A leading Republican in the state Assembly is challenging majority Democrats to take a new look at GOP bills to cut taxes after research from a left-leaning fiscal-policy organization showed the middle class in New Jersey is getting hit the hardest by state and local taxes.
Assemblyman Anthony Bucco (R-Morris) is promoting tax-policy changes that would link the state’s income-tax brackets to inflation to prevent an effect known as “bracket creep” and eliminate an extra “marriage-penalty” tax bracket that exists in the state income-tax code for married couples but not single filers.
The related tax-cut bills — and another that would shield most retirement-savings contributions from state income taxes — were introduced at the start of the year but have not been posted for votes by the Democratic leaders who control the Assembly’s agenda. Bucco suggested a report released earlier this month by the left-leaning Institute on Taxation and Economic Policy that found middle-income taxpayers in New Jersey pay a higher effective tax rate than any other group — including the top 1 percent of earners — as a reason to begin prioritizing adoption of the GOP bills.
“New Jersey’s cost of living continues to increase, and it is disproportionately affecting the people who can least afford it,” said Bucco, the Assembly Republican conference leader.
The ITEP analysis of all state and local tax policies, released earlier this month, placed New Jersey among the handful of U.S. states that have the least regressive tax policies. The Washington, D.C.-based organization also found the effective state and local tax rate paid by New Jersey’s top 1 percent of income earners is higher than the rate paid by the bottom 20 percent of earners.
Middle-income earners pay highest taxes in NJ
However, ITEP’s research also revealed that, at 9.8 percent, the top 1 percent are not paying the highest effective state and local tax rate in New Jersey. Instead, it’s middle-income earners who make between $74,800 to $132,000 annually who are paying the highest effective state and local tax rate, at 10.7 percent. Those who make between $45,300 and $74,800 pay an effective rate of 10.1 percent, that is also higher than what’s levied on the top 1 percent, according to ITEP.
The organization’s report suggests a number of things states could do to make their tax codes less regressive, including reducing state and local governments’ reliance on revenue from sales and property taxes, which tend to disproportionately impact those in the lowest income brackets. The report also highlights the role that progressive income-tax systems like those in place in New Jersey, where the tax rates are higher for those with larger annual incomes, can play in creating overall tax fairness.
While liberal groups have called for higher income taxes and other levies on the state’s highest earners in response to the ITEP research, Bucco said the report backs up his own calls for targeted tax cuts.
For example, he highlighted the bill that would index the state’s income-tax brackets to inflation to ensure middle-class taxpayers don’t see a backdoor tax hike as rising inflation eats away at the value of their income. Such a policy is already in place at the federal level and in 23 states, and it could deliver up to $80 million in a tax cut in New Jersey, Bucco said.
“The brackets at the lower end of the income spectrum are much closer together, so the people who can least afford a tax hike get penalized the most,” he said. “That needs to be fixed.”
Fixing ‘marriage penalty’ would cut $50M
The proposed “marriage penalty” legislation takes issue with the extra tax bracket that exists in the state’s income-tax code for married couples compared to single filers, and it proposes eliminating the $50,000 and $70,0000 bracket for joint filers as a remedy. Such a change would result in a tax cut of roughly $50 million as those married couples would pay a lower income-tax rate than the one they are currently levied.
Meanwhile, taxpayers could enjoy more savings if the state exempted money that’s set aside for individual retirement accounts and annuities from income taxes, which is something the federal government and most other states already do, Bucco said.
“There is no incentive for people to save for retirement in New Jersey, which keeps a lot of people who struggle to make ends meet in a precarious financial position,” he said.
Tax policy was among the most heated topics of debate in the run up to the adoption of the latest state budget in early July, as lawmakers fought with Gov. Phil Murphy, a first-term Democrat, over proposed hikes of the income, sales and corporate taxes. The result was the enactment of a higher income tax for earnings over $5 million and the establishment of an increased corporate rate for companies with more than $1 million in annual profits. Lawmakers also successfully blocked Murphy’s effort to reinstate a 7 percent sales-tax rate.
Will Democrats bite?
Looking ahead to next year, which is an election year for the Assembly, Speaker Craig Coughlin (D-Middlesex) has already ruled out any new major tax hikes. It remains to be seen whether he will be willing to consider putting up for votes any of the tax cuts proposed by Bucco.
Asked for a response to Bucco’s challenge, Coughlin released a statement that pointed to a need to “provide relief and expand opportunities for the middle class including providing families with access to affordable, healthy food, affordable housing and good paying jobs.” His office also highlighted several pieces of Democrat-sponsored legislation, including those related to the manufacturing industry, health insurance and school funding.
“I am confident that during my tenure as Speaker, we will take on the aforementioned challenges and build upon growing a stronger economy that benefits all middle-class families,” Coughlin said.