New Jersey policy makers appear to be in agreement that the earned income tax credit needs to be increased – but they differ on the timing and whether there should be strings attached.
The state Senate approved a measure Thursday – Senate bill S-2535, sponsored by Sens. Shirley K. Turner (D-Mercer) and Jim Whelan (D-Atlantic) — that would increase the size of the credit from 20 percent to 25 percent of the federal tax credit, returning it to its pre-2010 levels.
The federal credit applies to workers who make less than $13,900 – or between $36,900 and $50,300 for families with children, depending upon family size. The credit can be up to $6,000.
Before 2010, the state credit was set at 25 percent of the federal credit, meaning workers could qualify for refunds of up to $1,500. The EITC was reduced in 2010 during budget negotiations, leaving the maximum credit at $1,200. Since then, Democrats have been trying to restore the cuts, though efforts in 2011 and 2012 – both sponsored by Turner – met with absolute vetoes from the governor.
The governor has said on several occasions that he supports the earned income tax credit, but he has tied its restoration to other legislative priorities. In February 2012, he included $50 million in the state budget for an EITC expansion that would have taken place over a two-year period, but only it if was tied it to passage of an across-the-board tax cut. Last week, he included the EITC in his conditional veto of a proposed minimum wage increase, which sparked the ire of the Democrats’ legislative leadership.
Democrats want the EITC, which is aimed at the working poor, to be restored for the current tax year, without it being tied to new tax cuts or what they view as an inadequate minimum wage counter-proposal.
The Senate approved the bill Thursday by a 27-1 vote, with 13 Republicans abstaining and just three backing the EITC restorationSenators abstaining or not voting, and came a little more than a week after the governor included restoration of the EITC in his conditional veto of a proposed minimum wage hike.
The conditional veto called for restoration to 25 percent of the federal EITC in tax year 2014, which means it would generate rebates in the spring of 2014. Sen. Joseph Pennacchio (R-Morris) made a motion to amend Turner’s bill to reflect the governor’s veto last week, but the motion was defeated.
The 27 Senate votes would be enough to override a gubernatorial veto, provided the bill passes the Assembly. The Assembly version of the bill was introduced Thursday and was reported out of the Assembly Budget Committee. The bill is sponsored by Speaker Sheila Oliver (D-Essex), Louis Geenwald (D-Camden), Bonnie Watson Coleman (D-Mercer), Gary Schaer (D-Passaic), Rubenm Ramos (D-Hudson) and Grace Spencer (D-Essex).
Turner, in a press release after the vote on Thursday, called the EITC a “lifeline” for working families, “supplying them with additional funds to help pay for food and rent, to gain more training and education and to improve their family’s lot in life.”
“As the state fights to implement policies to pull New Jersey out of the recession, it is imperative that we consider the needs of our working poor,” she said. “Often left forgotten, men and women across the state who are working hard to support their children and families are finding it nearly impossible to make ends meet.”
Pennacchio, however, accused Democrats of placing political needs above the needs of the state’s working families.
“There is significant bipartisan support in this Senate to raise and reinstate the Earned Income Tax Credit, as well as increase the minimum wage,” Pennacchio said in a release. “Today’s outcome is not surprising, given that Democrats as a political tactic have rejected my past proposals to immediately increase the minimum wage.”
He said his amendment – which would increase the minimum wage 25 cents on March 1 and restore the EITC beginning with tax year 2014, a full year later than the Democratic plan, and which mirrored the proposals in Christie’s minimum wage veto message — would give the state time to “budget the roughly $60 million necessary to fund that program.”
“Instead of wasting time, trying to score political points, legislative Democrats should compromise to responsibly help New Jersey families,” Pennacchio said. “These feasible financial benefits for New Jerseyans can be more than promises or political tools; they can be quickly made law.”
The governor in his veto message called his plan — which also included a phase-in dollar increase of the minimum wage to $8.25 an hour over three years – “a comprehensive approach to the shared needs of businesses and employees” and part of the “balanced solutions” needed to help both.
“Implemented together,” he said in his veto statement on the wage hike, “these recommendations will help New Jersey continue to chart a steady course to sustained success, and a certain economic future that will set the standard for our Nation.”
Turner said in an interview Wednesday that she saw little merit in the governor’s argument.
“If it’s important to you, then let’s put your money where your mouth is,” she said. “Even Ronald Reagan said that it was the best anti-poverty program to have come out of Congress. It is a time-honored, proven program.”
Turner said she sees no reason to couple the two programs, nor does she support a phase-in.
“The governor keeps offering us Satan sandwich,” she said Wednesday. “It looks good on the outside, it sounds good, it give us this little morsel, but it really is not anything that anybody would want to bite in to.”
A phased-in wage increase would mean that, when adjusting for inflation, minimum wage earners would not see much of an increase at all. The Democratic proposal, she said, which included an automatic cost-of-living adjustment would allow the wage to keep pace.
“We’re telling people they have to wait three years to get a dollar increase in their wages,” she said. “These people need help now. In three years, they will have fallen through whatever safety net was in place.”
The same goes for restoration of the earned income tax credit, she said, which would cost the state far less than the governor’s proposed across-the-board tax increase and would have served as an economic stimulus.
The Senate Budget and Appropriations Committee statement on the bill said it would cost about $66.6 million in fiscal year 2014 and provide credit to about 525,000 New Jersey workers.
“These are people who will not take their money and put in a savings account or buy stocks and bonds,” she said. “They will put it right back in the economy and stimulate it to create jobs.”
Turner, whose district include the economically depressed city of Trenton and working class portions of Lawrence and Ewing townships, said the people who benefit from the EITC are among the only ones to have seen their taxes go up under the Christie administration, taking into local, state and various excise, sales and use taxes.
“The group that would benefit from the EITC, they are the working poor, the people who are barely able to keep their heads above water,” she said Wednesday. “They have been wacked a number of times, and not only with the cut to the EITC.”
This was the group, she said, that also has suffered most from the end of the so-called federal payroll tax holiday – a temporary 2 percent cut in payroll taxes paid by workers into the federal Social Security funds that ended in January.
“It is a double whammy for them, especially when we see food prices rising, housing prices rising, and don’t talk with me about gas prices,” she said. “Work has to pay and the EITC was one way to help level that playing field to make it worthwhile for people to go to work.”
A second EITC bill, sponsored by Assembly members Donna Simon (R-Hunterdon) and Chris A. Brown (R-Atlantic) is stalled in the Assembly. It calls for an increase in the EITC, along with the creation of a new property tax relief program that would apply to homeowners with less than $400,000 of taxable income – a $100 credit in 2012 and rising to as much as $1,000 in 2015 – and an increase in the so-called renter’s credit from $50 to $200 by 2015.
The bill, A-3235, awaits consideration by the Assembly Budget Committee, despite efforts by Assembly Minority Leader Jon Bramnick (R-Hunterdon) to have it posted for a vote in October.
Bramnick, in a letter to Assembly Speaker Sheila Oliver (D-Essex) reported on by NJ PolitickerNJ in October, said the bill “provides substantial property-tax relief to middle class homeowners and renters” and that it must “be a top item on our agenda because it’s the top item on the people’s agenda.”
According to an Office of Legislative Services fiscal estimate issued in January, the bill would “reduce gross income tax revenues” by between $177 million and $182 million during the upcoming fiscal year and by $615.6 million to $631.6 million and $1.186 billion to $1.219 billion over the following two years, with annual revenue losses expected to continue.
Simon did not return calls on Thursday, but told the OLS that she expects the bill to generate more than enough economic activity to offset any revenue losses.