Expand tax credits to cut poverty, NJ urged

JOHN REITMEYER, BUDGET/FINANCE WRITER | FEBRUARY 23, 2022

NJ Spotlight News

New Jersey should join the ranks of states that offer lower-income parents a special tax break to help offset costs associated with raising children, an advocacy group says.

New Jersey Policy Perspective, a Trenton-based think tank, argues in a new report that such a tax policy would be an effective way to combat stubbornly high rates of poverty and income inequality in a high-cost state like New Jersey.

“New Jersey will be a stronger state with greater opportunity when every family can provide a safe, healthy life for their children,” the report said.

The release of the report Tuesday came as the fate of enhanced federal tax breaks that helped many families make ends meet during the coronavirus pandemic remains up in the air in Washington, D.C. due to ongoing political disagreements.

The state-level proposal also comes weeks before Gov. Phil Murphy is due to release a budget plan for New Jersey’s next fiscal year, and as so-called affordability issues have been put on the front burner by majority Democrats in Trenton on the heels of a November election that saw Republicans pick up seats in both houses of the Legislature.

Affordability issues

“We’re hearing a lot from New Jersey politicians about affordability and New Jersey should be an affordable place to raise children,” said Peter Chen, a senior policy analyst at New Jersey Policy Perspective, who authored the report.

“But affordability is almost impossible if you are living in one of the one in 10 families (in New Jersey) earning below the poverty line, or one in three families that are low-income households,” Chen said.

New Jersey already offers families a tax credit  to help them offset qualified costs associated with child care. That credit was enhanced by Murphy and lawmakers last year during the pandemic.

New Jersey for years has also offered a state version of the federal Earned Income Tax Credit, or EITC, a tax break that is targeted at low-wage workers and families. The state version of the EITC was also recently expanded by Murphy and lawmakers.

And last year — on the eve of the 2021 gubernatorial and legislative elections — Murphy and lawmakers used the state budget to fund up to $500 income-tax rebate checks that were sent to thousands of families.

Two ways to give the tax break

But the report released Tuesday calls for the establishment of an altogether new state-level tax break that would seek to build on the enhanced federal child tax credits that were provided to millions of families across the nation last year under the $1.9 trillion American Rescue Plan Act.

While studies have indicated the enhanced federal credits — which provided bigger tax breaks to those with small children — served as a successful tool for combating childhood poverty, it remains to be seen whether the enhanced credits will be extended by Congress.

In New Jersey, the report suggests two ways a similar state tax-credit policy could be established to address the goal of combating poverty and income inequality.

Under one scenario, per-child tax credits could be provided to any New Jersey family earning up to 250% of the federal poverty level, which is nearly $70,000 for a family of four in New Jersey, and $58,000 for a family of three, according to Policy Perspective. An estimated 424,000 New Jersey households would qualify, with the average eligible household receiving $246 in credits, under that proposal.

A second option the group put forward would see the per-child tax breaks directed at families with children age 5 and under who meet the same income standards. Doing this would allow the average household credit to top $550, for an estimated 186,000 eligible households, according to the report.

In both cases, the proposed tax breaks would be provided as a “refundable” credit, which means taxpayers could receive the full amount for which they are eligible, even if it is more than their state gross income-tax liability.

Target lower-income families

Both scenarios would also direct 100% of the tax benefits to lower-income families, which would help the state address long-standing racial wealth disparities, according to advocates who discussed the proposals during a news conference.

“’Working poor’ are two words that should never be heard together in the richest country in the world, nor one of the wealthiest states in that nation,” said Renee Koubiadis, anti-poverty program director for New Jersey Citizen Action, a group that works closely with the state’s lowest-income residents.

“Young Black and Latino children are three to four times as likely to be in poverty as white children,” Koubiadis said. “Tax credits are a highly effective way of reducing racial inequity and poverty.”

Both options explored in Tuesday’s report would cost roughly $100 million to administer, something the advocates argue is a relatively small amount for a state that spends more than $45 billion annually.

Meanwhile, the advocacy group’s proposals also call for going beyond the current eligibility rules for the federal child tax credit. Instead of requiring a federal Social Security number, the state could use individual taxpayer identification numbers to reach more eligible families, according to the report. (According to the Washington, D.C.-based American Immigration Council, individual taxpayer identification numbers are issued by the Internal Revenue Service and ensure residents who do not qualify for a Social Security number — including undocumented immigrants — pay taxes.) And under its broadest per-child tax-credit scenario, the state could provide the tax breaks to families with adult dependents up to age 24. Such a policy would recognize the “costs of children do not evaporate entirely when they enter K-12 schooling,” the report said.

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published this page in News and Politics 2022-02-23 02:44:41 -0800