post, Seattle’s higher minimum wage is actually working just fine, June 2017. https://www.washingtonpost.com/news/posteverything/wp/2017/06/27/seattles-higher-minimum-wage-is-actually-working-just-fine/?utm_term=.f2b59cb4e742

[22] Economic Policy Institute, The “high road” Seattle labor market and the effect of the minimum wage increase, June 2017. http://www.epi.org/publication/the-high-road-seattle-labor-market-and-the-effects-of-the-minimum-wage-increase-data-limitations-and-methodological-problems-bias-new-analysis-of-seattles-minimum-wage-incr/

[23] Economic Opportunity Institute, A tale of two studies: poor research leads to poor findings on minimum wage, June 2017. http://www.eoionline.org/blog/a-tale-of-two-studies/

[24] On the Economy – A Jared Bernstein Blog, That Seattle minimum wage study has some curious results, June 2017. http://jaredbernsteinblog.com/that-seattle-minimum-wage-study-has-some-curious-results/

[25] NJPP analysis of U.S. Census Bureau, 2014 – 2016 American Community Survey 1-Year Estimates

[26] The Stranger, Tom Douglas Talks About How a $15 Minimum Wage Would Affect His Restaurants, March 2014. https://www.thestranger.com/slog/archives/2014/03/11/tom-douglas-talks-about-how-a-15-minimum-wage-would-affect-his-restaurants

[27] Puget Sound Business Journal, Apocalypse Not: $15 and the cuts that never came, October 2015. https://www.bizjournals.com/seattle/print-edition/2015/10/23/apocolypse-not-15-and-the-cuts-that-never-came.html

[28] Washington Policy Center, Seattle Employers Warn $15 Minimum Wage Will Come With a Hefty Price Tag, April 2014. https://www.washingtonpolicy.org/publications/detail/seattle-employers-warn-15-minimum-wage-will-come-with-a-hefty-price-tag

[29] UW Medicine, Seattle’s minimum-wage hike didn’t boost supermarket prices, September 2017. https://newsroom.uw.edu/news/seattle%E2%80%99s-minimum-wage-hike-didnt-boost-supermarket-prices

[30] International Journal of Environmental Research and Public Health, The Impact of a City-Level Minimum-Wage Policy on Supermarket Food Prices in Seattle-King County, September 2017. http://www.mdpi.com/1660-4601/14/9/1039

Modernizing New Jersey’s Sales Tax Will Level the Playing Field and Help the Economy Thrive

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

Strengthening New Jersey’s ability to compete in the 21st century economy requires updates to a sales tax code that was designed and implemented before the rise of online shopping and a service-oriented economy.

New Jersey can modernize its sales tax and raise revenue required to invest in public services by:

  • Broadening the tax base to include more services
  • Adopting a remote sales tax law
  • Closing the online hotel tax loophole
  • Repealing the yacht sales tax
  • Last but not least, returning the tax rate to 7 percent

Like nearly all other states, New Jersey levies a sales tax on consumers purchasing goods and services at the retail level. The sales tax brings in more than $9 billion a year, making up a little over 25 percent of state revenues, making it a critical source for funding higher education, health care, public safety and other important public services required for a thriving state economy. About 20 percent of New Jersey’s sales tax revenue comes from non-residents.

Examples of taxable items in New Jersey include cars, furniture and meals in restaurants. Taxable services include snow removal and lawn maintenance, auto repair and cable and internet services. Exempt from the sales tax are goods and services like groceries, clothing, certain professional services and real estate sales. Although New Jersey does not allow local governments to levy general sales taxes, there are a few exceptions in place to mostly help tourism thrive in a handful of shore towns and support economic development in Atlantic City.

The general sales tax is added as a percentage of the purchase price.[1] Sellers add the tax to the purchase price, collect the tax from the buyer at the time of sale and then periodically submit the revenue to the state treasury. The current rate is 6.625 percent, the fifth highest among states that levy a sales tax (California has the highest state-level rate, at 7.25 percent). But because other states permit municipalities to levy a local sales tax, New Jersey’s rate is actually lower than that of nearby metro areas. New York City’s combined sales tax rate, for example, is 8.875 percent. Philadelphia’s combined rate is 8 percent.

Because so many everyday items are taxed, just about everyone in the state pays the sales tax. But the sales tax is regressive, meaning that low-income shoppers spend a larger share of their income on the sales tax then everyone else. The bottom 20 percent of New Jersey families pay 5.5 percent of their average annual incomes to sales and excise taxes (this includes fuel taxes, which aren’t directly addressed in this report), while middle-income families pay 3.2 percent and the wealthiest 1 percent of families pay just 0.7 percent. However, keeping grocery items and clothing tax-free does help make New Jersey’s sales tax less regressive than other states’ sales taxes. In fact, the gap between the average share of income paid to sales and excise taxes by the bottom 20 percent of families and the top 1 percent in New Jersey is the 10th smallest of all states.

On the whole, the sales tax has been a reliable source of revenue for New Jersey, making up over 25 percent of New Jersey’s revenues in nearly every year since 2000 (with the exception of 2005 and 2006). But the 2016 cut to the sales tax will put a dent in collections. Lawmakers ought to reform New Jersey’s sales tax with three priorities in mind: modernizing it, making it fairer and ensuring it raises adequate revenue to spur public investments.

Broaden the Sales Tax to Include More Services

The nature of New Jersey’s economy has changed dramatically since the sales tax was first introduced in 1966. At that time, industries producing goods accounted for more than a third of the national gross domestic product (GDP). By 2016, the manufacturing sector was down to 18 percent of the economy, according to the federal Bureau of Economic Analysis. Meanwhile, the services industry grew from half of GDP to more than two-thirds during that same 50-year period.

Things like cell phones, internet, cable TV, health clubs, tanning salons and lawn maintenance are common services people pay for today that were not as widespread a few decades ago. As services become an ever-more important fixture of the state economy, policymakers ought to be taxing more of them.

The services subject to New Jersey’s sales tax were last updated in 2006. These changes a dozen years ago led to the taxation of services like computer software, floor covering installation, delivery charges, some landscaping services, storage units, health club memberships, tanning salons, massage services and tattoo parlors. At the time, the state estimated the sales tax reform would generate over $400 million in new annual revenue.[2] In its first year, it did just that, bringing in $427 million, a 5 percent increase in sales receipts.

As services become an even larger part of household spending, New Jersey’s sales tax must adjust and adapt. The taxation of services also allows state policymakers to fold them into the sales tax code with a focus on high-end services to make the tax code fairer. These include professional services like accounting and bookkeeping and those provided by architects, attorneys and engineers as well as services that are predominantly utilized by upper-income households like investment counseling, interior decorating, private club membership fees, chartered flights, horse training and dry-cleaning services. (See Appendix for an expanded list of exempt services.) In addition, policymakers need to reverse course on legislation passed last year that dropped the sales tax on limousine services.

Levying sales taxes on more services would make New Jersey’s tax systems not only fairer but would help to create a more stable tax base over the long term and may help reduce the year-to-year volatility of sales tax collections. Finally, expanding the sales tax to include more services could generate a substantial amount of revenue to help the state maintain funding of important investments like higher education, public safety, mass transit and other vital services.

Adopt a Remote Sales Tax Law

In 2012 New Jersey negotiated an agreement with Amazon to force the online retail giant to collect sales tax from Garden State consumers. It was an important step, but more action on remote sales to New Jersey shoppers is needed.

Federal law prevents states from collecting sales tax from out-of-state retailers that don’t have a physical presence in the state. Nonetheless, online and catalog shoppers that live in states that charge a sales tax are still legally obligated to pay the tax on purchases directly to the state government. Most people, of course, are not aware of this obligation and many of those who are, willfully ignore the law. This lack of compliance, while common, undermines states’ ability to collect sales tax on internet, catalog and other remote sales and puts local businesses owners who must charge sales tax on every purchase at a severe disadvantage. Without the authority to require out-of-state sellers to collect and submit sales taxes, states have lost more than $10 billion in lost annual revenue to online shopping alone.[3]

A federal solution to this problem would be ideal, but without a federal fix there is one avenue that could empower New Jersey to collect sales tax on remote sales and protect local businesses from unfair competition. An innovative disclosure law enacted in Colorado in 2016 requires remote retailers to remind customers that they likely owe sales tax on their purchases.[4] It also requires remote retailers to report some purchaser information to the state which it can use to seek payment of unpaid taxes on “big-ticket” items.[5]

Specifically, the law requires that out-of-state sellers notify their customers on the online “shopping cart” summary page that they may owe sales tax on what they bought. The seller then must mail a statement to their customers each year with a summary of the dollar amounts and nature of their purchases made the previous year and a reminder of their sales tax obligations. Finally, a document listing each customer’s total annual dollar amount of purchases must be provided by the remote seller to the state revenue department. This notification allows the state to selectively collect owed sales tax from customers who made large online purchases.

A more comprehensive and efficient solution to taxing remote purchases would be federal legislation authorizing states to require all remote sellers to charge sales tax in exchange for a simplified sales tax code. But until that happens, New Jersey should do what it can to ensure that its online shoppers are paying their fair share of sales tax, giving small in-state businesses a level playing field and providing the revenue needed to fund vital services and invest in things like education, infrastructure and health care.

Close the Online Travel Loophole and Tax Airbnb Bookings

Right now online travel companies like Expedia, Orbitz and Priceline can avoid collecting all the applicable sales tax on hotel room bookings even though New Jersey collects the tax when travel agents or travelers themselves book the same room. This loophole is not uncommon and costs states between $275 million and $400 million in combined annual revenue.[6]

Here is how the loophole works: online travel companies do collect taxes on applicable sales and lodging taxes but only on the wholesale room rate they pay hotels for the right to rent the rooms, not the higher retail room rate they actually charge renters. They argue that this practice fulfills their tax collecting obligation. However, state routinely tax the full retail price charged to customers for other types of sales found on online travel websites.

To ensure that the full retail room charge is taxed when the room is booked online, New Jersey needs to modernize its law which was written before the advent of the online booking industry. Closing this loophole could generate between $8 million and $12 million more in annual sales tax revenue based on 2010 data.[7]

Similarly, short-term rental marketplaces like Airbnb should also be collecting sales tax. In 2016, over 6,000 New Jersey homeowners rented out rooms or homes on Airbnb to over a quarter of a million people, generating $50 million in income. Last year the legislature passed a bill to include a sales tax plus an occupancy tax to these informal online bookings. Despite support from the business community and Airbnb itself, Gov. Christie vetoed the bill. It was estimated that the bill would generate more than $6 million in sales tax revenue and help to level the playing field for New Jersey’s lodging industry.

Reverse the Tax Break for Yacht and Boat Buyers

In 2016, New Jersey cut the sales tax on boats and other vessels sold in the state in half and capped the sales tax on boats at $20,000 – meaning that buyers of the most expensive boats are receiving even larger tax breaks. For example, an 80-foot yacht in the $5 million range used to be subject to a $350,000 sales tax. That same luxury boat is now subject to just $20,000 in sales tax – a 94 percent tax cut. The special and unnecessary exemption for boaters is estimated to cost the state between $8 million and $15 million in annual revenue.[8]

At a time when the state has not increased funding for TANF for over 30 years, it certainly sends the wrong message to provide such tax breaks for those who need it the least. This 2015 sales tax cut should be reversed.

Return the Sales Tax Rate to 7 Percent

Last but not least, lawmakers need to reverse the gimmicky 2016 reduction in the sales tax rate, which has put very little extra cash in the pockets of most New Jersey working families but has blown a large hole in the state’s budget.

Under the tax cut, which was part of a larger deal to secure long-overdue transportation infrastructure funding, New Jersey’s sales tax dropped from 7 percent to 6.625 percent, where it stands today. The cost of this cut is about $600 million a year and growing (by 2026, for example, it’s expected to be $735 million).[9]

That kind of revenue loss is a huge blow to the state, but because the cost is spread across so many purchases and so many families, it barely registers in the pocketbooks of everyday New Jerseyans. Even the wealthiest 1 percent of families only save an average of $14 a week, while those in the bottom 20 percent earning less than $25,000 will see savings of less than a buck a week. New Jerseyans in the middle 20 percent (household incomes between $49,000 and $79,000) get an average tax cut of $1.65 a week.[10]

Appendix: Services Exempt from New Jersey Sales Tax

Endnotes

[1] New Jersey also levies an excise tax on specific items, including gasoline, alcohol and tobacco.

[2] Center on Budget and Policy Priorities, Expanding Sales Taxation of Services: Options and Issues, July 2009. https://www.cbpp.org/sites/default/files/atoms/files/8-10-09sfp.pdf

[3] Bruce, Fox and Luna in Center on Budget and Policy Priorities, States Should Adopt a Version of Colorado’s Remote Sales Tax Law, August 2017. https://www.cbpp.org/sites/default/files/atoms/files/8-3-17sfp.pdf

[4] Center on Budget and Policy Priorities, States Should Adopt a Version of Colorado’s Remote Sales Tax Law, August 2017. https://www.cbpp.org/sites/default/files/atoms/files/8-3-17sfp.pdf

[5] Only seven states (Alabama, Kentucky, Louisiana, Oklahoma, South Dakota, Vermont and Washington) have enacted some type of sales tax notification and reporting law. However, most are inferior to Colorado’s law and none are as comprehensive as the Multistate Tax Commission’s draft model law.

[6] Center on Budget and Policy Priorities, State and Local Governments Should Close Online Hotel Tax Loophole and Collect Taxes Owed, April 2011. https://www.cbpp.org/sites/default/files/atoms/files/4-12-11sfp.pdf

[7] Ibid at 7.

[8] Legislative Fiscal Note: http://www.njleg.state.nj.us/2014/Bills/S3000/2784_E1.PDF

[9] Legislative Fiscal Note: http://www.njleg.state.nj.us/2016/Bills/A0500/12_E3.PDF

[10] Analysis using Institute on Taxation and Economic Policy microsimulation, using 2016 incomes. The analysis is targeted to tax impacts for New Jersey residents only using an estimate that non-residents pay 20 percent of New Jersey sales taxes.

Modernizing New Jersey’s Sales Tax Will Level the Playing Field and Help the Economy Thrive

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

Strengthening New Jersey’s ability to compete in the 21st century economy requires updates to a sales tax code that was designed and implemented before the rise of online shopping and a service-oriented economy.

New Jersey can modernize its sales tax and raise revenue required to invest in public services by:

  • Broadening the tax base to include more services
  • Adopting a remote sales tax law
  • Closing the online hotel tax loophole
  • Repealing the yacht sales tax
  • Last but not least, returning the tax rate to 7 percent

 

Like nearly all other states, New Jersey levies a sales tax on consumers purchasing goods and services at the retail level. The sales tax brings in more than $9 billion a year, making up a little over 25 percent of state revenues, making it a critical source for funding higher education, health care, public safety and other important public services required for a thriving state economy. About 20 percent of New Jersey’s sales tax revenue comes from non-residents.

Examples of taxable items in New Jersey include cars, furniture and meals in restaurants. Taxable services include snow removal and lawn maintenance, auto repair and cable and internet services. Exempt from the sales tax are goods and services like groceries, clothing, certain professional services and real estate sales. Although New Jersey does not allow local governments to levy general sales taxes, there are a few exceptions in place to mostly help tourism thrive in a handful of shore towns and support economic development in Atlantic City.

The general sales tax is added as a percentage of the purchase price.[1] Sellers add the tax to the purchase price, collect the tax from the buyer at the time of sale and then periodically submit the revenue to the state treasury. The current rate is 6.625 percent, the fifth highest among states that levy a sales tax (California has the highest state-level rate, at 7.25 percent). But because other states permit municipalities to levy a local sales tax, New Jersey’s rate is actually lower than that of nearby metro areas. New York City’s combined sales tax rate, for example, is 8.875 percent. Philadelphia’s combined rate is 8 percent.

Because so many everyday items are taxed, just about everyone in the state pays the sales tax. But the sales tax is regressive, meaning that low-income shoppers spend a larger share of their income on the sales tax then everyone else. The bottom 20 percent of New Jersey families pay 5.5 percent of their average annual incomes to sales and excise taxes (this includes fuel taxes, which aren’t directly addressed in this report), while middle-income families pay 3.2 percent and the wealthiest 1 percent of families pay just 0.7 percent. However, keeping grocery items and clothing tax-free does help make New Jersey’s sales tax less regressive than other states’ sales taxes. In fact, the gap between the average share of income paid to sales and excise taxes by the bottom 20 percent of families and the top 1 percent in New Jersey is the 10th smallest of all states.

On the whole, the sales tax has been a reliable source of revenue for New Jersey, making up over 25 percent of New Jersey’s revenues in nearly every year since 2000 (with the exception of 2005 and 2006). But the 2016 cut to the sales tax will put a dent in collections. Lawmakers ought to reform New Jersey’s sales tax with three priorities in mind: modernizing it, making it fairer and ensuring it raises adequate revenue to spur public investments.

Broaden the Sales Tax to Include More Services

The nature of New Jersey’s economy has changed dramatically since the sales tax was first introduced in 1966. At that time, industries producing goods accounted for more than a third of the national gross domestic product (GDP). By 2016, the manufacturing sector was down to 18 percent of the economy, according to the federal Bureau of Economic Analysis. Meanwhile, the services industry grew from half of GDP to more than two-thirds during that same 50-year period.

Things like cell phones, internet, cable TV, health clubs, tanning salons and lawn maintenance are common services people pay for today that were not as widespread a few decades ago. As services become an ever-more important fixture of the state economy, policymakers ought to be taxing more of them.

The services subject to New Jersey’s sales tax were last updated in 2006. These changes a dozen years ago led to the taxation of services like computer software, floor covering installation, delivery charges, some landscaping services, storage units, health club memberships, tanning salons, massage services and tattoo parlors. At the time, the state estimated the sales tax reform would generate over $400 million in new annual revenue.[2] In its first year, it did just that, bringing in $427 million, a 5 percent increase in sales receipts.

As services become an even larger part of household spending, New Jersey’s sales tax must adjust and adapt. The taxation of services also allows state policymakers to fold them into the sales tax code with a focus on high-end services to make the tax code fairer. These include professional services like accounting and bookkeeping and those provided by architects, attorneys and engineers as well as services that are predominantly utilized by upper-income households like investment counseling, interior decorating, private club membership fees, chartered flights, horse training and dry-cleaning services. (See Appendix for an expanded list of exempt services.) In addition, policymakers need to reverse course on legislation passed last year that dropped the sales tax on limousine services.

Levying sales taxes on more services would make New Jersey’s tax systems not only fairer but would help to create a more stable tax base over the long term and may help reduce the year-to-year volatility of sales tax collections. Finally, expanding the sales tax to include more services could generate a substantial amount of revenue to help the state maintain funding of important investments like higher education, public safety, mass transit and other vital services.

Adopt a Remote Sales Tax Law

In 2012 New Jersey negotiated an agreement with Amazon to force the online retail giant to collect sales tax from Garden State consumers. It was an important step, but more action on remote sales to New Jersey shoppers is needed.

Federal law prevents states from collecting sales tax from out-of-state retailers that don’t have a physical presence in the state. Nonetheless, online and catalog shoppers that live in states that charge a sales tax are still legally obligated to pay the tax on purchases directly to the state government. Most people, of course, are not aware of this obligation and many of those who are, willfully ignore the law. This lack of compliance, while common, undermines states’ ability to collect sales tax on internet, catalog and other remote sales and puts local businesses owners who must charge sales tax on every purchase at a severe disadvantage. Without the authority to require out-of-state sellers to collect and submit sales taxes, states have lost more than $10 billion in lost annual revenue to online shopping alone.[3]

A federal solution to this problem would be ideal, but without a federal fix there is one avenue that could empower New Jersey to collect sales tax on remote sales and protect local businesses from unfair competition. An innovative disclosure law enacted in Colorado in 2016 requires remote retailers to remind customers that they likely owe sales tax on their purchases.[4] It also requires remote retailers to report some purchaser information to the state which it can use to seek payment of unpaid taxes on “big-ticket” items.[5]

Specifically, the law requires that out-of-state sellers notify their customers on the online “shopping cart” summary page that they may owe sales tax on what they bought. The seller then must mail a statement to their customers each year with a summary of the dollar amounts and nature of their purchases made the previous year and a reminder of their sales tax obligations. Finally, a document listing each customer’s total annual dollar amount of purchases must be provided by the remote seller to the state revenue department. This notification allows the state to selectively collect owed sales tax from customers who made large online purchases.

A more comprehensive and efficient solution to taxing remote purchases would be federal legislation authorizing states to require all remote sellers to charge sales tax in exchange for a simplified sales tax code. But until that happens, New Jersey should do what it can to ensure that its online shoppers are paying their fair share of sales tax, giving small in-state businesses a level playing field and providing the revenue needed to fund vital services and invest in things like education, infrastructure and health care.

Close the Online Travel Loophole and Tax Airbnb Bookings

Right now online travel companies like Expedia, Orbitz and Priceline can avoid collecting all the applicable sales tax on hotel room bookings even though New Jersey collects the tax when travel agents or travelers themselves book the same room. This loophole is not uncommon and costs states between $275 million and $400 million in combined annual revenue.[6]

Here is how the loophole works: online travel companies do collect taxes on applicable sales and lodging taxes but only on the wholesale room rate they pay hotels for the right to rent the rooms, not the higher retail room rate they actually charge renters. They argue that this practice fulfills their tax collecting obligation. However, state routinely tax the full retail price charged to customers for other types of sales found on online travel websites.

To ensure that the full retail room charge is taxed when the room is booked online, New Jersey needs to modernize its law which was written before the advent of the online booking industry. Closing this loophole could generate between $8 million and $12 million more in annual sales tax revenue based on 2010 data.[7]

Similarly, short-term rental marketplaces like Airbnb should also be collecting sales tax. In 2016, over 6,000 New Jersey homeowners rented out rooms or homes on Airbnb to over a quarter of a million people, generating $50 million in income. Last year the legislature passed a bill to include a sales tax plus an occupancy tax to these informal online bookings. Despite support from the business community and Airbnb itself, Gov. Christie vetoed the bill. It was estimated that the bill would generate more than $6 million in sales tax revenue and help to level the playing field for New Jersey’s lodging industry.

Reverse the Tax Break for Yacht and Boat Buyers

In 2016, New Jersey cut the sales tax on boats and other vessels sold in the state in half and capped the sales tax on boats at $20,000 – meaning that buyers of the most expensive boats are receiving even larger tax breaks. For example, an 80-foot yacht in the $5 million range used to be subject to a $350,000 sales tax. That same luxury boat is now subject to just $20,000 in sales tax – a 94 percent tax cut. The special and unnecessary exemption for boaters is estimated to cost the state between $8 million and $15 million in annual revenue.[8]

At a time when the state has not increased funding for TANF for over 30 years, it certainly sends the wrong message to provide such tax breaks for those who need it the least. This 2015 sales tax cut should be reversed.

Return the Sales Tax Rate to 7 Percent

Last but not least, lawmakers need to reverse the gimmicky 2016 reduction in the sales tax rate, which has put very little extra cash in the pockets of most New Jersey working families but has blown a large hole in the state’s budget.

Under the tax cut, which was part of a larger deal to secure long-overdue transportation infrastructure funding, New Jersey’s sales tax dropped from 7 percent to 6.625 percent, where it stands today. The cost of this cut is about $600 million a year and growing (by 2026, for example, it’s expected to be $735 million).[9]

That kind of revenue loss is a huge blow to the state, but because the cost is spread across so many purchases and so many families, it barely registers in the pocketbooks of everyday New Jerseyans. Even the wealthiest 1 percent of families only save an average of $14 a week, while those in the bottom 20 percent earning less than $25,000 will see savings of less than a buck a week. New Jerseyans in the middle 20 percent (household incomes between $49,000 and $79,000) get an average tax cut of $1.65 a week.[10]

Appendix: Services Exempt from New Jersey Sales Tax

Endnotes

[1] New Jersey also levies an excise tax on specific items, including gasoline, alcohol and tobacco.

[2] Center on Budget and Policy Priorities, Expanding Sales Taxation of Services: Options and Issues, July 2009. https://www.cbpp.org/sites/default/files/atoms/files/8-10-09sfp.pdf

[3] Bruce, Fox and Luna in Center on Budget and Policy Priorities, States Should Adopt a Version of Colorado’s Remote Sales Tax Law, August 2017. https://www.cbpp.org/sites/default/files/atoms/files/8-3-17sfp.pdf

[4] Center on Budget and Policy Priorities, States Should Adopt a Version of Colorado’s Remote Sales Tax Law, August 2017. https://www.cbpp.org/sites/default/files/atoms/files/8-3-17sfp.pdf

[5] Only seven states (Alabama, Kentucky, Louisiana, Oklahoma, South Dakota, Vermont and Washington) have enacted some type of sales tax notification and reporting law. However, most are inferior to Colorado’s law and none are as comprehensive as the Multistate Tax Commission’s draft model law.

[6] Center on Budget and Policy Priorities, State and Local Governments Should Close Online Hotel Tax Loophole and Collect Taxes Owed, April 2011. https://www.cbpp.org/sites/default/files/atoms/files/4-12-11sfp.pdf

[7] Ibid at 7.

[8] Legislative Fiscal Note: http://www.njleg.state.nj.us/2014/Bills/S3000/2784_E1.PDF

[9] Legislative Fiscal Note: http://www.njleg.state.nj.us/2016/Bills/A0500/12_E3.PDF

[10] Analysis using Institute on Taxation and Economic Policy microsimulation, using 2016 incomes. The analysis is targeted to tax impacts for New Jersey residents only using an estimate that non-residents pay 20 percent of New Jersey sales taxes.

A Grain of ‘SALT’: New Jersey Needs More Than Workarounds to Respond to GOP Tax Plan

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

SALT ‘fixes’ would mostly help the state’s most well-off; plans to make state income tax fairer should move forward

The GOP tax plan is now law, and states are grappling with how the enormous federal tax cuts will play out for their residents. The plan delivers lopsided cuts to the wealthiest Americans and large corporations while teeing up deep and devastating budget cuts that would harm working families across New Jersey. But despite the grave threat to progress and opportunity this tax law presents, New Jersey lawmakers seem most concerned about a relatively narrow provision of the plan: the new federal limit on the deductibility of state and local taxes (SALT). Households that itemize deductions are now only allowed to deduct up to $10,000 in combined SALT when calculating their taxable income for federal taxes.

While “workarounds” are under discussion to evade the cap – including shifting the state income tax to a payroll tax[1] or attempting to treat property tax payments as charitable donations[2] – lawmakers have also voiced concern about advancing long-held plans to make the state’s income tax fairer while raising hundreds of millions of dollars for schools and property tax relief.[3]

There’s no reason not to try to design workarounds that restructure the state tax code to help New Jersey taxpayers avoid the federal cap on SALT deductions, but these workarounds should not be the primary focus of lawmakers concerned about the well-being of the state’s middle-class and working families. That’s because these workarounds would disproportionately benefit the wealthiest households in New Jersey, to make no mention of the fact that the Trump administration is unlikely to allow them to stand.

  • The wealthiest 1 percent of families (those with annual incomes over $1.1 million) would receive 54 percent of the benefit from a SALT workaround. Nearly every family in the top 1 percent – 99.9 percent of them, in fact – would benefit, with an average tax cut of $79,460 a year, or 2.5 percent of their average incomes.
  • The bottom 80 percent of families (those with annual incomes under $142,000) would receive less than 1 percent of the benefit from such a policy. Just 10 percent of these families would benefit at all, and their average tax cut would be $75 a year, or less than 0.1 percent of their average incomes.

To the extent that lawmakers ought to be considering these SALT workarounds, they should be doing so only as part of a comprehensive package responding to the federal tax plan – one that includes proposals to raise revenue from the corporations and wealthy interests who will most benefit from the federal plan. At the very least, shying away from bold tax policy – as suggested by some legislative leaders – should not be part of the equation.

The truth is New Jersey’s highest-income households – those with annual incomes over $1 million – get a windfall from the new tax plan, even with the new limit on SALT deductibility. That’s because for New Jersey’s wealthiest families, the average federal tax cuts from other changes in the law are notably larger than the average size of the impact from the loss of SALT deductibility.

Specifically, the long-term benefit of slashing the corporate rate nearly in half will overwhelmingly go to wealthy stockholders rather than the average worker.[4] Eighty percent of the value of the total stock market is concentrated at the top while fewer than half of all Americans own any stock. Further, the big tax cuts for corporations are permanent, while nearly all the smaller tax cuts and changes for individuals and families are temporary – making the overall impact of the GOP tax plan even more favorable to New Jersey’s wealthiest families than this fact sheet illustrates (since it uses 2019 impact data).

Households with incomes over $1 million – with a projected average income of $2.6 million in 2019 – will receive a combined $1.4 billion tax cut with an average tax cut of $27,300 per household, even with the SALT deduction limits factored in.

Given this windfall for the state’s wealthiest families and the state’s precarious fiscal condition there is no reason for legislative leaders to back off of long-held plans to make New Jersey’s income tax fairer and raise much-needed new revenue to invest in schools and property tax relief.

In fact, under a proposed overhaul of New Jersey’s income tax that would, in all, raise over $1 billion in new revenue while increasing taxes on only the 5 percent of highest-income families,[5] households with $1 million or more in taxable income would be paying an average of $22,000, more a year in New Jersey taxes. And under the decidedly less bold plan to raise the top tax rate to 10.75 percent on incomes over $1 million, households with $1 million or more in taxable income would be paying an average of $17,600 more a year in New Jersey taxes. Either way, these millionaire households would still come out well ahead from the combined effect of the federal tax plan and a state income tax increase.[6]

What’s more, these families at the top of New Jersey’s income brackets are already paying the lowest share of their annual average income to state and local taxes in the state (7.1 percent versus 9.1 percent for middle-income families and 10.7 percent for the lowest income quintile).[7] And they have also enjoyed over $4 billion in cumulative tax cuts since 2010, at a time when these households have reaped the overwhelming majority of any economic gains in the state.

Endnotes

[1] New York State Department of Taxation and Finance, Preliminary Report on the Federal Tax Cuts and Jobs Act, January 2018.

[2] Congressman Josh Gottheimer, Gottheimer, Murphy Offer Tax Cut Plan, January 2018.

[3] See, for example, New York Times, Democrats in High-Tax States Plot to Blunt Impact of New Tax Law, December 2017.

[4] Joint Committee on Taxation (JCT), Modeling the Distribution of Taxes on Business Income, JCX-14-13, October 2013.

[5] New Jersey Policy Perspective, Reforming New Jersey’s Income Tax Would Help Build Shared Prosperity, September 2017.

[6] Federal tax plan changes affecting individuals are modeled using ITEP’s microsimulation tax model, which generates tax estimates for a sample of representative taxpayer records in each state. For more information about the model, visit https://itep.org/itep-tax-model-simple/

[7] Institute on Taxation and Economic Policy, Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States (2015 edition).

Health Care for All New Jersey Kids

Posted on by Raymond Castro

The following is a summary of this report. For the full report in PDF format, click here.

As a new administration and legislature take the reins in Trenton, New Jersey has a historic opportunity to guarantee that all children in the state have health coverage.

New Jersey has already made progress toward this goal, but more can – and must – be done.

The state has reduced the uninsurance rate for children to 3.5 percent – a major accomplishment. But there are still 70,000 children who remain uninsured, and 20 states – including every Northeastern state but Maine – have even lower rates. What’s more, New Jersey has one of the largest disparities in health coverage between white and Hispanic children in the nation, with Hispanic kids more than 3 times more likely than their white neighbors to be uninsured.

Of these 70,000 uninsured New Jersey kids, half (35,000) are undocumented immigrant children who are not eligible for NJ FamilyCare coverage and an additional 12,000 are kids in middle-class families who can no longer buy into NJ FamilyCare, since New Jersey ended the buy-in program in 2014. The remaining 23,000 uninsured children are eligible for NJ FamilyCare but are not participating due to administrative barriers and a lack of intensive outreach.

NJPP’s report identifies 10 actions the state should take to make healthcare coverage through NJ FamilyCare accessible to all children, including:

  • Stop excluding children because of their immigration status
  • Reinstate the buy-in program for middle-class families
  • Remove administrative barriers that prevent eligible children from enrolling, like locking kids out of coverage for 90 days if a payment is missed

Insuring these uncovered children is not only a moral imperative for New Jersey, it is cost-effective, incremental, realistic and affordable – important considerations given the state’s bleak financial situation. In fact, investing in the wellbeing of these kids now will likely save the state money in the long run.

NJPP estimates it would eventually cost $66.5 million a year – or less than one half of one percent of all Medicaid expenditures – to cover the state’s undocumented immigrant children. That is a third-year cost; the first year cost to the state is much less, at $10 million. What’s more, these estimates do not include state savings that would be achieved in charity care, other federal funds the state can claim for emergency care, and long-range health and social savings resulting from better health for kids. NJPP recommends an additional $2 million in state funding for outreach – an excellent investment because the $2 million would be immediately matched, and then the state would obtain even more federal Medicaid funds to help cover the additional children who are enrolled. And there is zero state cost to reinstate the buy-in program for middle-class families (they pay the full cost of coverage).

Read the full report here.

Let’s Drive New Jersey: Expanding Access to Driver’s Licenses is a Common-Sense Step in the Right Direction

Posted on by Erika J Nava

To read a PDF version of this report, click here.

As New Jersey prepares to welcome a new administration and legislature, it is poised to become the 13th state to allow all its residents to apply for driver’s licenses, regardless of their immigration status. Doing so would increase public safety, help the state’s economy and increase the well-being of all families – particularly the hundreds of thousands who would be newly allowed to drive legally.

In total, about 466,000 New Jersey undocumented immigrants are of driving age and would be eligible for a license.Based on the experience of other states, we estimate that half these eligible New Jerseyans – 233,000 in all – would receive a license within the first three years of implementation,[1] a 3.8 percent increase in the total number of licensed drivers in the state. (A higher number would likely apply for a license but not everyone who applies passes the written and road tests and is ultimately licensed.)

Nine New Jersey counties would see 10,000 or more residents sign up for licenses, while an additional four counties – Atlantic, Camden, Ocean and Somerset ­– would see between 5,000 and 10,000 sign up.

Allowing all New Jerseyans who can prove their identity and in-state residence to be trained, licensed, and insured would make the state safer, help the state’s economy and increase the wellbeing of families.

Make the state safer

  • Having more licensed drivers would make New Jersey’s roads safer, because more people who can be accountable for their driving record.
  • Undocumented immigrants are already careful drivers – but new research finds that they are even more careful in states that allow them to drive legally.[2]
  • Once licensed, undocumented immigrants are less likely to flee the scene of an accident. In California, for example, allowing all residents to drive regardless of status led to a significant decline in hit-and-run accidents. The researchers at Stanford University who published these findings suggest that licensed undocumented drivers have weaker incentives to flee because they are less likely to fear deportation.[3]
  • There would also likely be an overall decrease in fatal accidents, based on the experience of the three states with the longest-standing policies similar to the one being proposed in New Jersey.[4]
  • Towns and cities across the state would safer as the trust between immigrant communities and law enforcement improves.

Help New Jersey’s economy & boost the collection of motorist fees

  • New Jersey’s economy works best when everyone can work and provide for themselves and their families. In many parts of the state, having a car and ability to drive safely is central to achieving that goal. By allowing more people to legally drive, this policy would help more New Jerseyans participate in the state’s economy and contribute more to their local economies.
  • Since auto insurance is compulsory in New Jersey, thousands of drivers would obtain coverage, boosting annual premium payments by about $223 million a year.[5]
  • The state would likely collect $11.7 million in license fees (assuming 233,000 people sign up for a license that costs $50). On top of these initial license fees, New Jersey would likely collect these fees on a recurring basis when licenses expire every four years – and it would also likely collect $2.3 million in one-time fees for driving permits, since the 233,000 would be required to get permits because they are first time license holders.
  • These newly-licensed drivers would purchase an estimated 84,000 automobiles, boosting vehicle registration fees by $3.9 milion (assuming that newly purchased cars will be registered at a cost of $46.50 per registration).[6]

Increase the well-being of families

  • More parents would be able to drive their children to school or doctors’ appointments without breaking the law.
  • This policy would reduce the chances of family separation via deportation or jail time and help ease the anxiety that can damage a child’s development.
  • Other New Jerseyans who have trouble obtaining the required documentation under the current 6-point system would be able to validate their identity and New Jersey residence under this new policy.

Endnotes

[1] NJPP calculated the number of potential new undocumented license holders by taking the undocumented driving age population (16 years and older) from the Migration Policy Institute database and using the take up rate (50 percent) of Illinois, which is in the high end and has a similar undocumented population to New Jersey’s. To see further explanation on the “take up rate” see Fiscal Policy Institute, Expanding Access to Driver’s Licenses: Getting a License Without Regard to Immigration Status, January 2017 (http://fiscalpolicy.org/wp-content/uploads/2017/01/FINAL-Drivers-licenses-report-2017.pdf)

[2] Latino Policy Institute at Roger Williams University, A Legal and Policy Analysis of Driver’s Licenses for Undocumented Rhode Islanders, June 2016. http://www.rifuture.org/wp-content/uploads/drivers-license_report-legal.pdf

[3] Hans Lueders, Jens Hainmueller and Duncan Lawrence in Proceedings of the National Academy of Sciences of the United States of America, Providing driver’s licenses to unauthorized immigrants in California improves traffic safety, April 2017. http://www.pnas.org/content/114/16/4111.full.pdf

[4] New Jersey Policy Perspective, Share the Road: Allowing Eligible Undocumented Residents Access to Driver’s Licenses Makes Sense for New Jersey, September 2014. https://www.njpp.org/reports/share-the-road-allowing-eligible-undocumented-residents-access-to-drivers-licenses-makes-sense-for-new-jersey

[5] NJPP calculated the potential premium payments of new license holders by multiplying the average auto insurance expenditure (http://www.naic.org/prod_serv/AUT-PB-13_2016.pdf) in 2014 and the number of potential new license holder who would buy insurance, using Utah’s take-up rate of 76 percent as a baseline.

[6] NJPP analysis using New York state estimates of new licenses and automobile purchases in two reports by Fiscal Policy Institute reports: Expanding Access to Driver’s Licenses: Getting a License Without Regard to Immigration Status, January 2017 (http://fiscalpolicy.org/wp-content/uploads/2017/01/FINAL-Drivers-licenses-report-2017.pdf) and Expanding Access to Driver’s Licenses: How Many Additional Cars Might Be Purchased?, January 2017 (http://fiscalpolicy.org/wp-content/uploads/2017/01/FPI-Additional-cars-report-2017.pdf)

Increasing Opportunities for Working Mothers Would Boost the Economy

Posted on by Holly Low

Investments in early care and education plus stronger labor standards would have tremendous payoff

To read a PDF version of this report, click here.

For the over 400,000 New Jersey mothers with children under the age of 6, balancing child care and career can be a daunting task due to the lack of adequate child care assistance – a task doubly difficult for lower-income moms. This barrier harms New Jersey’s economic growth and state revenues, in addition to the development of children.

The state’s early care and education programs help mothers with young kids earn $1.2 billion in wages and generate over $60 million in property and income taxes annually. However, the impacts of universal, high quality preschool would be far greater. In addition to the long-term economic benefits of investing in children, universal preschool would result in upwards of 10,000 more mothers entering the New Jersey workforce. In total, universal preschool would help about 200,000 mothers earn $7.5 billion and contribute $400 million in taxes each year.

A third of New Jersey’s mothers with young children – or about 130,000 – are living at or below 200 percent of the federal poverty level, or about $48,600 a year for a family of four. These poor and low-income mothers have limited access to public high-quality early care and education programs that could help them work and give their children a brighter future – in fact, we estimate that state and federally funded early care and education programs only reach about 60 percent of them.[1]

In addition, over 40 percent of New Jersey’s working mothers with young children are in service-sector jobs. Many of these occupations, particularly those in retail and food service, come with non-standard hours, unpredictable schedules and low wages. These factors increase financial and child care-arrangement stress, undermining working families’ ability to get ahead.

In short, New Jersey’s working mothers of young children face many barriers to balancing work and parenting, with poor and low-income mothers struggling the most. To solve this complex set of problems, a comprehensive policy response – anchored in increased investments in early care and education, and stronger labor standards – is necessary.

Specifically, state lawmakers should:

  • Increase preschool aid and call on the federal government to invest further in state preschool programs, with the ultimate goal of universal preschool in New Jersey.
  • Increase the income eligibility for wraparound care in school districts that currently have state-funded preschool.
  • Piggyback on federal tax credits that help families with the cost of raising children and paying for care.
  • Call on the federal government to protect Head Start and the Child Care and Development Fund.
  • Mandate that employers provide workers with predictable and stable work schedules.
  • Increase the state minimum wage to a more livable wage.
  • Ensure that women workers have better tools to fight pay discrimination.
  • Allow all workers to take paid time off of work when they or a loved one is sick.

Working Families Need Dependable, Affordable Child Care to Succeed

Dependable child care is crucial for working mothers and their families. However, the cost of child care in New Jersey is extremely high – between $8,000 and $11,000, on average, per year, depending on the age of the child and whether it’s center or home-based care.[2] Since this cost is clearly out of reach for low-income families, a variety of state and federal means-tested programs offer assistance (these programs are detailed in the fourth section of this report).

To give children the best opportunity for lifelong success, the care should be high-quality and education driven. Children who attend high-quality preschool are less likely to be held back or placed in special education, and more likely to graduate and pursue further schooling.[3] This, in turn, has enormous economic benefits for society as a whole. For every dollar invested in high-quality preschool, the return is estimated to be between $3 and $18.[4]

Public programs for early care and education also boost women’s workforce participation, which is key to sustaining our nation’s economic growth.[5] Mothers essentially “propped up” the nation’s labor force participation rate for many decades, but their rates have stagnated since the 1990s.[6] Economists worry that a significant factor is the struggle to balance work and family responsibilities; most mothers work full time as breadwinners and co-breadwinners, yet they still do the bulk of housework and family caregiving.[7],[8]

The child care sector is also a critical building block for economic development. It supports and sustains our workforce of caregivers and provides immediate and long-term benefits to New Jersey’s economy. The last comprehensive analysis of the New Jersey child care industry found it was a $2.6 billion industry directly supporting approximately 65,300 full-time equivalent jobs.[9]

New Jersey’s Working Mothers with Young Children: Who Are They, Where Do They Work and How Much Do They Earn?

Most New Jersey mothers with young children are in the labor force (69 percent) and have immediate or near-term child care needs to help ensure that they can work. Of the 413,000 New Jersey mothers with at least one child under the age of 6, 254,000 are working – and another 29,700 are in the labor force but not currently employed, meaning they could be taking family or sick leave or looking for a job.[10]

Compared to the entire population of New Jersey, mothers of young children are more likely to be women of color or to identify themselves as Hispanic in the American Community Survey.

These working mothers are increasingly responsible for the economic security of their families as breadwinners or co-breadwinners. Most New Jersey mothers with young children are in families that consist of married parents who are both in the labor force. About one in four are heading their households with no husband present; of these the overwhelming majority of mothers are working. Less than 5 percent of unmarried working mothers with young children have any male partner in the household, and less than one-third of New Jersey’s female-headed households receive child support.[11],[12]

A large number of these working mothers – 44 percent – are in service-sector occupations, which include many of the lowest paying jobs in New Jersey. Across these occupations, the median full-time year-round wages are lower for women than men, an indicator of the persistent pay gap that exists between men and women, and it is even greater for women of color. In New Jersey, Latinas make 43 cents for every dollar paid to their white, non-Hispanic male counterparts; Black women make 58 cents, white women make 74 cents, and Asian women make 87 cents.[13]

Mothers with children under 6 are much more likely than the general population to work in healthcare support and personal care and service. Top occupations in these categories include hairdressers, cosmetologists, child care workers, home health aides, and medical assistants.

In addition to low pay, many of these jobs, particularly in retail and the food industry, are more likely to feature erratic scheduling, as well as non-standard and involuntary part-time hours. Irregular scheduling practices that are the hallmark of service-sector jobs – like different hours in any given week, short notice of schedule and last-minute schedule changes – make it nearly impossible to arrange for child care, and pay for it too, since variations in hours mean unpredictable income.[14]

Mothers with children under 6 are also more likely than other New Jerseyans to have low incomes. Over 130,000 mothers with young children, or 32 percent, are living below 200 percent of the federal poverty level, or $48,600 for a family of four.[15] Of these, nearly half are very poor, living below $24,300 for a family of four, or 100 percent of the federal poverty level. Over 31,000 New Jersey mothers with young children live in deep poverty, below 50 percent of the federal poverty level, which translates to $12,150 for a family of four.

Of these poor and low-income New Jersey mothers of young children, about 62,500 are working – that equals one in four of all working mothers with kids under 6 years of age who need care for their children so they can remain employed. These mothers qualify for New Jersey Cares for Kids, the state’s federally-funded child care subsidy program. But the program reaches only a fraction of those mothers – roughly 14,000 a month.

The need for child care subsidies is even deeper, since New Jersey Cares for Kids only serves families under 200 percent of the federal poverty level – even though it obviously takes more than that to get by in high-cost New Jersey. The Economic Policy Institute’s average New Jersey family budget for a family of four, for example, is $78,300, or 322 percent of the federal poverty level.[16] This means another 16 percent of working mothers of young children, or about 40,000, struggle to get by in New Jersey, but are ineligible for child care assistance.

New Jersey’s Early Care and Education Programs: What Are They, Who Pays for Them and Who Do They Reach?

There are three main ways that New Jersey families can receive state and federal assistance with early care and education needs: New Jersey Cares for Kids, Head Start, and state-funded preschool programs. In all, these programs serve about 53,000 employed mothers with children up to the age of 5. While many families use child care programs that are subsidized by nonprofit organizations or religious institutions, there are no readily available data on the number being served by these.

State-Funded Preschool Programs

New Jersey’s state-funded preschools educated almost 53,000 children in 2016.[17] The original and largest program enrolled almost 44,000 children in school districts that were formerly known as “Abbott” districts.[18] The former Early Childhood Program Aid districts enrolled almost 9,000, while the former Early Launch to Learning Initiative districts enrolled around 600 children. All told, New Jersey spent nearly $656 million on these preschool programs in 2016.[19]

The School Funding Reform Act of 2008 mandated high-quality, full-day preschool for all low- income children in New Jersey. There are 93 “universal” school districts that meet certain socioeconomic criteria that were directed to provide preschool to all 3- and 4-year-olds, while 325 “targeted” school districts were directed to provide preschool to low-income 3- and 4-year-olds.[20] However, state lawmakers have not yet followed the funding formula, leaving about 30,000 eligible New Jersey children without free preschool each year since 2009.[21]

Evidence has overwhelmingly shown that there are substantial educational benefits for children who attend high-quality preschool.[22] They are less likely to be held back or placed in special education, and they graduate high school and attend college or other post-secondary institutions at greater rates.[23] Society as a whole benefits as well, because children who attend are less likely to engage in criminal activity or participate in welfare programs and more likely to be active in the workforce. In all, high-quality preschool results in reduced costs in education, social services and criminal justice and increased tax revenue. Economists estimate that the return on investment for preschool is between $3 and $18 for every dollar invested.[24]

State-funded preschools in New Jersey give an estimated 50,000 mothers of young children access to high-quality early care and education, and help an estimated 31,000 of these to work and provide for their families. While there is no data on the number of these mothers furthering their education, there are likely a number who are able to attend school thanks to the availability of state-funded preschool for their children.

Free wraparound care before and after regular school hours was once provided to families enrolled in state preschools. In 2011, income limits and work requirements were established, and families had to begin applying through the New Jersey Cares for Kids program for a subsidy. The number of New Jersey children receiving wraparound care has plummeted by an astonishing 87 percent over the past decade, dropping to 3,956 in 2016 from 31,515 in 2006.[25]

High-quality preschool is expensive, so funding it will prove to be challenging. While universal preschool would benefit all children and create the greatest economic returns, focusing on preschool for the children who need it most to start is sensible.

Head Start

Head Start is a federally-funded program that provides grants primarily to local non-profit organizations that prepare low-income children under the age of 5 for school through education, health and social services.[26] An $8.2 billion program, Head Start reaches 900,000 children nationwide.[27]

Head Start is only open to families at or below 100 percent of the federal poverty level, i.e. $24,300 for a family of four.[28] New Jersey has 52 Head Start programs that served 17,152 children in 2016 – 25 programs serve 3-5 year olds, 26 serve 0-2 year olds and one serves the children of agricultural workers.[29] Some programs may contract with school districts to provide state-funded preschool. In 2016, New Jersey Head Start programs received just under $157 million in federal funds.[30]

Head Start helps about 15,500 poor New Jersey mothers access education, health and social services for their young children.[31] About 8,000 of these mothers work while their children receive early care and education opportunities from Head Start.[32]

Only 8 percent of New Jersey children in poverty ages 0-5 that qualify for Head Start were enrolled in 2016; 17 percent of qualifying 3-year-olds and 18 percent of 4-year-olds were enrolled.[33] According to estimates from the National Institute for Early Education Research (NIEER), Head Start needs an additional $12 billion in annual federal funding to provide high-quality services to all eligible children.[34]

New Jersey Cares for Kids

New Jersey Cares for Kids, which provides child care subsidies to low-income families, is funded by a federal block grant known as the Child Care and Development Fund (CCDF) and administered by the state Division of Family Development and 14 county-level Child Care Resource and Referral agencies. New Jersey spent a total of $285 million on subsidies in 2016 – the bulk of which was paid for by the federal government.[35] Of that, $121 million consisted of federal dollars and $72 million was required maintenance of effort and matching funds from the state.[36] Another $85 million came from TANF (Temporary Assistance for Needy Families) transfers and direct TANF spending, which is an allowable use of those federal funds.[37]

To qualify for a subsidy, the parent or parents must be working or in school and the family income must be below 200 percent of the federal poverty level (roughly $48,600 for a family of four). Families in between 100 and 200 percent of the federal poverty level must make a co-pay that varies depending on family size and income. Children whose parents get cash assistance through WorkFirst New Jersey (the name for TANF in New Jersey) automatically qualify. Parents can continue receiving assistance for up to 90 days if they lose their job, but those who are job searching or unemployed aren’t eligible to apply.[38]

These subsidies help a total of nearly 100,000 New Jersey children a year, and an average of 50,000 each month; the difference is due to families moving in and out of the program.[39],[40] About 64 percent of the children are under 6 years old and the rest are between 6 and 13.[41]

In 2015, child care subsidies flowed to about 5,300 New Jersey providers, including accredited child care centers and home-based providers.[42] Subsidy amounts vary based on the child’s age and type of provider; 2014’s maximum subsidies were about $8,800 (for infant to 2.5 year olds) and $7,200 (for 2.5 to 5 years olds) for one year (N.J. Department of Human Services, 2014). The state allocated $15 million in funds to increase rates by 1 to 4 percent in 2018; in addition, the roughly 880 child care centers that participate in the state’s quality rating program will see an increase of 4 to 24 percent in their rates.[43]

Each month, New Jersey Cares for Kids helps about 14,000 mothers of young children to work and further their education.[44] According to the estimates presented here, these subsidies only reach about 22 percent of New Jersey’s 62,500 working mothers with children under the age of 6 who qualify. It’s likely that a range of factors contribute to this, including the fact that the Child Care and Development Fund is at its lowest funding level since 2002.[45] The Center for Law and Social Policy (CLASP) ranks New Jersey 17th for percent of eligible children served, tying with Tennessee, South Dakota, Oklahoma, North Dakota, Nebraska and Kentucky.[46] In New Jersey, 27 percent of eligible Black children and 12 percent of eligible Latino/Hispanic children were served in 2015.[47]

Furthermore, the child care subsidy falls below the market rate for care in all New Jersey counties, forcing many families to choose providers based on cost, not quality.[48] And in high-cost New Jersey, many families who are phased out of the subsidy program experience what is called a “cliff effect.”[49] When their incomes rise over 200 percent of the federal poverty level, they can continue to receive assistance for up to a year if their income remains below 250 percent of the federal poverty level.[50] But once their income goes over 250 percent, they lose the benefit, dropping off the proverbial cliff. Even at this slightly higher income level, many families are unlikely to make enough to be self-sufficient, but they no longer receive any assistance.

A final issue of concern is that although children of undocumented immigrant parents have the right to child care subsidies, New Jersey’s eligibility forms state that additional proof of citizenship may be required.[51] This, along with the fear of deportation and separation from their children, is almost certain to prevent many qualifying parents from getting the child care assistance that they need.

Investments in Early Care & Education Would Boost the Economic Security of New Jersey’s Working Mothers with Young Children and State Revenues

Early care and education has a substantial payoff over the long run due to the investment in children – but its support for working mothers also brings immediate benefits to the state. In addition, studies have shown that free preschool increases the maternal labor supply. In other words, if New Jersey expands state-funded preschool, we can expect to see the employment rate of mothers of young children increase over time.

Of course, there are many more benefits that are worth considering. For example, employers will have workers with more reliable care who can be more productive knowing their children are in safe, enriching environments. Mothers are also not just likely to work; a portion will be able to further their education due to access to early care and education. Others may have the freedom to donate their nonworking time to community, school, and nonprofit causes.

Currently, over 50,000 New Jersey mothers are able to earn almost $1.2 billion in wages a year and contribute to the economy due to our state-funded preschool, Head Start, and New Jersey Cares for Kids. These mothers contribute an estimated $64 million in state income ($37 million) and local property taxes ($27.2 million) each year.

If New Jersey were to expand preschool as mandated by the 2008 School Funding Reform Act, an additional 22,800 working mothers of low-income children would be able to benefit from fully subsidized care for their 3- and 4-year-olds. This group of preschool expansion mothers would have a total wage impact of $480 million and generate $26 million in income and property taxes. Within this group, an estimated 1,400 would be new to the workforce as a result of preschool expansion. Assuming they are able to find employment and their wages are not impacted by their addition to the workforce, these mothers would earn an estimated $30 million and add $1.6 million in tax revenue to state and local coffers.[52] 

Not surprisingly, economic and fiscal benefits of universal preschool in New Jersey would be much greater, since mothers with higher income levels would utilize universal preschool, which would be available to all mothers with young children.

Universal preschool for 3- and 4-year-olds could result in an additional 10,000 women entering the workforce over time.[53] Assuming once again that these mothers are able to find employment, and that wages are not impacted, these mothers would bring their roughly $372 million in earnings into the economy and boost income and property tax contributions by $20 million a year.

While there will likely always be a portion of families who choose private preschools, it’s reasonable to assume universal preschool in New Jersey would eventually reach most working mothers. Florida and Oklahoma, which have universal preschool, have reached 76 and 74 percent enrollment rates for children, respectively.[54] If 75 percent of New Jersey’s working mothers were able to use state-funded preschools, this would mean roughly 200,000 mothers benefitting from the program, with a wage impact of $7.5 billion. In total, these mothers would generate over $400 million in property and income taxes.

Although calculating all the benefits of expanding early care and education through preschool is beyond the scope of this report, it’s worthwhile to present a rough estimate of the costs. According to NIEER, the high-quality preschool provided in New Jersey costs $12,424 per student. There are about 200,000 3- and 4-year olds in New Jersey. If New Jersey could reach 75 percent enrollment this would mean preschool for 150,000 children, with a cost of roughly $1.8 billion.

A Policy Agenda for Working Mothers and Families

New Jersey’s working mothers of young children face a variety of challenges that make balancing work and parenting extremely difficult, with poor and low-income mothers struggling the most. Even if all mothers had access to affordable, high quality child care, a large portion would still be living in poverty, or on the edge of poverty, and would face unfair scheduling practices imposed on them by service sector employers. To solve this complex set of problems, a comprehensive policy response is necessary.

Early Care and Education

* New Jersey lawmakers should increase preschool aid, and call on the federal government to invest further in state preschool programs, with the ultimate goal of funding universal preschool. It is critical that the resources provided are sufficient to ensure high-quality programs; early care and education experts caution against settling for lower-quality programs in order to serve more children, and high-quality preschool has the largest benefits for society.

* Wraparound care in state-funded preschool districts is crucial for working families, but since 2011, income limits and strict work requirements have been in place. Lawmakers should consider increasing the eligibility for wraparound care to 250 percent of the federal poverty level and ensuring that mothers who work part time can access the wraparound care. Many mothers who work in retail and food service are involuntary part-time workers and they should not be punished for this workplace practice.

* New Jersey lawmakers should call on the federal government to protect Head Start and the Child Care and Development Fund, and to increase funding so that these programs can provide families in need with quality, affordable early care and education.

* There are many families who don’t qualify for child care assistance yet struggle to make ends meet in high-cost New Jersey. The state can piggyback on federal tax credits that help families with the cost of raising children and paying for care. A state Child Tax Credit would reach more low-income families, and benefit those with a stay-at-home caregiver. A state Child and Dependent Care credit would provide relief to working parents who pay out of pocket for child care. In 2015, over 223,000 New Jersey tax filers received this federal credit; the best way to target it to low- and middle-income families is to make the credit the most generous for the lowest earners, phase down the value as income goes up, and cap it at a reasonable income level.

Supportive Work-Family Policies

* Mothers with service sector jobs need predictable and stable work schedules. Fair scheduling policies – like ensuring advance notice of schedules, giving employees a say in their schedules, limiting on-call scheduling and more – can help put an end to workplace practices that make it harder for low-paid New Jerseyans to balance work and care.[55] The state should follow the lead of Oregon and cities like Seattle, San Francisco and San Jose and pass comprehensive fair scheduling legislation.

* The number of New Jersey mothers with young children living in poverty, or near poverty, is alarming. As breadwinners and co-breadwinners, these mothers are responsible for the economic security of their families, and they need living wages. New Jersey can support these families by enacting a statewide $15 minimum wage.

* All women deserve equal pay for equal work. Pay disparities – rooted in occupational sex segregation, discrimination and the “mommy penalty” – exist across occupations regardless of education or skill level. The state should pass the New Jersey Equal Pay Act, which was vetoed in 2016 by Gov. Chris Christie, to give women better legal tools to fight pay discrimination.

* Parents must be able to take time off when they or their children are sick. While most New Jersey workers have access to this benefit, many low-paid workers do not, adding yet another burden to the difficulty in managing care giving and jobs. Several New Jersey municipalities have passed earned sick day policies; New Jersey should enact a strong statewide policy to support working families.

Appendix: Methodology & Acknowledgments

This report used American Community Survey data and program data to examine New Jersey’s working mothers of young children and evaluate the extent to which state and federal early care and education programs provide assistance to them. Data on the number of working mothers of young children, their demographics, occupations, and incomes were generated from the American Community Survey (ACS) Public Use Microdata Samples Five-Year Estimates of 2011-2015.

For each program under consideration – state-funded preschool, New Jersey Cares for Kids, and Head Start – program data were analyzed to estimate the number of mothers of young children receiving assistance. The National Institute for Early Education Research enrollment data on preschool and the Education Law Center’s data on preschool expansion were used to estimate the number of mothers benefiting. Data on child care subsidies from the New Jersey Cares for Kids program were gathered from the New Jersey state budget. A Program Information Report for New Jersey Head Start programs was accessed to gather data on this federal program.

Wage impacts for New Jersey mothers of young children who currently use state and federal child care programs, and those who would benefit from preschool expansion and universal preschool, were generated using income data from the ACS. Finally, an estimate of the income and property tax revenue generated from these same groups was estimated by using effective tax rate estimates from the New Jersey Statistics of Income and the Rutgers Center for Government Services NJ Data Book.

A more detailed methodology with PUMS variables and all calculations is available upon request. Contact info@njpp.org for a copy.

Thank you to Professor Henry Coleman and Professor Michael Lahr for their expert guidance. Thank you to the following individuals who generously shared their time and knowledge with me as I researched early care and education in New Jersey: W. Steven Barnett, Ana Berdecia, Adriana Birne, Kathy Burke, Lorraine Cooke, Ellen Frede, George Kobil, Cynthia Rice and Alana Vega.

Endnotes

[1] In this report “low-income” is defined as living at or below 200 percent of the federal poverty level, while “poor” is defined as living at or below 100 percent of the federal poverty level.

[2] New Jersey Association of Child Care Resource and Referral Agencies (2013). The High Price of Child Care 2013: A Study on the Cost of Care in New Jersey. Retrieved from www.childcareconnection-nj.org.

[3] Friedman, A., Frede, E., et al (2009). New Jersey Preschool Expansion Assessment Research Study (PEARS). National Institute for Early Education Research. Retrieved from www.ccanj.org.

[4] Ibid.

[5] Olivetti, C., and Petrongolo, B. (2017). The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High Income Countries. Journal of Economic Perspectives. Volume 31, Number 1. Pages 205–230. Retrieved from http://pubs.aeaweb.org.

[6] Krause, E. and Sawhill, I. (2017). What We Know and Don’t Know About the Declining Labor Force Participation Rate. The Brookings Institution.

[7] Steverman, B. (2017). Modern Motherhood Has Economists Worried. Bloomberg. Retrieved from www.bloomberg.com.

[8] Parker, K. and Wang, W. (2013). Modern Parenthood: Roles of Moms and Dads Converge as They Balance Work and Family. Pew Research Center. Retrieved from www.pewsocialtrends.org/.

[9] Brown, B. and Traill, S. (2006). Benefits for All: The Economic Impact of the New Jersey Child Care Industry. The New Jersey Child Care Economic Impact Council. The John S. Watson Institute for Public Policy at Thomas Edison State College.

[10] Detailed data on New Jersey was generated by analyzing the American Community Survey (ACS) Public Use Microdata Sample, also known as PUMS. This allows for a custom analysis of actual responses to the ACS survey. Unless otherwise noted, all findings in Section III were generated from the PUMS analysis.

[11] American Community Survey (ACS), Five-Year Public Use Microdata Sample, 2011-2015.

[12] Advocates for Children of New Jersey (2017). New Jersey Kids Count 2017: A Statewide Profile of Child Well-Being.

[13] National Women’s Law Center (2017). The Wage Gap, State by State. Retrieved from https://nwlc.org/resources.

[14] Vogtman, J. and Schulman, K. (2016). Set Up To Fail: When Low Wage Work Jeopardizes Parents’ and Children’s Success. National Women’s Law Center. Retrieved from https://nwlc.org.

[15] State of New Jersey Department of Human Services (2016). SFY 2016 Income Eligibility Schedules for Publicly Subsidized Child Care Assistance or Services. Retrieved from http://www.state.nj.us/humanservices.

[16] Economic Policy Institute (2015). Family Budget Calculator. Retrieved from www.epi.org/resources/budget/.

[17] Barnett, W.S. and Friedman, A., et al (2017). The State of Preschool 2016: New Jersey Profile. The National Institute for Early Education Research. Retrieved from http://nieer.org.

[18] For background on New Jersey’s Abbott districts, see Education Law Center’s Abbott Overview at http://www.edlawcenter.org/cases/abbott-v-burke/. For more detail on state funded preschool in New Jersey school districts see Education Law Center’s Preschool Data at http://www.edlawcenter.org/research/preschool-data.html.

[19] Barnett, W.S. and Friedman, A., et al (2017). The State of Preschool 2016: New Jersey Profile. The National Institute for Early Education Research. Retrieved from http://nieer.org.

[20] Education Law Center (2017). Preschool Data. Retrieved from www.edlawcenter.org.

[21] Ibid.

[22] Friedman, A., Frede, E., et al (2009). New Jersey Preschool Expansion Assessment Research Study (PEARS). National Institute for Early Education Research. Retrieved from www.ccanj.org.

[23] Ibid.

[24] Ibid.

[25] State of New Jersey Department of the Treasury (2017). Analysis of Division of Family Development Evaluation Data for Child Care Payments for Eligible Families. Department and Branch Recommendations in New Jersey State Budget Years 2003-2018. Retrieved from www.nj.gov/treasury/omb/publications/archives.shtml.

[26] U.S. Department of Health and Human Services (2016). “About the Office of Head Start”. Office of Head Start: An Office of the Administration for Children and Families. Retrieved from: https://www.acf.hhs.gov.

[27] U.S. Department of Health and Human Services (2016). “Head Start Program Facts: Fiscal Year 2016”. Data and Ongoing Monitoring. Retrieved from: https://eclkc.ohs.acf.hhs.gov.

[28] State of New Jersey Department of Human Services (2016). SFY 2016 Income Eligibility Schedules for Publicly Subsidized Child Care Assistance or Services. Retrieved from http://www.state.nj.us/humanservices.

[29] U.S. Department of Health and Human Services Office of Head Start (2016). Program Information Report (PIR) Family Information Report – 2016 – State Level – New Jersey. Retrieved via request from https://eclkc.ohs.acf.hhs.gov.

[30] Barnett, W.S. and Friedman-Krauss, A. State(s) of Head Start (2016). National Institute of Early Education Research. Retrieved from http://nieer.org/.

[31] U.S. Department of Health and Human Services Office of Head Start (2016). Program Information Report (PIR) Family Information Report – 2016 – State Level – New Jersey. Retrieved via request from https://eclkc.ohs.acf.hhs.gov.

[32] U.S. Department of Health and Human Services Office of Head Start (2016). Analysis of Program Information Report (PIR) Family Information Report – 2016 – State Level – New Jersey. Retrieved via request from https://eclkc.ohs.acf.hhs.gov.

[33] Barnett, W.S. and Friedman-Krauss, A. State(s) of Head Start (2016). National Institute of Early Education Research. Retrieved from http://nieer.org/.

[34] Ibid.

[35] State of New Jersey Department of the Treasury (2017). Division of Family Development Evaluation Data for Child Care Payments for Eligible Families. Department and Branch Recommendations in New Jersey State Budget Years 2003-2018. Retrieved from www.nj.gov/treasury/omb/publications/archives.shtml.

[36] U.S. Department of Health and Human Services (2016). Office of Child Care. FY 2016 CCDF Allocations. Retrieved from https://www.acf.hhs.gov/occ/resource/fy-2016-ccdf-allocations-including-redistributed-funds#1.

[37] Administration for Children and Families Office of Child Care (2017). State/Territory Profile: New Jersey. State Capacity Building Center. Retrieved from https://childcareta.acf.hhs.gov/state-profiles/profiles/NJ/pdf.

[38] Schulman, K. and Blank, H. (2016). Red Light Green Light: State Child Care Assistance Policies 2016. National Women’s Law Center. Washington, D.C. Retrieved from www.nwlc.org.

[39] Tencza, Jacqueline (2017, June 12). Spokeswoman for New Jersey Division of Family Development. Phone interview.

[40] State of New Jersey Department of the Treasury (2017). Division of Family Development Evaluation Data for Child Care Payments for Eligible Families. Department and Branch Recommendations in New Jersey State Budget Years 2003-2018. Retrieved from www.nj.gov/treasury/omb/publications/archives.shtml.

[41] U.S. Department of Health and Human Services (2016). Office of Child Care. FY 2015 Preliminary Data Table 9 – Average Monthly Percentages of Children in Care By Age Group (FY 2014). Retrieved from https://www.acf.hhs.gov/occ.

[42] U.S. Department of Health and Human Services (2016). Office of Child Care. FY 2015 Preliminary Data Table 7 – Number of Child Care Providers Receiving CCDF Funds. Retrieved from https://www.acf.hhs.gov/occ.

[43] State of New Jersey Department of Human Services (2017). Christie Administration Raises Pay Rates for Certain Child Care Providers [Press release]. Retrieved from http://www.state.nj.us/humanservices.

[44] U.S. Department of Health and Human Services (2016). Analysis of Office of Child Care. FY 2015 Preliminary Data Table 10 – Reasons for Receiving Care, Average Monthly Percentage of Families. Retrieved from https://www.acf.hhs.gov/occ.

[45] Matthews, Hannah and Walker, Christina (2016). Child Care Assistance Spending and Participation in 2014. Center for Law and Social Policy. Retrieved from http://www.clasp.org.

[46] Schmit, Stephanie and Walker, Christina (2016). Disparate Access: Head Start and CCDBG Data by Race and Ethnicity. Center for Law and Social Policy. Retrieved from www.clasp.org.

[47] Ibid.

[48] New Jersey Association of Child Care Resource and Referral Agencies (2013). The High Price of Child Care 2013: A Study on the Cost of Care in New Jersey. Retrieved from www.childcareconnection-nj.org.

[49] Rutgers Center for Women and Work (2016). New Jersey’s Benefits “Cliff Effect” and Economic Self Sufficiency: Center for Women and Work Fact Sheet. Retrieved from http://smlr.rutgers.edu.

[50] New Jersey Department of Human Services Division of Family Development. Child Care and Development Fund (CCDF) Plan for New Jersey FFY 2016-2018. Retrieved from http://www.state.nj.us/humanservices/dfd/programs/child/.

[51] New Jersey Department of Human Services (2008). Child Care and Early Education Service Eligibility Application. Retrieved from www.childcarenj.gov/getattachment/Parents/SubsidyProgram/Subsidy-Application-English.pdf.aspx?lang=en-US.

[52] See Appendix for tables.

[53] See Appendix for calculations.

[54] Barnett, W.S. and Friedman, A., et al (2017). The State of Preschool 2016. The National Institute for Early Education Research. Retrieved from http://nieer.org.

[55] National Women’s Law Center (2017). Workplace Justice: Recently Enacted and Introduced State and Local Fair Scheduling Legislation. Retrieved from: https://nwlc.org/wp-content/uploads/2017/01/Fair-Scheduling-Report-1.30.17-1.pdf.

2018 Minimum Wage Hike Will Boost 300,000 Low-Paid New Jersey Workers

Posted on by Brandon McKoy

16-cent inflation adjustment is good news but lawmakers must do more to boost workers and the state’s economy

To read a PDF version of this report, click here.

On January 1, 2018, New Jersey’s minimum wage will rise by 1.9 percent to $8.60 per hour,[1] providing approximately 300,000 workers throughout the state with a small but welcomed pay increase.

While it was prudent of policymakers to index the minimum wage to the rate of inflation – helping ensure that workers don’t fall further behind than they already are – the fact remains that a minimum wage of $8.60 per hour isn’t nearly enough for a single low-wage worker to make ends meet in the Garden State.

A full-time worker at the minimum wage in 2018 will take home less than $18,000 for the year, assuming they don’t take any time off. According to analysis by the Economic Policy Institute, a single worker in the Garden State needs to make $37,974 in 2018 just to earn a wage that can provide stability.[2]

Fortunately, Governor-Elect Murphy and legislative leaders have made it clear that they intend to increase the minimum wage to $15 per hour, a move that would help a diverse group of workers – nearly 25 percent of the workforce – and improve their chances of being able to provide for themselves and their families in our high-cost state.[3]

In the meantime, the January 1 increase to $8.60 per hour will boost the wages of 7.5 percent of New Jersey’s workforce. Of the 300,000 workers affected by the wage increase, 91,000 are directly affected – meaning they currently make between $8.44 and $8.60 per hour – and the remaining 209,000 are indirectly affected – meaning they currently make between $8.60 and $8.76 per hour, and will see an increase in their pay as employers adjust their pay scales upward to reflect the new minimum wage.[4]

On average, these 300,000 workers will see their annual earnings rise by $469 in 2018. The total increase for all affected workers will be $140.5 million in 2018. While it is important that the minimum wage is increasing in 2018, the change represents just an average hike of $9.02 a week – not nearly enough to allow a worker to get by, let alone climb into the middle class.

In fact, the basic cost of living in 2018 for a single adult working full time requires an hourly wage between $15.15 in the Ocean City metro area and $20.83 in the Bergen-Passaic metro area – far above the 2018 minimum wage of $8.60 an hour.[5]

This basic family budget, designed by the Economic Policy Institute, includes money for the major expenses of housing, food, transportation, health care, child care and taxes, as well as modest amounts for other necessary items like clothing, personal care items, school supplies, entertainment and household supplies. It does not include other typical expenditures of a middle-class family like weekend trips or savings of any kind.[6]

January 1 Increase Will Help a Diverse Group of Low-Paid Workers

Due to ongoing shifts in the nature of low-wage work in America, the low-paid Garden State workers who will see a boost from the January 1 increase are older, more educated and working more hours than they have been in decades – despite the insistence of minimum wage opponents that low-paid workers are primarily teenagers looking for extra cash.[7]

Four of every five workers who will get a raise (81 percent) are at least 20 years old, while most are working either full-time (45 percent) or between 20 and 35 hours a week (33 percent). Almost half – 44.6 percent – have attended or finished college, and an additional 30 percent have finished high school.

The majority, 56 percent, are women and one in five – 20 percent – are parents. A total of 111,000 New Jersey kids have at least one parent who will benefit from the January 1 increase. When looking at race and ethnicity, 44 percent of affected workers are white, 30 percent are Hispanic, and 18 percent are black.

Endnotes

[1] New Jersey Department of Labor and Workforce Development, Notice of Administrative Changes N.J.A.C. 12:56-3.1, September 2017.

[2] NJPP analysis of Economic Policy Institute family budgets by metro area, adjusted to 2018 to account for inflation using projections for the Consumer Price Index from the Congressional Budget Office. Calculations assume each adult is working full-time for the entire year (2080 hours per adult).

[3] New Jersey Policy Perspective and the Economic Policy Institute, Raising the Minimum Wage to $15 by 2024 Would Boost the Pay of 1.2 Million New Jerseyans, May 2017.

[4] All economic and demographic information in this report is from the Economic Policy Institute’s analysis of the Current Population Survey (CPS), Outgoing Rotation Group public use microdata from the fourth quarter of 2013 to the third quarter of 2014. The number of workers is estimated from the CPS respondents for whom either a valid hourly wage is reported or one can be imputed from weekly earnings and average weekly hours. Consequently, this estimate tends to understate the size of the full workforce. All figures are rounded for clarity and readability.

[5] Ibid 2

[6] For more on how the family budgets are calculated, see: http://www.epi.org/resources/budget/

[7] For example, see: Center for Economic and Policy Research, Low-Wage Workers Are Older and Better-Educated Than Ever, April 2012.

Fixing New Jersey’s Broken Corporate Tax Code Will Help Small Businesses, Boost the Economy

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

New Jersey’s corporate tax code is littered with loopholes, special breaks and preferential treatment for large and well-connected corporations. This broken system caused the state to lose billions of dollars over the past decade – billions that could be better used to help create a prosperous state with a strong economy and thriving communities in the coming decades.

Four states and the District of Columbia levy higher corporate business tax rates than New Jersey’s 9 percent rate.[1] And with the help of tax loopholes, rebates and subsidies, many larger corporations operating in New Jersey are paying just a fraction of the statutory rate, and some none at all.

Partly as a result of this fact, corporate taxes have been a shrinking share of state revenues even as, on the whole, businesses have fared quite well. This has led New Jersey to rely more on income and sales taxes while putting a strain on the state’s ability to invest in services that all businesses rely upon. Without the necessary reforms, revenue from New Jersey’s corporate business tax will continue to stagnate, forcing the state to either raise other state taxes or diminish vital public services to make ends meet.

For example, there are at least 25 Fortune 500 companies doing business in the Garden State that effectively pay an average 3.5 percent in business taxes in all states where they operate.[2] Eleven of those 25 profitable corporations paid no state income tax at all in at least one year between 2008 and 2015 costing states over $12 billion in total lost revenue in the past decade.

Policymakers ought to level the playing field and allow small businesses a better chance of competing with larger companies while raising the revenue necessary to help the entire economy thrive – not just the shareholder set. And federal proposals to cut corporate taxes may mean that New Jersey needs to do even more to ensure all businesses have a fair shot and larger corporations aren’t gaming the system.

New Jersey lawmakers should:

  • Close corporate tax loopholes by expanding combined reporting
  • Rein in corporate subsidy programs
  • Repeal or reform some recent business tax breaks

Taking these actions could raise over $450 million a year in new revenue, while relieving long-term budget pressures that will plague New Jersey for years to come if not addressed. Without these meaningful reforms, New Jersey will be crippled in its ability to provide public services and make investments that actually help the economy grow.

Close Major Corporate Loopholes

New Jersey’s broken tax code currently allows large multistate corporations to – on paper – shift profits they make here to other states that have lower tax rates, or no corporate taxation at all. Corporations often do this by creating “subsidiaries” that exist only for tax purposes. States are combating this by adopting what is called combined reporting, and New Jersey should join them. Doing so would help level the playing field for the state’s small and local businesses and raise up to $290 million a year in new revenue to invest in resources entrepreneurs and businesses across the state need to thrive.[3]

Combined reporting is a common-sense tax policy that treats the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. Their nationwide profits are added together and the state then taxes its appropriate share of the combined income. Right now the state’s casinos are the only entities required to follow combined reporting rules. Expanding combined reporting to all multistate corporations would put New Jersey in line with 25 other states that require it.

These states recognize that failing to include combined reporting in their corporate income tax structures gives profitable multistate corporations almost free rein to artificially shift income out of the state and reduce their taxes. Combined reporting stops these corporations from taking advantage of existing tax loopholes and new ones that corporate accountants may come up with in the future.

When New Jersey’s legislature last addressed business tax reform in 2002, combined reporting was mostly left off the table. A commission appointed to review the new law essentially tabled the possibility of expanding combined reporting beyond the casino industry. At that time, only 16 states had fully adopted combined reporting. Since then, nine more states plus Washington D.C. have passed legislation to require this pragmatic corporate tax policy. And policymakers in several other states – including Louisiana, Maryland, Pennsylvania, New Mexico and Alabama – are currently considering mandatory combined reporting legislation.

In fact, combined reporting is so commonplace that nearly all of New Jersey’s largest employers already use it when filing state taxes elsewhere. Of the state’s 98 largest employers, 94 percent already maintain facilities in at least one combined reporting state. And the vast majority of these corporations maintain facilities in multiple combined reporting states. More than 75 percent have facilities in five or more combined reporting states and about half have facilities in 10 or more such states.[4] That speaks volumes about the neutral impact this tax policy has on economic development. For these corporations, combined reporting is nothing out of the ordinary and is accepted as just another cost of doing business.

Put the Brakes on Corporate Tax Breaks

Because of legislative changes made in 2013, New Jersey’s surge in corporate tax subsidies has risen to unprecedented levels, further cramping New Jersey’s ability to invest in schools, transportation and other areas known to be the real drivers of job creation.

The “Economic Opportunity Act of 2013” dramatically expanded corporate tax break offerings, making them more generous to corporations and removing key financial safeguards, including most ceilings on how much the state can spend on subsidies. The increasing reliance on big-dollar tax breaks has done little to significantly improve the state’s economy, and will in fact cause a long-term drag on growth as future tax credits are paid out over the next decade. After all, every dollar that the state loses to future tax subsidies is a dollar it can’t invest in the true building blocks of a strong state economy like affordable public colleges and universities, safe and reliable infrastructure and more.

As of November 2017, New Jersey has approved $5.7 billion under the 2013 law, and $8.3 billion total since January 2010. And it’s not just the overall amount of subsidies that has exploded. These tax breaks have become far more expensive to taxpayers ­– with the state giving up more and more tax dollars for each job a subsidy recipient creates or retains. The cost per job is now about $80,000 – twice the amount it cost earlier this decade and more than five times higher than the cost in the 2000s.[5]

And the long-term cost to all of us is enormous, with the official estimate for 2017-2021 alone at $3.3 billion in lost revenue.[6] (It’s worth noting that this is merely the tip of the iceberg in terms of the true long-term fiscal impact. NJPP estimates that once the annual revenue loss tops $1 billion a year – likely to happen in 2022 – New Jersey will lose at least $1 billion a year for at least the next 10 years.)

Ten key reforms could help rebalance the scales and ensure a more responsible approach to economic development in the Garden State:[7]

  • Restore spending caps
  • Mandate better reporting on outcomes and improve evaluation
  • Fix the net benefits test to prevent taxpayer losses after companies exit
  • Eliminate, or develop more stringent standards for, subsidies for existing jobs
  • Put subsidies in the state budget
  • Restrict corporations’ ability to redeem more in credits than they owe in taxes
  • Ensure fair wages
  • Prevent extra rewards for known federal tax dodgers
  • Include automatic sunset provisions
  • Cooperate with, rather than compete against, New Jersey’s neighbors

These reforms would help put New Jersey back on track before more damage is done to the state’s economy and before the bills we’re passing on to future taxpayers become even larger. Reining in the use of tax breaks for large corporations would allow policymakers to focus more on economic-development strategies that offer much better returns, like targeted job training or entrepreneurial assistance, for example.

Repeal or Reform Recent Business Tax Breaks

Rolling back some recent costly tax breaks for businesses and replacing them with viable alternatives could restore equity to the state’s tax code while raising more than $150 million a year that could be used to invest in assets and opportunities that drive economic growth for all the state’s businesses.

Reverse Tax Cut for Large S Corporations and Update Tax on LLCs

When new businesses incorporate in New Jersey, they have a choice between filing taxes as a C-corporation, a S-corporation or a limited liability company (LLC). C-corporations are taxed as a separate entity while S-corporations are taxed the same as a sole proprietor or partnership: the profits and losses are “passed-through” and reported on the owner’s personal tax returns.[8]

Although S-corporations’ profits are taxed on their owner’s personal income tax returns, the businesses themselves are subject to nominal fixed fees that are calculated based on gross receipts. This “minimum tax” ensures that these entities make a modest financial contribution toward state services, like the education system that furnish them with trained workers and a dependable transportation system for moving goods and services. Though some states do impose a separate tax or fee on LLCs for the privilege of doing business in the state, New Jersey does not.

Policymakers in 2011 cut the minimum tax by 25 percent for all but the very largest S-corporations. Reversing course for S-corporations with more than $250,000 in gross receipts would recoup some of the lost $41 million in revenue and restore a meaningful tax on larger businesses that benefit from state services just as businesses that are subject to state corporate income taxes do.[9] To help pay for the reduced minimum tax on smaller S-corporations, lawmakers should consider imposing the same fee structure on LLCs to encourage level treatment of both pass-through entities.

Revise How New Jersey Taxes Multistate Businesses

Until 2012, New Jersey relied on three factors – property, sales and payroll – to determine the share of a multistate corporation’s profits that the state could tax. This “apportionment formula” was scrapped in 2011, and now New Jersey only takes into account one factor: sales. Known as the “single sales factor,” this formula has given many large multistate corporations a significant tax break that now costs New Jersey over $100 million every year.

The single sales factor formula can create perverse incentives that can deter economic growth in the state. If an out-of-state company that only ships products into the state (and thus pays no income tax to New Jersey) decides to put down roots here, even a small investment in employees or property will immediately mean much of its income is apportioned to the state because the sales factor counts so heavily. In fact, the most recent research finds that single sales factor does not achieve its asserted goal of boosting state economic development.[10]

New Jersey can address this problem and regain the revenue lost due to the single sales factor by adopting a measure called a “throwback rule.” The majority of states with corporate taxation have adopted this policy, which recoups taxable income by including so-called “nowhere sales” in the sales factor.[11]

“Nowhere sales” are not assigned to or taxed by any state because they are made by purchasers in states where a company has no physical presence. The throwback rule says that the profits from sales that are not taxable are “thrown back” and taxed in the state where the products are made. This rule then increases the relative weight of in-state sales in the sales factor, thus increasing the income apportioned to the taxing state. The lack of a throwback rule is currently costing New Jersey about $127 million in annual revenue, according to the state.[12]

Adopting a throwback rule in New Jersey would remove accounting features that reduce large corporations’ state tax bills at the expense of small businesses and the state’s ability to finance vitally important long-term public investments that all businesses depend on (like police and fire protection and mass transit). A bill to enact a throwback rule was introduced by Assemblyman Troy Singleton this year but has not moved in the legislature.[13]

Endnotes

[1] The Tax Foundation, State Corporate Income Tax Rates and Brackets for 2016, February 2016.

[2] Institute on Taxation and Economic Policy (ITEP), 3 Percent and Dropping: State Corporate Tax Avoidance in the Fortune 500, 2008-2015, April 2017.

[3] New Jersey Office of Legislative Services, Legislative Fiscal Estimate, Senate Bill No. 982, March 2016.

[4] New Jersey Policy Perspective, Nearly All of New Jersey’s Largest Employers Already Subject to ‘Combined Reporting’ in Other States, January 2016.

[5] NJPP analysis of New Jersey Economic Development Authority’s Public Information – Incentives Activity Reports, up-to-date through the EDA’s November 2017 meeting.

[6] New Jersey Economic Development Authority, Response to Office of Legislative Services Questions in Fiscal Year 2018 Budget Hearings, May 2017.

[7] For more detail, see New Jersey Policy Perspective, It’s Time for New Jersey to Rebalance the Economic-Development Scales, May 2017.

[8] Only those LLCs that elect to be treated as a corporation for tax purposes must pay the state’s corporation business tax.

[9] New Jersey Office of Legislative Services, Fiscal Note Senate, No. 2981, July 2011.

[10] Center on Budget and Policy Priorities, Case for ‘Single Sales Factor’ Tax Cut Now Much Weaker, April 2015.

[11] New Jersey once had what is known as a “throwout rule,” whereby receipts from sales destined to a state where the taxpayer is not subject to an income tax are thrown out of both the numerator and denominator of the sales factor. The rule was subject to multiple constitutional challenges but upheld by the courts. Nonetheless, it was repealed for tax periods starting in fiscal year 2010. Repeal of the throwout rule cost the state $89 million annually [New Jersey Department of Treasury, Division of Taxation, Fiscal Note Senate, No. 3, November 2008. ftp://www.njleg.state.nj.us/20082009/S0500/3_F1.HTM]. Enacting a throwback rule would likely generate more revenue than that, because the throwout rule effectively assigns “nowhere” sales in the same proportion as a corporation’s existing in-state and out-of-state sales, while the throwback rule would assign all the “nowhere” sales to New Jersey.

[12] New Jersey Department of Treasury, Division of Taxation, Tax Expenditure Report, Fiscal Year 2018.

[13] State of New Jersey Legislature, Assembly No. 4668, March 2017.

Sabotage of the Affordable Care Act Puts Middle-Class New Jerseyans in the Crosshairs

Posted on by Raymond Castro

To read a PDF version of this report, click here.

The Trump administration and Congressional Republicans’ sabotage of the Affordable Care Act’s health insurance Marketplace is driving up premiums and making insurance unaffordable for millions of Americans. In New Jersey, about 150,000 of the 341,000 people who buy insurance through the individual market will see an average 22 percent[1] – or $1,245 – increase in their premiums in 2018.

A typical four-person middle-class family will see their annual premium increase to about $23,000 for a mid-level plan next year – in addition to their deductible, copay and co-insurance – making it unaffordable for many families.[2] In all, these already-struggling New Jerseyans will face a total of $187 million in increased health care costs next year.[3]

One of the principal actions that President Trump and the Republicans in Congress took to undermine the Marketplace is defunding Cost Sharing Reduction payments, which will result in a loss of $166 million in federal funds to New Jersey insurers even though the insurers will still have to provide those subsidies to eligible consumers. Those subsidies are limited to a Marketplace customer who has an income below 250 percent of the federal poverty level ($51,000 for a family of three). In addition, Republicans in Congress have been unable or unwilling to pass legislation funding such payments.

The Trump administration has also issued conflicting statements on whether, or how well, the individual mandate will be enforced, and Republicans in the Senate propose to eliminate it entirely in the tax overhaul bill. The mandate is important because it results in healthier Americans obtaining insurance, which holds down the cost for everyone else insured in the Marketplace. Lastly, the Republicans in Congress have not extended the deadline for the Health Insurance Tax on insurers; without this tax revenue, $186 million in costs will be passed on to New Jersey Marketplace consumers.

New Jersey’s Middle Class Will See More Harm Than Peers in Other States

While most New Jerseyans in the individual market will be protected from these increases because they will still receive premium subsidies, almost half (44 percent) of the state’s residents in the individual market receive no subsidy, and therefore will have to subsidize their eligible neighbors plus bear the costs of their own increase.[4] This will be a much bigger problem in New Jersey than most states because it has one of the highest costs-of-living and average earnings in the nation. The resulting increase will likely leave many unsubsidized New Jerseyans uninsured.

These New Jerseyans do not receive subsidies because their incomes exceed four times the federal poverty level – or $81,700 for a family of three. While that income level may be a lot in lower-cost states, in New Jersey it is clearly middle-class and well below the median family income of $96,126.[5] This illustrates a deeper problem with using the federal poverty level to determine benefits, because this measurement does not consider dramatically different costs of living in states across the country.

Many of these New Jerseyans will have to drop their coverage entirely because it will be unaffordable, or they will pay their premium and not be able to afford other essentials like food and transportation. Another danger is that they will purchase plans that have a lower premium but higher cost sharing that they may not be able to afford when they need medical care.

New Jerseyans across the state will face higher premiums, but people residing in Congressional Districts represented by Republicans are more at risk than people in Democratic districts. The share of all non-elderly adults who face these premium increases is about a third higher in districts represented by Republicans (3.2 percent) than in districts represented by Democrats (2.4 percent). The total number of New Jerseyans harmed by these premium increases is higher in Congressional Districts represented by Democrats because they represent more districts (7-5).

New Jerseyans With Employer-Based Insurance Could Also Be Harmed

While middle-class New Jerseyans in the individual market will see the most direct harm, the pain could very well spread to many other New Jerseyans who currently have coverage through their employer. While these residents once had the peace of mind knowing that if they lost their employer coverage they could always purchase affordable insurance on the individual market, the dramatic premium increases that are resulting from this sabotage change that equation. In fact, about 2.6 million New Jerseyans have incomes above four times the federal poverty level. If these residents were to lose insurance through their employer, they may not be able to afford the new higher premiums in the individual market.

Older New Jerseyans Will Be Hit the Hardest

All age groups are affected by these premium increases, but older New Jerseyans will be harmed the most. Half (50 percent) of New Jersey residents in the Marketplace are over age 45 and over a quarter (27 percent) are over 55.[6] While the percentage increase for older New Jerseyans is about the same as their younger peers, on average they pay much more for insurance – so this is actually a much higher dollar increase. For example, a 62-year-old New Jerseyan making $49,000 will have to pay the full cost of insurance that, on average, will increase by $12,400 to $14,500 a year. That dollar increase is almost twice the state average in the individual market.

In addition, the out-of-pocket limit rises to $7,350 next year, increasing the total potential costs for this older New Jerseyan to $21,850 – almost half (44 percent) of his or her income. To make matters worse, the House Republican tax bill eliminates the medical deduction, which would further reduce coverage for these New Jerseyans.

Many Low-Income New Jerseyans Are Also At Risk

Over 27,000 low- and moderate-income New Jerseyans could also be harmed by other actions – particularly cuts to outreach, enrollment assistance and education. This will likely have the greatest impact on the approximately 338,000 New Jerseyans who are uninsured and, in most cases, eligible for Medicaid or premium subsidies.[7]

For example, federal funding for outreach workers in states like New Jersey that chose not to establish a state exchange was reduced by an average of 41 percent.[8] New Jersey’s cut was the biggest in the Northeast, 61 percent. In addition, advertising was cut by 90 percent nationally.

An estimated 27,000 New Jerseyans will not obtain coverage in the Marketplace next year unless other resources are identified to replace the outreach efforts that have been lost.[9]

These cuts come at the worst possible time because there is much more confusion this year than in the past, thanks to the Trump administration and Congressional Republicans’ repeated efforts to repeal and replace the ACA this year and the shortest-ever open enrollment window (it runs for just 6 weeks this year from November 1 to December 15).

Endnotes

[1] Weighted average premium increases as reported by Horizon and AmeriHealth for 2018

[2] Assumes the children are ages 6 and 8 and the parents are 35 and 36. Plans were reviewed in healthcare.gov. The highest and lowest plans were selected and the mid-point was calculated.

[3] Percent premium increase was applied to average premium in the marketplace in 2017, as reported by The Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services.

[4] New Jersey Department of Banking and Insurance enrollment report, Q22017

[5] U.S. Census Bureau, American Community Survey, 2016

[6] Kaiser Family Foundation, 2017 Marketplace Selections by Age, November 2016- January 2017.

[7] Kaiser Family Foundation, Distribution of Eligibility for ACA Health Coverage Among the Remaining Uninsured as of 2016.

[8] Preliminary Navigator Grant Awards, 2017.

[9] New Jersey’s share of marketplace enrollment was applied towards national estimate by Get America Covered, Trump’s Ad Cuts Will Cost A Minimum Of 1.1 Million Obamacare Enrollments, October 2017.

«« Previous Posts∞Older Posts »»