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D.C. Politics May Pose Threat to Increase in New Jersey’s Low-Income Tax Credit

Menendez and Booker hope to work out deal with GOP to extend federal version of tax break that helps hundreds of thousands in New Jersey

menendez-booker
U.S. Sens. Robert Menendez and Cory Booker, both of New Jersey.

Gov. Chris Christie and Democrats who control the state Legislature worked together earlier this year to increase a state tax credit that benefits nearly 600,000 of New Jersey’s lowest-income workers.

But a looming policy change at the federal level is already threatening that boost for low-wage earners in the state.

To keep that from happening, New Jersey’s two U.S. senators say they’re working with other Democratic lawmakers in a bid to convince Republicans in Congress to make sure policies that benefit low-income workers are included in legislation sought by the GOP that would extend several federal tax breaks that benefit businesses.

If a bipartisan deal can be reached, Sen. Robert Menendez and Sen. Cory Booker said they want it to include a provision that would make permanent an expansion of the federal Earned Income Tax Credit that was passed in 2009. A permanent expansion of a similar tax break that helps low-income parents afford childcare is also being sought by the two senators.

At stake is an average of $1,116 in annual credits for an estimated 219,000 New Jersey families, according to New Jersey Policy Perspective, a liberal think tank based in Trenton.

“This is money that helps pay the rent, pay for food and other urgent necessities like healthcare,” Booker said during a conference call with reporters yesterday.

“You can’t have giveaways to business without taking care of families,” Menendez said during the call.

Federal cuts could offset NJ increase

Expiration of the federal Earned Income Tax Credit could cancel out the increase of the state version of the credit that Christie and the Democrats who control both houses of the state’s Legislature agreed to enact in their own bipartisan deal reached in late June.

With the increase in the state’s tax credit, nearly 600,000 New Jersey households would receive roughly $250 more when they file their tax returns next year, the think tank said. But since the state version of the credit is calculated as a percentage of the federal credit, what happens to the credit at the federal level has the potential to more than reverse the boost New Jersey residents are set to receive.

Unless the expansion of the federal credit is extended or made permanent, the average New Jersey recipient of the credit would lose a combined $761 in tax credits annually, the think tank said. That includes $585 on average that families would lose from the federal credit and another $176 reduction of the average New Jersey credit due to its link to the federal version.

“This is a very crucial step for the state and for its residents,” said Gordon MacInnes, the think tank’s president.

Created by President Gerald Ford and later expanded by President Ronald Reagan, the federal Earned Income Tax Credit has for decades provided modest tax breaks to low-income workers and families in an effort to combat poverty and encourage work.

Congress expanded the credit in 2009 in the throes of the last recession, with income eligibility this year set at up to $14,800 for workers without children and up to $53,300 for those with three children or more. New Jersey is one of 26 states with their own version of the credit, and combined with the expanded federal Child Tax Credit, income from the tax breaks prevent an estimated 222,000 New Jersey families from falling below the federal poverty line.

Losing several hundred dollars in annual income would be a big deal for most families in New Jersey, said Serena Rice, executive director of the Anti-Poverty Network of New Jersey. But for New Jersey’s lowest-income families, losing that much money “can mean a real crisis,” she said. Those families frequently use the income from the tax credits to help pay heating bills, cover car repairs or buy clothes and shoes.

“It is crucial,” Rice said.

Christie touted increase in state credit

Christie loudly promoted the plan to expand New Jersey’s version of the credit in the run-up to the late June kickoff of his ongoing effort to win the GOP’s 2016 presidential nomination.

He said at the time that New Jersey’s lowest-income residents need “more money in their own pocket and less in the pockets of politicians for them to spend.”

But Christie’s office did not respond when asked yesterday for comment on the impact the expiration of the expansion of the federal credit could have on New Jersey’s own expanded credit.

Booker and Menendez said they aren’t sure whether the effort to link the extension of federal business tax credits sought by Republicans, such as those encouraging research and development, to the extension of the tax breaks benefiting low-income workers will succeed.

Leaders from the House and Senate have been working together on a bipartisan deal that could come together later this week, they said.

“I’m cautiously optimistic that our approach of having a compromise with Republicans will work,” Booker said.

But Menendez said he’s concerned about language Republicans are trying to insert into the legislation that aims to prevent fraud but could make it took difficult too difficult for people to apply for the credits.

“Low-income families shouldn’t need a high-powered accountant just to get the tax credits they deserve,” Menendez said. “We have to make working families whole.”

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