Category: Testimony

Corporate Tax Reform Bill Opens Loopholes, Makes it Easier to Hide Profits Overseas

Posted on by Peter Chen

The Corporation Business Tax changes being proposed in A-5323/S-3737 are extremely complicated. Many of them are positive, but the removal of key anti-abuse provisions leaves gaping holes in preventing corporate tax avoidance through offshore subsidiaries, specifically the decoupling of GILTI conformity from federal rules, and the reopening of the related-entity royalty/interest payment loophole.

Although NJPP supports many provisions in this bill, including the important switch to the Finnigan method of counting corporate profits, the organization cannot support the bill in its current form.

The bill opens and re-opens far too many tax loopholes, which allow corporations to supercharge their tax avoidance schemes and reward them for foreign offshoring of profits and phantom transactions to artificially reduce their corporate incomes.[i] With more than one trillion dollars in corporate profits now flowing offshore to tax havens, New Jersey must do all that it can to ensure that the corporations who earn profits off of in-state consumers and workers cannot shirk their duty to pay taxes through elaborate financial trickery.

Because this is a highly complex bill with many moving parts, I have attempted to organize the sections the legislature should remove, amend, or protect, as well as a few suggestions for provisions to add.

As an aside, I urge the legislature and Treasury Department to add section numbers and descriptive headings to help the public understand what is contained in the bill.

The Problem: Foreign Tax Avoidance 

  • Companies want to shift their profits overseas to avoid taxation
  • Mobile capital makes it easy for corporations to avoid paying their fair share of tax liability by artificially lowering their profits here
  • New Jersey tax law can’t “see” these corporate entities, because our CBT only looks at US-based subsidiaries
  • Foreign tax avoidance cost New Jersey roughly $714 million in lost tax revenue in 2018, with corporate profits (and tax avoidance in foreign subsidiaries) rising substantially since then.[ii] In 2018 that would have amounted to nearly 25 percent of all CBT revenue.
  • As a result, any tax code change that creates incentives to move profits abroad runs the risk of eroding profits stateside and eroding the revenues that should accompany them.

 

Two Key Loopholes for Abuse That Must Be Removed

Removing interest/royalty anti-abuse provisions (S-3737, p. 6, lines 6-48, p. 7, lines 1-5).

  • What it does: Currently the law only allows corporations to claim a deduction for royalty or interest payments to a related member if they can demonstrate that the purpose of the payments was not to avoid taxes.
  • The abuse potential: Corporations can create third-party foreign shell corporations, transfer intellectual property and license it back to their US subsidiaries and/or borrow money from these shells, then claim the interest or royalty payments as a loss, artificially lowering their US profits.
  • Why it must be removed: Because New Jersey can’t see foreign subsidiaries, the profits shifted abroad would avoid taxation, leaving Treasury to chase after the money after-the-fact through auditing, rather than preventing the offshoring abuse from happening in the first place.
  • Note: This provision is NOT included in the Treasury score sheet, but could have serious long-term potential for exploitation and revenue reduction.

 

Eliminating GILTI deduction and treating GILTI as dividend (S-3737, p.10, lines 18-22).

  • What it does: Currently the law treats foreign global intangible low-taxed income (GILTI) in conformity with the federal internal revenue code, roughly taxing it at 50 percent of the CBT rate. This provision would instead treat GILTI as dividend income, effectively taxing it at 5 percent.
  • The abuse potential: Despite the name, GILTI includes a wide range of profits earned by overseas corporations and slashing the amount of GILTI in state corporate taxation will further induce corporations to shift profit-generating assets to foreign subsidiaries.
  • Why it must be removed: Given that corporate taxpayers already need to report this income at the federal level, treating it in conformity with the federal government ensures that New Jersey revenue collection is protected against additional erosion through offshoring. Companies declared nearly $350 billion in GILTI in 2018. Conforming with federal law will ensure that New Jersey can keep its revenues robust in the face of additional profit offshoring.
  • Note: NJPP believes an estimate of ~$50M in revenue loss to be overly optimistic. Recent research has shown that foreign profit shifting behavior by corporations remained unchanged after the Trump Tax Cuts and Jobs Act (2017), with a stable 50 percent of US multinational profits claimed abroad.

 

Provisions to Protect

Reorganization discretion by the Director to force worldwide combined reporting (S-3737, pp.41-42, lines 20-48, 1-31).

  • What it does: Expands the power of the Director of the Division of Taxation to explicitly require a corporate filer to file a world-wide combined filing.
  • How it reduces abuse: Without the “stick” to force corporations to disclose their global holdings in order to unveil any tax avoidance schemes, there is nothing to stop corporations from testing the limits of tax law and hope to tie up disputes in litigation. Any weakening of the anti-abuse provisions as detailed above will require a backstop to ensure that companies cannot abuse tax law and the discretion in the Director is critical to deter companies from tax avoidance schemes. Note that worldwide combined reporting (see below) would help solve many of these problems of foreign offshoring by forcing companies to report all their profits and losses from all foreign subsidiaries as one combined return.
  • Note: The section uses “taxpayers” instead of “affiliates” or other terms. Yet this may limit the scope of this section only to organizations that have enough connection to New Jersey to trigger taxation, rather than affiliates who would not ordinarily be subject to New Jersey tax.

 

Close the captive Real Estate Investment Trust (REIT) loophole (S-3737, pp.25-27).

  • What it does: Includes REIT and Regulated Investment Companies (RICs) in the combined group and does not give them the deduction on dividends-paid. This (mostly) closes the loophole on the captive REIT tax avoidance strategy, which worked as follows:
    • Corporation owns lots of branches/locations, then transfers ownership to the REIT that it controls 90% of.
    • The REIT charges rent to the corporation, which the corporation can take as a deduction.
    • The REIT then pays out dividends to its shareholders (90% of whom are the corporation). The REIT then takes a deduction for dividends paid.
    • The corporation ALSO takes a dividends received deduction for the dividend payments from the REIT.
  • How it reduces abuse: By treating REITs and RICs as part of the corporate group, these payments cancel out, and the dividends-paid deduction is eliminated. In doing so, the tax code reduces the opportunity to abuse these schemes by eliminating much of the financial incentive for setting up these in the first place.
  • Caveat: The REITs and RICs can still be hidden through ownership by other types of corporate entities, such as life insurance company segregated asset accounts or Australian Property Trusts. The exclusion of these types of avoidance schemes (detailed on lines 40-42 on p. 25) suggests that this may simply move these schemes to more exotic foreign-controlled corporate entities. This loophole should be closed quickly and simply, so all REITs no matter how owned are included in the taxable group.

 

Formalize switch to Finnigan rule for taxable groups.

  • What it does: The Finnigan rule, named for a California court case, treats a corporation as taxable as long as any member of its unitary group is taxable. That means that corporate subsidiaries and related groups that do not claim nexus in New Jersey are taxable as part of one taxable group.
  • How it reduces abuse: Various tax schemes rely on related corporations that are outside the scope of New Jersey’s corporate tax system. New Jersey has moved towards combined reporting and has recognized that including all subsidiaries and related corporations is necessary to collapse some of these avoidance schemes.

 

Broader Solutions: Provisions to Add

Tax haven list (not currently included in the bill).

  • What it does: Requires that corporations report subsidiary and associated corporations as part of their combined reporting if they are incorporated in specific tax haven jurisdictions. For example, Montana requires that corporations in a unitary relationship with the taxpayer incorporated in countries like the British Virgin Islands, the Isle of Man, and Luxembourg must be included in a combined return. See Code 15-31-322(f).[iii]
  • How it reduces abuse: Nearly $1 trillion in global profits was collected in tax havens in 2019. Requiring corporations to report the profits generated by the worst-offender tax havens allows New Jersey to recoup some the income being lost to this tax avoidance, as well as protect legitimate offshore income generated by businesses abroad that do not have a connection with New Jersey.

 

Mandatory worldwide combined reporting (not currently included in the bill).

  • What it does: Requires that corporations report income on all their worldwide subsidiaries and controlled corporations as one unit. Subsequently, New Jersey can apply its apportionment formula to ensure only the profits attributable to the state are counted.
  • How it reduces abuse: Allowing corporations to simply elect whether to report their foreign subsidiaries allows corporations to hide their profits abroad and fail to report their income stateside. It also makes the tax avoidance schemes described above much easier to undertake (such as the royalty/interest deduction loophole or the REIT “rent” deduction) because the profit half of the ledger can be hidden in another country. Inevitably, the only way to stave off foreign profit offshoring to avoid taxation is to require true world-wide unitary combination. Although this will have additional administrative challenges, such as the fair allocation of foreign profits to New Jersey, shifting to mandatory world-wide reporting largely ends the game of whack-a-mole to chase down foreign profit-shifting tax avoidance schemes.

 

Final Note: More Auditors Needed

Treasury needs a ramp-up in the number of auditors to combat corporate tax flight.

  • What it does: Annual US corporate profits have more than tripled since 2003 (from $811 billion to $2.9 trillion), but the number of auditors projected for FY2023 is actually lower than the state had in 2003 (a decrease from 428 to 365). The increasing complexity of corporate tax structures and the sophistication of tax avoidance schemes requires sufficient staffing.
  • How it reduces abuse: With much of the enforcement power of the tax agency dependent on the audit power (and the reorganization discretion of the Director), the need for a strong auditor workforce is critical to ensure that the state can enforce its tax laws against the world’s largest and wealthiest corporations, who have substantial interest in lowering their tax liability. The federal IRS recently saw an increase in its workforce as part of the Inflation Reduction Act.

 

NJPP cannot support the bill in its current form, though with amendments, it could be a robust force against tax avoidance schemes.

End Notes

[i] Ludvig Wier and Gabriel Zucman, Global Profit Shifting, 1975-2019, United Nations University-WIDER Working Paper 2022:121, https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2022-121-global-profit-shifting-1975-2019.pdf

[ii] Ricahrd Philips, Institute on Taxation and Economic Policy, A Simple Fix for a $17 Billion Loophole: How States Can Reclaim Revenue Lost to Tax Havens (Jan. 17, 2019), https://itep.org/a-simple-fix-for-a-17-billion-loophole/.

[iii] See also Jane G. Gravelle, Congressional Research Service, Report R40623, Tax Havens: International Tax Avoidance and Evasion (Jan.  6, 2022) p. 4, https://sgp.fas.org/crs/misc/R40623.pdf.

New Jersey’s FY 2024 Budget Should Prioritize Working Families Over Corporate Interests

Posted on by Alex Ambrose

Good morning, Chairman Sarlo and members of the committee. My name is Alex Ambrose and I am a policy analyst at New Jersey Policy Perspective, a nonpartisan think tank focused on advancing economic, social, and racial justice. Our organization is also a member of the For The Many budget coalition.

Thank you for this opportunity to present testimony.

New Jersey’s state budget should prioritize the needs of working-class families who are struggling to make ends meet over corporate special interests – people over profits. That’s why we urge you: do not give corporations a one billion dollar tax cut by removing the corporate business tax surcharge. Not only would a tax cut be a gift to some of the biggest and most profitable corporations in the world like Amazon and Walmart, it will cost the state revenue sorely needed to continue funding education, infrastructure, health care, and so much more.

These funds are essential to balancing the state’s budget, building a healthy surplus, and reducing the racial and economic disparities that were not just exposed but worsened over the last few years. The pandemic taught us that government support helps ease the harm of economic downturns, while cutbacks and austerity only deepen the pain for hard-working families.

This budget needs to advance changes to make the tax code more equitable and make the state more affordable for low- and moderate-income households. A tax cut for wealthy corporations will do the exact opposite.

Revenue collections were strong in the last few budgets, but economists are forecasting an imminent drop in revenue collections, if not a recession. Last year, the Office of Legislative Services testified that the record-high revenues are only temporary and collections will begin dropping, as we have already seen in the latest revenue snapshot.

What we need is reliable growth and predictability through a fair tax code that prioritizes public services and programs that directly benefit everyday New Jerseyans.

Some of those programs are included in our recommendations for this year’s budget, including the Earned Income Tax Credit, the Child Tax Credit, Temporary Assistance for Needy Families, the Clean Energy Fund, NJ Transit, and Public Defender Fees.

First, we urge you to expand the Earned Income Tax Credit for ITIN holders. Despite being taxpayers themselves, ITIN holders are often excluded from accessing government programs. Expansion would help ensure all people in New Jersey have access to financial security.

Second, we urge you to expand the Child Tax Credit, a policy proven to reduce child poverty. This credit is critical for low-income families, and expanding it will give families additional necessary assistance. Specifically, we recommend doubling the existing credit, as the governor proposed in his budget, as well as expanding eligibility to children up to 11-years-old, as proposed by Assemblywoman Verlina Reynolds-Jackson.

Third, we ask for increased monthly grants for families participating in Temporary Assistance for Needy Families. TANF provides critical support to families experiencing economic hardship, and increasing grants to at least 50% of the federal poverty level and adjusting for inflation would better provide our state’s families with the means to get back on their feet.

Fourth, we urge you to end the diversions of the Clean Energy Fund, a fund that makes new, safer technologies more affordable for the state and for working class families. Should the diversions continue, New Jersey will have diverted over $2 billion dollars away from clean energy, and every dollar diverted undermines the clean energy laws we already have in place.

Fifth, we ask that you prioritize funding NJ Transit’s capital needs. NJ Transit has a backlog of projects necessary to keep service reliable and to improve infrastructure to avoid another year of record-high service breakdowns. The agency has many required capital improvements with no identified funding source.

Finally, we urge you to end public defender fees, which are a regressive tax on low-income defendants. The right to an attorney is a fundamental right in our justice system and should not be predicated on the ability to afford adequate legal representation. Eliminating these fees is a critical step in ensuring all residents have access to justice regardless of their financial circumstances.

The state has a robust set of achievements over the last few years including a full pension payment, pre-school expansion, working family tax credits, affordable housing, and more. To think the same economic benefits will come to our state if we give wealthy corporations a tax cut is trickle-down economics at its worst.

New Jersey Policy Perspective asks that while you are evaluating the budget, you keep everyday working New Jersey families in the front of your mind, not corporate CEOs.

The New Jersey state budget must help the grocery worker with no car trying to get to work on unreliable public transportation. It must help the parent working three jobs to pay for child care. It must help the front line worker who has to leave their job to attend to their child having an asthma attack.

Cutting corporate taxes will weaken our state’s fiscal health while doing nothing to strengthen our communities. State lawmakers should prioritize making New Jersey affordable for those who need the most help — not the wealthy and well-connected.

Thank you for your time.

Language Access Makes Public Services More Effective and Makes Economic Sense

Posted on by Marleina Ubel

Good morning, Chair Sarlo and members of the committee. My name is Marleina Ubel and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice. Thank you for the opportunity to testify today.

Everyone should be able to access basic government services. Yet lack of translation on websites and documents, especially when dealing with vital services like unemployment, health care, or even registering children for school, creates a barrier for the 2.6 million New Jerseyans who speak a language other than English at home, including over 350,000 seniors. In one of the most linguistically diverse states in the country, New Jersey needs to ensure that its residents can interact with their government.

I also want to lift up two points:

Language access makes public services more effective. The COVID-19 pandemic demonstrated in real time how important it is for governments to produce timely, accurate translations of critical information (such as public health guidance and vaccination data) and government documents (such as unemployment applications, health insurance documents, and state websites). Google Translate, which is used for most state websites, often garbles technical definitions, creating the possibility of misunderstanding and inaccuracy. In fact, there were many accounts of text message alerts received during the COVID-19 crisis response that were unintelligible.

Language access makes economic sense. Given the fact that New Jersey still has $1.4 billion in ARP funds and that those funds are explicitly intended to create the kind of infrastructure that would avoid unintelligible communications from our government during a pandemic and create more accessibility within government, the up front cost to translate websites and documents seems like a no brainer. Additionally, the kinds of issues that folks would report if they had the ability to do so have the potential to make government operate more efficiently and thus, generate more revenue. Just one example: I spent a great deal of time as a social worker translating for folks that were trying to report wage theft. Employers who are not paying their employees, are also not paying taxes on those employees, not mention all the downstream effects of not receiving income you were expecting.

As a state whose strength has come from its diverse population, New Jersey deserves to be a place where all people have equal access to government services.

“Tough-on-Crime” Bills Do Not Address the Root Causes of Crime

Posted on by NJPP Staff

Good morning, Chairman Stack and members of the committee. Thank you for the opportunity to testify today.

I’m Marleina Ubel from New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice for New Jersey residents.

First, I want to acknowledge that the work you do is challenging. You are pulled in different directions by people who feel passionately about these issues, and I believe that you are all trying to do what you feel is right. When I was in college, I had a professor tell me once, “doing the right thing is easy. It is knowing what the right thing is that is the hard part.” So, today I will share some information to help you determine what the right thing is.

As written, S3346 will essentially turn trespassing into 2nd degree burglary subject to NERA. What that means is, this legislature is asking that someone who enters any place with an accommodation for sleeping without permission, whether or not the place is empty, be sent to prison for 5 to 10 years, have to serve at least 85% of their sentence before they are even eligible for parole, and have an additional mandatory period of supervision tacked on. Make no mistake, this will create a new mandatory minimum, even if those words do not appear in the bill. It will also make that person essentially ineligible for other programming, such as diversion programs for juveniles or recovery court for individuals who use drugs.

Given that research has shown that property crime like burglary is tied to economic circumstances, this bill will target some of the most vulnerable New Jerseyans and make them ineligible for services that might actually reduce the chances for reoffense. Thus, this bill will have unintended consequences and increase the chances that people reoffend by making support services — the kind that actually address root causes of crime — out of reach. This bill will also adversely affect juveniles, because a 2nd degree NERA offense makes it more likely that they are tried in an adult court even if their record is clean.

Lengthy sentences do not serve as deterrents or address root causes, and they do not reduce crime. In fact, research has shown that increased and continuous exposure to the penal system increases recidivism and exacerbates the circumstances that lead to criminal activity in the first place, things like, employment and educational opportunities, economic stability, relationships with community members and family – all of these things are ripped away from people when they are sent to prison. In this case, ripped away from someone who is likely vulnerable and nonviolent for what could be a decade.

Bills like this are how we got to where we are today, known across the world as the incarceration nation. Please do the right thing and vote no on this bill.

Thank you and happy to take any questions.

 

Social Equity Excise Fee Revenue Distribution Must Center Racial Justice

Posted on by Marleina Ubel

Good evening, Chairwoman Houenou, Vice-Chairman Delgado, and Commissioners of the Cannabis Regulatory Commission. Thank you for this opportunity to share my testimony.

My name is Marleina Ubel and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice for New Jersey residents.

I want to start by thanking you for your recommendations from last year. It is clear that you heard the call to make sure that the money from the Social Equity Excise Fee be distributed back not just into municipalities, but into communities harmed by the War on Drugs and not spent on law enforcement.

The language surrounding the use of this revenue is vague, allowing the state to exercise tremendous discretion in how it’s spent. Therefore, there must be clear parameters on what is acceptable and what is not, along with the expectation that a participatory budgeting process must be followed. This is of utmost importance because the communities and the individuals who have been directly impacted by the drug war must have meaningful input on how the money is used.

Meaningful input also requires transparency. The public should have access to how much revenue is raised and where that revenue is going. This should not be a slush fund, nor should it be spent on coercive treatment, school resource officers, or otherwise invested in punitive measures connected to the criminal legal system, which is the very entity that caused the most harm enforcing cannabis prohibition.

As you outlined in your prior recommendations, revenue from the Social Equity Excise Fee should go directly toward promoting stronger, safer, and more resilient communities, as well as services that recognize substance use as a matter of public health. Examples of such investments include: recreation and community programming, harm reduction services, neighborhood restoration, after-school programming, and vouchers or direct payments for individual needs, such as utilities, rent, or medical costs.

New Jersey has an obligation to equitably invest this revenue, meaning they must center racial justice and reparations for people harmed by the War on Drugs. Anything less would fail the very communities and residents that the Social Equity Excise Fee is intended to support.

Thank you.

Language Access Removes Barriers and Makes Public Services More Effective

Posted on by Marleina Ubel

Good morning, Chair Beach and members of the committee. My name is Marleina Ubel and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice. Thank you for the opportunity to testify today.

Everyone should be able to access basic government services. Yet lack of translation on websites and documents, especially when dealing with vital services like unemployment, health care, or even registering children for school, creates a barrier for the 2.6 million New Jerseyans who speak a language other than English at home, including over 350,000 seniors. In one of the most linguistically diverse states in the country, New Jersey needs to ensure that its residents can interact with their government.

I also want to lift up two points:

Language access makes public services more effective. The COVID-19 pandemic demonstrated in real time how important it is for governments to produce timely, accurate translations of critical information (such as public health guidance and vaccination data) and government documents (such as unemployment applications, health insurance documents, and state websites). Google Translate, which is used for most state websites, often garbles technical definitions, creating the possibility of misunderstanding and inaccuracy. In fact, there were many accounts of text message alerts received during the COVID-19 crisis response that were unintelligible.

Language access helps most those who have the least. People who speak a language other than English at home are more likely to live in poverty and are less likely to have completed college or high school, exactly the population most in need of assistance. Yet barriers to entry keep government services from reaching the people who need them. This population is also especially vulnerable to exploitation, such as wage theft. And when dealing with high stress situations such as medical or public safety emergencies, exploitation, or sudden loss of housing or employment, people with limited English proficiency should not face yet another hurdle to getting the help they need.

As a state whose strength has come from its diverse population, New Jersey deserves to be a place where all people have equal access to government services.

Data Disaggregation Gives Lawmakers a Full Picture of Communities and Advances Equity

Posted on by Marleina Ubel

Good morning, Chair Beach and members of the committee. My name is Marleina Ubel and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice. Thank you for the opportunity to testify today.

One of New Jersey’s great strengths is its diversity, which, as recent Census data show, continues to grow with increasing Asian American and Pacific Islander populations. To advance equity and effectively allocate resources, policymakers need a full picture of the needs of their residents. But without complete data, especially about New Jersey’s Asian American, Pacific Islander, Middle Eastern, and North African populations, policymakers are in the dark.

Unfortunately, when it comes to health, social services, the criminal legal system, housing, or education, many of the data collected for these populations lumps all of these communities into a single category as “Asian”, “AAPI”, or sometimes simply “Other” or “Unknown.”

These vague categories mask socioeconomic differences between and within national-origin and ethnic groups. The continent of Asia comprises more than half of all people on earth. One catch-all category of “Asian American” fails to capture the diverse backgrounds, let alone the separate experience of Pacific Islanders.

Perhaps the clearest example of the hazards of this one-size-fits-all approach has been the COVID-19 pandemic response. Although Asian Americans overall had lower mortality rates, specific populations, especially Filipino and South Asian national-origin groups, were overrepresented in COVID-19 deaths.

A-3092 would take an important step towards ensuring that when New Jersey policymakers, leaders, and community members look at state-collected data, they are seeing a complete picture, not one that erases entire communities.

Thank you.

New Jersey Must Prepare for the Next Big Storm

Posted on by Alex Ambrose

My name is Alex Ambrose, and I’m the Transportation and Climate Policy Analyst with New Jersey Policy Perspective. Thank you Chair Karabinchak, Chair Kennedy, and members of both committees for the opportunity to speak today.

It is past time the state takes action to secure the safety and wellbeing of our families, small business, and overall economic security. This month, we honor the people who lost their lives in the deadliest storm in NJ history. Not coincidentally, we also just passed the one-year anniversary of the second deadliest storm event, Ida. As someone who comes from a family of first responders, I saw firsthand the danger frontline workers face during these disasters.

Fortunately, New Jersey is poised to be a leader in storm resiliency.

First, we need to stabilize our current energy portfolio by reducing emissions, investing heavily in public transportation, elevating New Jersey union jobs in exciting new sectors like offshore wind and solar, and modernizing our grid. This will require a Clean Energy Jobs bill that will add not just jobs, but careers in our state and uphold local standards for craftsmanship.

Second, we need to end the diversion of Clean Energy Funds started by Governor Christie and continued in this administration. Spending the funds as they are intended opens up more funding for projects that create a better and more resilient state.

Third, we need to give the DEP full authority to regulate flooding on residential properties. As it stands right now, that authority is unclear and would best be affirmed with a legislative fix.

Finally, we ask you to join us in calling on the Murphy Administration to release the flood zone rules and NJ PACT rules promised nearly three years ago. These rules will ensure new development does not put families and small businesses in harm’s way just so a developer can make a profit. We need more housing in our state, and we need to make sure we don’t repeat our past mistakes and wake up the day after a storm to headlines of people drowning in their own apartment. It is time to stop looking to the past for planning where to build and instead to plan for the future.

I grew up in a house that was built in a 500-year flood zone. One of my earliest memories is my father carrying my family through the waist-deep waters of Hurricane Floyd. We were fortunate enough to make it to my grandparents’ house nearby before we faced imminent peril. There are too many New Jersey residents who have not been so fortunate.

For too long, our state has been exploited by corporations prioritizing profits over people. We deserve a New Jersey that values people over polluters. After Sandy, the motto said, “We are stronger than the storm.” I posit that we are also smarter than these storms. It is not a matter of if the next storm comes–it’s when. Let’s be proactive now and plan for that future. Thank you.

Common Sense Changes to the Tax Code Will Narrow Wealth Inequities

Posted on by Sheila Reynertson

New Jersey Policy Perspective (NJPP) is committed to closing the racial wealth gap through statewide policies that build and share wealth equitably. As a nonpartisan think tank that drives policy change to advance economic, social, and racial justice, NJPP has identified key policies that will begin to repair the harms of centuries of discrimination and exploitation.

1. Fair and Just Taxation

The most effective tool in equalizing wealth disparities is taxation aimed at the very wealthiest individuals and corporations. Fair and just taxation of existing wealth serves two critical goals: It ensures that people who have extracted the most value from the state’s economic system pay what they owe, and it ensures that the government has the resources it needs to support programs that advance wealth-building and human capital.

NJPP recommends three immediate commonsense changes to the tax code that will narrow wealth disparities:

  • Extend the Corporate Business Tax (CBT) surcharge on profits over $1 million. Corporate earnings over $1 million in New Jersey have been subject to a surtax since 2018. Because it only applies to very wealthy corporations, the surtax ensures that a portion of record-breaking profits benefits everyone. Scheduled to expire at the end of 2023, the surtax should instead be made permanent, turning huge corporate profits into publicly shared support and services.
  • Reform the inheritance tax to make it progressive. Lightly-tax and tax-free transfers of wealth at death widen the racial wealth gap. For example, in 2019, 30 percent of white households received an average inheritance of about $200,000, while only 10 percent of Black households received one which, on average, was half the amount. Worse, New Jersey’s mostly flat tax on inheritances over a certain amount leads to these smaller inheritances being taxed at roughly the same rate as multimillion dollar transfers. To reduce the transfer of concentrated wealth, NJPP proposes expanding the tax to direct heirs and, to make it more progressive, lifting the exemption for smaller inheritances up to $1 million.
  • Close corporate loopholes to treat all businesses fairly. New Jersey’s combined-reporting law has a big loophole that allows wealthy multistate corporations to transfer their profits out of New Jersey to other states or countries with low or no corporate taxes. Fixing this and other remaining flaws will stop corporations with deep pockets, like Amazon and Walmart, from taking advantage of tax avoidance schemes that reduce what they owe and rob the state of resources needed to strengthen everyone’s ability to build wealth.

 

These tax policies are only the start. NJPP has other progressive proposals that end preferential tax breaks and target wealth held by the most affluent members of society, like the restoration of the estate tax and strengthening how New Jersey taxes capital gains income, among others.

At its root, taxation is the single most powerful tool to equalize wealth disparities. No doubt these hearings will include many proposals for outstanding and innovative programs: baby bonds, home buying assistance, guaranteed income. But to fund these programs at the level needed to meaningfully close the state’s substantial wealth disparities, New Jersey will need to simultaneously pursue fair taxation of the state’s wealthiest individuals and corporations.

2. Affordable for All: Putting Money in Families’ Pockets

A perpetual obstacle to wealth-building among low- and middle-income households are the day-in, day-out expenses and surprise costs, such as medical emergencies or a car repair. Accumulating wealth is nearly impossible for families who must dip into savings or take additional debt simply to make ends meet.

NJPP supports any policy that puts cash back in the pockets of low- and middle-income households to help ease the pain of these expenses and begin to build savings:

  • Expand the Child Tax Credit. New Jersey has created its first state-level Child Tax Credit, but at $500 per child under age 6 for households earning less than $30,000 annually, this does not come close to meeting the high cost of child-rearing. Raising the credit from $500 to at least $1,000 would defray these costs, as would expanding the credit to families with children age 6 and older.
  • Expand the Earned Income Tax Credit (EITC). The EITC is a powerful anti-poverty tool, but many New Jerseyans who pay into the tax system don’t get the benefit of the EITC because they lack a Social Security number. Including ITIN-holders would advance equity among all New Jersey families living paycheck to paycheck.
  • Reform WorkFirst NJ. New Jersey’s assistance program for very low-income residents is in immediate need of reform to keep households stable and move them out of poverty. Increasing the benefit amount and ending policies that trap households in a cycle of poverty will change lives, especially the lives of children.

 

Cash in families’ pockets acts as an income support first and foremost. But absent sufficient financial resources to make ends meet, no household can effectively begin building wealth in the first place.

3. Innovative Wealth-Building Programs

Existing asset-building programs have thus far failed to build the base of wealth necessary to begin closing the wealth gap. Indeed, many programs and tax structures have instead widened the gap, by providing disproportionate benefits to the already-wealthy.

NJPP proposes these creative solutions to explicitly build wealth in households that have been left behind for far too long:

  • Pay reparations for tangible harms of slavery and racial discrimination. Direct payments to Black communities harmed by the American slave trade, as well as discriminatory practices such as redlining, segregation and employment discrimination, would directly close the racial wealth gap. NJPP supports legislation to create a task force on reparations to Black residents.
  • Fund robust baby bonds programs. Connecticut and Washington, DC have passed baby bonds legislation, which funds savings accounts for all births covered by their Medicaid programs. These accounts receive additional contributions from the state before the bonds and children reach maturity. Such a program would help close the wealth gap for children and young adults by giving families an opportunity to build assets without dipping into savings or going into debt.

 

NJPP supports a broad array of proposals to reduce wealth inequality in New Jersey, but real change comes down to appropriately taxing the obscene accumulation of wealth by the top one percent of individuals and corporations, while building assets and reducing deprivation for working-class families.

Thank you.

Reevaluation of Fines and Fees in the Criminal Legal System is Essential to Reducing Wealth Inequality

Posted on by Marleina Ubel

Good evening. Thank you for the opportunity to testify. My name is Marleina Ubel and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, racial, and social justice for New Jersey residents.

The criminal justice system creates and exacerbates racial wealth gaps. Mass incarceration and its disparate application to Black and Hispanic/Latinx communities has reduced their earnings potential, employment opportunities, and wealth accumulation. However, my focus today will be on monetary fines and fees, which can turn minor offenses into massive and long-lasting disparities, especially for people already in dire economic circumstances.

A brief overview of the terminology: fines and fees, or monetary sanctions, are costs imposed by the courts. Fines are meant to serve as a punishment, such as a ticket for jaywalking, while fees are meant to pay for the day-to-day operations of the criminal justice system. Often, when one is charged with a fine, they also are charged with a fee. However, for a person with outstanding fines or fees, the effect is the same — an amount owed that they likely cannot pay, which can balloon into substantial economic hardship down the road. A recent study showed that Black and Hispanic/Latinx defendants spent more time in the court system before disposition and owed more fines and fees 90 days after disposition than white defendants with similar charges.[i]

Let me illustrate how broken the system of fines and fees is with a fairly commonplace criminal justice system interaction: When a person is accused of a crime but can’t afford their own attorney, they are entitled to representation by a public defender. But in New Jersey, this is not free — despite the defendant having to demonstrate financial indigence to qualify for the service. State law requires that the public defender’s office bill defendants a minimum of $150.[ii] Within six months of disposition of the case, the defendant must pay the bill or be in debt to the State of New Jersey.[iii]

This applies to municipal public defenders for municipal offenses, meaning that even low-level municipal offenses can result in liens placed on low-income defendants, yet another drag on ability to build wealth, even if the charges are dismissed or other fines and fees are successfully paid.[iv]

And, while these costs do not appear enormous, roughly one-third of American adults cannot cover a $400 expense without going into debt or selling assets.[v]

Although steps have been taken by the Legislature, judiciary, and the Attorney General to reduce the impact of these fines and fees on individuals, the reality is that even cursory interaction with criminal courts can result in charges that hamper wealth accumulation. Getting a lawyer, obtaining court documents pertaining to one’s own case, and applying for expungement of one’s record all come with costs that low-income individuals are unlikely to afford.

NJPP recommends eliminating all public defender fees and funding residents’ constitutional right to an attorney through sustainable public funding. Neighboring states like New York and Pennsylvania do not charge for legal representation and neither should we.[vi]

However, beyond these fees, NJPP recommends a wholesale reevaluation of fines and fees across the criminal legal system, in line with recent legislation that heavily reduces or eliminates juvenile-justice-related fees.[vii] The vicious cycle of fines and fees, inability to pay, and subsequent increased interaction with police and courts — leading to lost work time, drained savings, and of course, additional fines and fees — must be broken to reduce wealth inequality in New Jersey.

End Notes

[i] Lindsay Bing et al., Incomparable Punishments: How Economic Inequality Contributes to the Disparate Impact of Legal Fines and Fees, RSF: The Russell Sage Foundation Journal of the Social Sciences January 2022, 8 (2) 118-136. https://www.rsfjournal.org/content/8/2/118

[ii] N.J. Admin. Code Sec. 17:39-3.1

[iii] N.J. Stat. Sec. 2A:158A-17

[iv] N.J. Stat. Sec. 2B:24-13

[v] See Board of Governors of the Federal Reserve System, Economic Well-Being of U.S. Households in 2021 (May 2022),  p. 35-36.

[vi] Marea Beeman et al., National Legal Aid and Defender Association, At What Cost? Findings from an Examination into the Imposition of Public Defense System Fees (July 2022), tbl. 2 at p. 15, https://www.nlada.org/sites/default/files/NLADA_At_What_Cost.pdf?v=2.0

[vii] P.L. 2021, c.342.

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