It’s been three months since New Jersey’s gas tax went up in order to pay for critical investments in roads, bridges and public transit. The increase was long overdue – fuel taxes hadn’t been raised since 1990 – but that didn’t make it easier politically. In an attempt to soften the blow for New Jersey drivers, several new tax cuts have gone into effect. However, the bulk of these breaks will benefit New Jersey’s wealthiest families. And these tax cuts aren’t free – they’ll cost the state about $1.4 billion each year, at a time when New Jersey is already unable to pay its bills.
Let’s start with the good news. Yes, there’s good news.
Included among the tax breaks is a 17 percent increase in New Jersey’s earned income tax credit, providing, on average, an extra $116 at tax time to nearly 600,000 working families striving to get by in high-cost New Jersey. This added tax relief for low-income families is very timely, given the state’s rising poverty rates and a minimum wage that chronically fails the adequacy test. In fact, this EITC increase alone should ensure that the state’s poorest families – those earning under $45,000 a year – don’t pay the largest chunks of their incomes to the new gas taxes.
Unfortunately, lawmakers weren’t content to craft good policy for the state’s poor working families and call it day. In search of a “broad-based tax cut” and to fix a mythical “outmigration” crisis, they also included gimmicky and unfair tax policies that have wealthy families clinking champagne glasses but leave the rest of us worried about our state’s capacity to create the kind of state we all want to live in.
The tax break to affect most New Jersey residents is the phase-in of a one-third percent drop in the state sales tax rate. This year’s tax cut means a savings of about 13 cents for every $100 spent. Next year it will be about a 40 cent savings. But to offset the expensive gas tax hike, one will need to spend $28,000 on taxable goods every year to match that hit at the gas pump. The more you buy, the more you’ll benefit from an unnoticeable sales tax cut. So families in the top 1 percent – with average annual incomes of $2.2 million – will see an average annual tax cut of $723, while those earning under $45,000 will get, on average, an annual tax cut of $46.50 – less than a buck a week.
And while it won’t really help most New Jersey families in any substantial way, the sales tax cut will sure cost the state a lot in lost revenue: over $600 million a year, to be precise. That is a direct hit to the state’s ability to adequately fund programs and services that benefit families and their communities.
The second-largest piece of the tax cut package is even more skewed to the state’s wealthiest families. Eliminating the estate tax will give around 4,000 inheritors of very large estates – the richest 5 percent of estates left behind, in fact – an average tax cut of about $140,000. These are the families who don’t have to worry about choosing between filling up the tank and buying food.
Proponents of killing the estate tax – which has been on the books for 80 years – claim that doing so will make wealthy families reconsider leaving New Jersey, but the data are clear: estate taxes do not drive wealthy retiree relocation decisions, and the existence of New Jersey’s estate tax has not been shrinking the state’s revenues or economy. In reality, the number of wealthy New Jerseyans has been steadily growing, as have estate tax revenues. Now New Jersey must go without this important revenue source and tool to fight inequality.
The gas tax increase, while not popular, will provide the state essential dollars to shore up the Transportation Trust Fund and get New Jersey’s roads, bridges and public transit back in shape. That’s an essential investment. But the trade-offs passed as part of the deal, in the end, will do more harm than good, providing a lavish tax break for those who need it the least and placing the state’s ability to pay for essential services, promised obligations and other critical investments in serious jeopardy. It’s a trade-off New Jersey simply can’t afford.
