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Should we change our nickname from the Garden State to the Greedy State?
Consider this. New York, Pennsylvania and Connecticut let a family of four make as much as $20,000 without paying a penny of state income tax. In New Jersey, we're patting ourselves on the back because we might raise our threshold to $13,000.
New Jersey is among the least generous states in exempting working poor from income tax. Indeed, of the 42 states with an income tax, only four make families of four with lower incomes than our threshold pay.
Last summer, Assembly Speaker Jack Collins introduced a bill to raise New Jersey's threshold to $13,000 from $7,500. Nothing has happened yet, and maybe that's a good thing. It gives us time to realize that we could do much better.
A recent analysis by New Jersey Policy Perspective found that if New Jersey raised its threshold to $13,000 there would still be 25 states that let poor families make more than we'd let them make before levying the income tax. The best we could say is that we'd be among the most generous of the least generous states.
Not only is the $13,000 threshold absurdly low, but the legislation doesn't include a way pay the $35 million a year it would cost the state. Presumably, we would rely on budget surpluses in good times and rob from other programs in bad times. We do too much of this is in New Jersey and it will catch up to us.
So here's a suggestion: Add a half-percent onto the income tax that people who make more than $1 million a year now pay in New Jersey. No tax is painless, but that sure would be close.
But why stop there? Here are three good reasons for raising New Jersey's threshold to $20,000:
- We'd be on par with neighboring states.
- No one under the poverty line in New Jersey would pay state income tax. At a $13,000 threshold, some families below the line still pay.
- A family rising to just over the poverty line wouldn't face immediate taxation, giving the working poor a chance to get ahead.
The $13,000 threshold would remove about 280,000 from the state income tax rolls. A $20,000 threshold would exempt about another 420,000. And it isn't so hard to do. Add another half-percent to the tax on incomes over $1 million and raise the tax on incomes between $500,000 and $1 million by a half-percent and you're there.
At the federal level, no one under the poverty line has to pay income tax. Families far enough under the line even get money back from the Earned Income Tax Credit program. Seven states also have refundable EITCs, and New Jersey should consider them too.
In the meantime, raising our income tax threshold to $20,000 invites more guests to the party that is this economic boom. And, it creates a system to help protect the working poor when the economy turns sour.
Just as bad economic times force states to confront undesirable choices, good times allow real progress, if we're willing to be bold.
Reprinted from The Star-Ledger, January 14, 1999
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