Category: Report

Health Care for All New Jersey Kids

Posted on by Raymond Castro

The following is a summary of this report. For the full report in PDF format, click here.

As a new administration and legislature take the reins in Trenton, New Jersey has a historic opportunity to guarantee that all children in the state have health coverage.

New Jersey has already made progress toward this goal, but more can – and must – be done.

The state has reduced the uninsurance rate for children to 3.5 percent – a major accomplishment. But there are still 70,000 children who remain uninsured, and 20 states – including every Northeastern state but Maine – have even lower rates. What’s more, New Jersey has one of the largest disparities in health coverage between white and Hispanic children in the nation, with Hispanic kids more than 3 times more likely than their white neighbors to be uninsured.

Of these 70,000 uninsured New Jersey kids, half (35,000) are undocumented immigrant children who are not eligible for NJ FamilyCare coverage and an additional 12,000 are kids in middle-class families who can no longer buy into NJ FamilyCare, since New Jersey ended the buy-in program in 2014. The remaining 23,000 uninsured children are eligible for NJ FamilyCare but are not participating due to administrative barriers and a lack of intensive outreach.

NJPP’s report identifies 10 actions the state should take to make healthcare coverage through NJ FamilyCare accessible to all children, including:

  • Stop excluding children because of their immigration status
  • Reinstate the buy-in program for middle-class families
  • Remove administrative barriers that prevent eligible children from enrolling, like locking kids out of coverage for 90 days if a payment is missed

Insuring these uncovered children is not only a moral imperative for New Jersey, it is cost-effective, incremental, realistic and affordable – important considerations given the state’s bleak financial situation. In fact, investing in the wellbeing of these kids now will likely save the state money in the long run.

NJPP estimates it would eventually cost $66.5 million a year – or less than one half of one percent of all Medicaid expenditures – to cover the state’s undocumented immigrant children. That is a third-year cost; the first year cost to the state is much less, at $10 million. What’s more, these estimates do not include state savings that would be achieved in charity care, other federal funds the state can claim for emergency care, and long-range health and social savings resulting from better health for kids. NJPP recommends an additional $2 million in state funding for outreach – an excellent investment because the $2 million would be immediately matched, and then the state would obtain even more federal Medicaid funds to help cover the additional children who are enrolled. And there is zero state cost to reinstate the buy-in program for middle-class families (they pay the full cost of coverage).

Read the full report here.

Let’s Drive New Jersey: Expanding Access to Driver’s Licenses is a Common-Sense Step in the Right Direction

Posted on by Erika J Nava

To read a PDF version of this report, click here.

As New Jersey prepares to welcome a new administration and legislature, it is poised to become the 13th state to allow all its residents to apply for driver’s licenses, regardless of their immigration status. Doing so would increase public safety, help the state’s economy and increase the well-being of all families – particularly the hundreds of thousands who would be newly allowed to drive legally.

In total, about 466,000 New Jersey undocumented immigrants are of driving age and would be eligible for a license.Based on the experience of other states, we estimate that half these eligible New Jerseyans – 233,000 in all – would receive a license within the first three years of implementation,[1] a 3.8 percent increase in the total number of licensed drivers in the state. (A higher number would likely apply for a license but not everyone who applies passes the written and road tests and is ultimately licensed.)

Nine New Jersey counties would see 10,000 or more residents sign up for licenses, while an additional four counties – Atlantic, Camden, Ocean and Somerset ­– would see between 5,000 and 10,000 sign up.

Allowing all New Jerseyans who can prove their identity and in-state residence to be trained, licensed, and insured would make the state safer, help the state’s economy and increase the wellbeing of families.

Make the state safer

  • Having more licensed drivers would make New Jersey’s roads safer, because more people who can be accountable for their driving record.
  • Undocumented immigrants are already careful drivers – but new research finds that they are even more careful in states that allow them to drive legally.[2]
  • Once licensed, undocumented immigrants are less likely to flee the scene of an accident. In California, for example, allowing all residents to drive regardless of status led to a significant decline in hit-and-run accidents. The researchers at Stanford University who published these findings suggest that licensed undocumented drivers have weaker incentives to flee because they are less likely to fear deportation.[3]
  • There would also likely be an overall decrease in fatal accidents, based on the experience of the three states with the longest-standing policies similar to the one being proposed in New Jersey.[4]
  • Towns and cities across the state would safer as the trust between immigrant communities and law enforcement improves.

Help New Jersey’s economy & boost the collection of motorist fees

  • New Jersey’s economy works best when everyone can work and provide for themselves and their families. In many parts of the state, having a car and ability to drive safely is central to achieving that goal. By allowing more people to legally drive, this policy would help more New Jerseyans participate in the state’s economy and contribute more to their local economies.
  • Since auto insurance is compulsory in New Jersey, thousands of drivers would obtain coverage, boosting annual premium payments by about $223 million a year.[5]
  • The state would likely collect $11.7 million in license fees (assuming 233,000 people sign up for a license that costs $50). On top of these initial license fees, New Jersey would likely collect these fees on a recurring basis when licenses expire every four years – and it would also likely collect $2.3 million in one-time fees for driving permits, since the 233,000 would be required to get permits because they are first time license holders.
  • These newly-licensed drivers would purchase an estimated 84,000 automobiles, boosting vehicle registration fees by $3.9 milion (assuming that newly purchased cars will be registered at a cost of $46.50 per registration).[6]

Increase the well-being of families

  • More parents would be able to drive their children to school or doctors’ appointments without breaking the law.
  • This policy would reduce the chances of family separation via deportation or jail time and help ease the anxiety that can damage a child’s development.
  • Other New Jerseyans who have trouble obtaining the required documentation under the current 6-point system would be able to validate their identity and New Jersey residence under this new policy.

Endnotes

[1] NJPP calculated the number of potential new undocumented license holders by taking the undocumented driving age population (16 years and older) from the Migration Policy Institute database and using the take up rate (50 percent) of Illinois, which is in the high end and has a similar undocumented population to New Jersey’s. To see further explanation on the “take up rate” see Fiscal Policy Institute, Expanding Access to Driver’s Licenses: Getting a License Without Regard to Immigration Status, January 2017 (http://fiscalpolicy.org/wp-content/uploads/2017/01/FINAL-Drivers-licenses-report-2017.pdf)

[2] Latino Policy Institute at Roger Williams University, A Legal and Policy Analysis of Driver’s Licenses for Undocumented Rhode Islanders, June 2016. http://www.rifuture.org/wp-content/uploads/drivers-license_report-legal.pdf

[3] Hans Lueders, Jens Hainmueller and Duncan Lawrence in Proceedings of the National Academy of Sciences of the United States of America, Providing driver’s licenses to unauthorized immigrants in California improves traffic safety, April 2017. http://www.pnas.org/content/114/16/4111.full.pdf

[4] New Jersey Policy Perspective, Share the Road: Allowing Eligible Undocumented Residents Access to Driver’s Licenses Makes Sense for New Jersey, September 2014. https://www.njpp.org/reports/share-the-road-allowing-eligible-undocumented-residents-access-to-drivers-licenses-makes-sense-for-new-jersey

[5] NJPP calculated the potential premium payments of new license holders by multiplying the average auto insurance expenditure (http://www.naic.org/prod_serv/AUT-PB-13_2016.pdf) in 2014 and the number of potential new license holder who would buy insurance, using Utah’s take-up rate of 76 percent as a baseline.

[6] NJPP analysis using New York state estimates of new licenses and automobile purchases in two reports by Fiscal Policy Institute reports: Expanding Access to Driver’s Licenses: Getting a License Without Regard to Immigration Status, January 2017 (http://fiscalpolicy.org/wp-content/uploads/2017/01/FINAL-Drivers-licenses-report-2017.pdf) and Expanding Access to Driver’s Licenses: How Many Additional Cars Might Be Purchased?, January 2017 (http://fiscalpolicy.org/wp-content/uploads/2017/01/FPI-Additional-cars-report-2017.pdf)

Increasing Opportunities for Working Mothers Would Boost the Economy

Posted on by Holly Low

Investments in early care and education plus stronger labor standards would have tremendous payoff

To read a PDF version of this report, click here.

For the over 400,000 New Jersey mothers with children under the age of 6, balancing child care and career can be a daunting task due to the lack of adequate child care assistance – a task doubly difficult for lower-income moms. This barrier harms New Jersey’s economic growth and state revenues, in addition to the development of children.

The state’s early care and education programs help mothers with young kids earn $1.2 billion in wages and generate over $60 million in property and income taxes annually. However, the impacts of universal, high quality preschool would be far greater. In addition to the long-term economic benefits of investing in children, universal preschool would result in upwards of 10,000 more mothers entering the New Jersey workforce. In total, universal preschool would help about 200,000 mothers earn $7.5 billion and contribute $400 million in taxes each year.

A third of New Jersey’s mothers with young children – or about 130,000 – are living at or below 200 percent of the federal poverty level, or about $48,600 a year for a family of four. These poor and low-income mothers have limited access to public high-quality early care and education programs that could help them work and give their children a brighter future – in fact, we estimate that state and federally funded early care and education programs only reach about 60 percent of them.[1]

In addition, over 40 percent of New Jersey’s working mothers with young children are in service-sector jobs. Many of these occupations, particularly those in retail and food service, come with non-standard hours, unpredictable schedules and low wages. These factors increase financial and child care-arrangement stress, undermining working families’ ability to get ahead.

In short, New Jersey’s working mothers of young children face many barriers to balancing work and parenting, with poor and low-income mothers struggling the most. To solve this complex set of problems, a comprehensive policy response – anchored in increased investments in early care and education, and stronger labor standards – is necessary.

Specifically, state lawmakers should:

  • Increase preschool aid and call on the federal government to invest further in state preschool programs, with the ultimate goal of universal preschool in New Jersey.
  • Increase the income eligibility for wraparound care in school districts that currently have state-funded preschool.
  • Piggyback on federal tax credits that help families with the cost of raising children and paying for care.
  • Call on the federal government to protect Head Start and the Child Care and Development Fund.
  • Mandate that employers provide workers with predictable and stable work schedules.
  • Increase the state minimum wage to a more livable wage.
  • Ensure that women workers have better tools to fight pay discrimination.
  • Allow all workers to take paid time off of work when they or a loved one is sick.

Working Families Need Dependable, Affordable Child Care to Succeed

Dependable child care is crucial for working mothers and their families. However, the cost of child care in New Jersey is extremely high – between $8,000 and $11,000, on average, per year, depending on the age of the child and whether it’s center or home-based care.[2] Since this cost is clearly out of reach for low-income families, a variety of state and federal means-tested programs offer assistance (these programs are detailed in the fourth section of this report).

To give children the best opportunity for lifelong success, the care should be high-quality and education driven. Children who attend high-quality preschool are less likely to be held back or placed in special education, and more likely to graduate and pursue further schooling.[3] This, in turn, has enormous economic benefits for society as a whole. For every dollar invested in high-quality preschool, the return is estimated to be between $3 and $18.[4]

Public programs for early care and education also boost women’s workforce participation, which is key to sustaining our nation’s economic growth.[5] Mothers essentially “propped up” the nation’s labor force participation rate for many decades, but their rates have stagnated since the 1990s.[6] Economists worry that a significant factor is the struggle to balance work and family responsibilities; most mothers work full time as breadwinners and co-breadwinners, yet they still do the bulk of housework and family caregiving.[7],[8]

The child care sector is also a critical building block for economic development. It supports and sustains our workforce of caregivers and provides immediate and long-term benefits to New Jersey’s economy. The last comprehensive analysis of the New Jersey child care industry found it was a $2.6 billion industry directly supporting approximately 65,300 full-time equivalent jobs.[9]

New Jersey’s Working Mothers with Young Children: Who Are They, Where Do They Work and How Much Do They Earn?

Most New Jersey mothers with young children are in the labor force (69 percent) and have immediate or near-term child care needs to help ensure that they can work. Of the 413,000 New Jersey mothers with at least one child under the age of 6, 254,000 are working – and another 29,700 are in the labor force but not currently employed, meaning they could be taking family or sick leave or looking for a job.[10]

Compared to the entire population of New Jersey, mothers of young children are more likely to be women of color or to identify themselves as Hispanic in the American Community Survey.

These working mothers are increasingly responsible for the economic security of their families as breadwinners or co-breadwinners. Most New Jersey mothers with young children are in families that consist of married parents who are both in the labor force. About one in four are heading their households with no husband present; of these the overwhelming majority of mothers are working. Less than 5 percent of unmarried working mothers with young children have any male partner in the household, and less than one-third of New Jersey’s female-headed households receive child support.[11],[12]

A large number of these working mothers – 44 percent – are in service-sector occupations, which include many of the lowest paying jobs in New Jersey. Across these occupations, the median full-time year-round wages are lower for women than men, an indicator of the persistent pay gap that exists between men and women, and it is even greater for women of color. In New Jersey, Latinas make 43 cents for every dollar paid to their white, non-Hispanic male counterparts; Black women make 58 cents, white women make 74 cents, and Asian women make 87 cents.[13]

Mothers with children under 6 are much more likely than the general population to work in healthcare support and personal care and service. Top occupations in these categories include hairdressers, cosmetologists, child care workers, home health aides, and medical assistants.

In addition to low pay, many of these jobs, particularly in retail and the food industry, are more likely to feature erratic scheduling, as well as non-standard and involuntary part-time hours. Irregular scheduling practices that are the hallmark of service-sector jobs – like different hours in any given week, short notice of schedule and last-minute schedule changes – make it nearly impossible to arrange for child care, and pay for it too, since variations in hours mean unpredictable income.[14]

Mothers with children under 6 are also more likely than other New Jerseyans to have low incomes. Over 130,000 mothers with young children, or 32 percent, are living below 200 percent of the federal poverty level, or $48,600 for a family of four.[15] Of these, nearly half are very poor, living below $24,300 for a family of four, or 100 percent of the federal poverty level. Over 31,000 New Jersey mothers with young children live in deep poverty, below 50 percent of the federal poverty level, which translates to $12,150 for a family of four.

Of these poor and low-income New Jersey mothers of young children, about 62,500 are working – that equals one in four of all working mothers with kids under 6 years of age who need care for their children so they can remain employed. These mothers qualify for New Jersey Cares for Kids, the state’s federally-funded child care subsidy program. But the program reaches only a fraction of those mothers – roughly 14,000 a month.

The need for child care subsidies is even deeper, since New Jersey Cares for Kids only serves families under 200 percent of the federal poverty level – even though it obviously takes more than that to get by in high-cost New Jersey. The Economic Policy Institute’s average New Jersey family budget for a family of four, for example, is $78,300, or 322 percent of the federal poverty level.[16] This means another 16 percent of working mothers of young children, or about 40,000, struggle to get by in New Jersey, but are ineligible for child care assistance.

New Jersey’s Early Care and Education Programs: What Are They, Who Pays for Them and Who Do They Reach?

There are three main ways that New Jersey families can receive state and federal assistance with early care and education needs: New Jersey Cares for Kids, Head Start, and state-funded preschool programs. In all, these programs serve about 53,000 employed mothers with children up to the age of 5. While many families use child care programs that are subsidized by nonprofit organizations or religious institutions, there are no readily available data on the number being served by these.

State-Funded Preschool Programs

New Jersey’s state-funded preschools educated almost 53,000 children in 2016.[17] The original and largest program enrolled almost 44,000 children in school districts that were formerly known as “Abbott” districts.[18] The former Early Childhood Program Aid districts enrolled almost 9,000, while the former Early Launch to Learning Initiative districts enrolled around 600 children. All told, New Jersey spent nearly $656 million on these preschool programs in 2016.[19]

The School Funding Reform Act of 2008 mandated high-quality, full-day preschool for all low- income children in New Jersey. There are 93 “universal” school districts that meet certain socioeconomic criteria that were directed to provide preschool to all 3- and 4-year-olds, while 325 “targeted” school districts were directed to provide preschool to low-income 3- and 4-year-olds.[20] However, state lawmakers have not yet followed the funding formula, leaving about 30,000 eligible New Jersey children without free preschool each year since 2009.[21]

Evidence has overwhelmingly shown that there are substantial educational benefits for children who attend high-quality preschool.[22] They are less likely to be held back or placed in special education, and they graduate high school and attend college or other post-secondary institutions at greater rates.[23] Society as a whole benefits as well, because children who attend are less likely to engage in criminal activity or participate in welfare programs and more likely to be active in the workforce. In all, high-quality preschool results in reduced costs in education, social services and criminal justice and increased tax revenue. Economists estimate that the return on investment for preschool is between $3 and $18 for every dollar invested.[24]

State-funded preschools in New Jersey give an estimated 50,000 mothers of young children access to high-quality early care and education, and help an estimated 31,000 of these to work and provide for their families. While there is no data on the number of these mothers furthering their education, there are likely a number who are able to attend school thanks to the availability of state-funded preschool for their children.

Free wraparound care before and after regular school hours was once provided to families enrolled in state preschools. In 2011, income limits and work requirements were established, and families had to begin applying through the New Jersey Cares for Kids program for a subsidy. The number of New Jersey children receiving wraparound care has plummeted by an astonishing 87 percent over the past decade, dropping to 3,956 in 2016 from 31,515 in 2006.[25]

High-quality preschool is expensive, so funding it will prove to be challenging. While universal preschool would benefit all children and create the greatest economic returns, focusing on preschool for the children who need it most to start is sensible.

Head Start

Head Start is a federally-funded program that provides grants primarily to local non-profit organizations that prepare low-income children under the age of 5 for school through education, health and social services.[26] An $8.2 billion program, Head Start reaches 900,000 children nationwide.[27]

Head Start is only open to families at or below 100 percent of the federal poverty level, i.e. $24,300 for a family of four.[28] New Jersey has 52 Head Start programs that served 17,152 children in 2016 – 25 programs serve 3-5 year olds, 26 serve 0-2 year olds and one serves the children of agricultural workers.[29] Some programs may contract with school districts to provide state-funded preschool. In 2016, New Jersey Head Start programs received just under $157 million in federal funds.[30]

Head Start helps about 15,500 poor New Jersey mothers access education, health and social services for their young children.[31] About 8,000 of these mothers work while their children receive early care and education opportunities from Head Start.[32]

Only 8 percent of New Jersey children in poverty ages 0-5 that qualify for Head Start were enrolled in 2016; 17 percent of qualifying 3-year-olds and 18 percent of 4-year-olds were enrolled.[33] According to estimates from the National Institute for Early Education Research (NIEER), Head Start needs an additional $12 billion in annual federal funding to provide high-quality services to all eligible children.[34]

New Jersey Cares for Kids

New Jersey Cares for Kids, which provides child care subsidies to low-income families, is funded by a federal block grant known as the Child Care and Development Fund (CCDF) and administered by the state Division of Family Development and 14 county-level Child Care Resource and Referral agencies. New Jersey spent a total of $285 million on subsidies in 2016 – the bulk of which was paid for by the federal government.[35] Of that, $121 million consisted of federal dollars and $72 million was required maintenance of effort and matching funds from the state.[36] Another $85 million came from TANF (Temporary Assistance for Needy Families) transfers and direct TANF spending, which is an allowable use of those federal funds.[37]

To qualify for a subsidy, the parent or parents must be working or in school and the family income must be below 200 percent of the federal poverty level (roughly $48,600 for a family of four). Families in between 100 and 200 percent of the federal poverty level must make a co-pay that varies depending on family size and income. Children whose parents get cash assistance through WorkFirst New Jersey (the name for TANF in New Jersey) automatically qualify. Parents can continue receiving assistance for up to 90 days if they lose their job, but those who are job searching or unemployed aren’t eligible to apply.[38]

These subsidies help a total of nearly 100,000 New Jersey children a year, and an average of 50,000 each month; the difference is due to families moving in and out of the program.[39],[40] About 64 percent of the children are under 6 years old and the rest are between 6 and 13.[41]

In 2015, child care subsidies flowed to about 5,300 New Jersey providers, including accredited child care centers and home-based providers.[42] Subsidy amounts vary based on the child’s age and type of provider; 2014’s maximum subsidies were about $8,800 (for infant to 2.5 year olds) and $7,200 (for 2.5 to 5 years olds) for one year (N.J. Department of Human Services, 2014). The state allocated $15 million in funds to increase rates by 1 to 4 percent in 2018; in addition, the roughly 880 child care centers that participate in the state’s quality rating program will see an increase of 4 to 24 percent in their rates.[43]

Each month, New Jersey Cares for Kids helps about 14,000 mothers of young children to work and further their education.[44] According to the estimates presented here, these subsidies only reach about 22 percent of New Jersey’s 62,500 working mothers with children under the age of 6 who qualify. It’s likely that a range of factors contribute to this, including the fact that the Child Care and Development Fund is at its lowest funding level since 2002.[45] The Center for Law and Social Policy (CLASP) ranks New Jersey 17th for percent of eligible children served, tying with Tennessee, South Dakota, Oklahoma, North Dakota, Nebraska and Kentucky.[46] In New Jersey, 27 percent of eligible Black children and 12 percent of eligible Latino/Hispanic children were served in 2015.[47]

Furthermore, the child care subsidy falls below the market rate for care in all New Jersey counties, forcing many families to choose providers based on cost, not quality.[48] And in high-cost New Jersey, many families who are phased out of the subsidy program experience what is called a “cliff effect.”[49] When their incomes rise over 200 percent of the federal poverty level, they can continue to receive assistance for up to a year if their income remains below 250 percent of the federal poverty level.[50] But once their income goes over 250 percent, they lose the benefit, dropping off the proverbial cliff. Even at this slightly higher income level, many families are unlikely to make enough to be self-sufficient, but they no longer receive any assistance.

A final issue of concern is that although children of undocumented immigrant parents have the right to child care subsidies, New Jersey’s eligibility forms state that additional proof of citizenship may be required.[51] This, along with the fear of deportation and separation from their children, is almost certain to prevent many qualifying parents from getting the child care assistance that they need.

Investments in Early Care & Education Would Boost the Economic Security of New Jersey’s Working Mothers with Young Children and State Revenues

Early care and education has a substantial payoff over the long run due to the investment in children – but its support for working mothers also brings immediate benefits to the state. In addition, studies have shown that free preschool increases the maternal labor supply. In other words, if New Jersey expands state-funded preschool, we can expect to see the employment rate of mothers of young children increase over time.

Of course, there are many more benefits that are worth considering. For example, employers will have workers with more reliable care who can be more productive knowing their children are in safe, enriching environments. Mothers are also not just likely to work; a portion will be able to further their education due to access to early care and education. Others may have the freedom to donate their nonworking time to community, school, and nonprofit causes.

Currently, over 50,000 New Jersey mothers are able to earn almost $1.2 billion in wages a year and contribute to the economy due to our state-funded preschool, Head Start, and New Jersey Cares for Kids. These mothers contribute an estimated $64 million in state income ($37 million) and local property taxes ($27.2 million) each year.

If New Jersey were to expand preschool as mandated by the 2008 School Funding Reform Act, an additional 22,800 working mothers of low-income children would be able to benefit from fully subsidized care for their 3- and 4-year-olds. This group of preschool expansion mothers would have a total wage impact of $480 million and generate $26 million in income and property taxes. Within this group, an estimated 1,400 would be new to the workforce as a result of preschool expansion. Assuming they are able to find employment and their wages are not impacted by their addition to the workforce, these mothers would earn an estimated $30 million and add $1.6 million in tax revenue to state and local coffers.[52] 

Not surprisingly, economic and fiscal benefits of universal preschool in New Jersey would be much greater, since mothers with higher income levels would utilize universal preschool, which would be available to all mothers with young children.

Universal preschool for 3- and 4-year-olds could result in an additional 10,000 women entering the workforce over time.[53] Assuming once again that these mothers are able to find employment, and that wages are not impacted, these mothers would bring their roughly $372 million in earnings into the economy and boost income and property tax contributions by $20 million a year.

While there will likely always be a portion of families who choose private preschools, it’s reasonable to assume universal preschool in New Jersey would eventually reach most working mothers. Florida and Oklahoma, which have universal preschool, have reached 76 and 74 percent enrollment rates for children, respectively.[54] If 75 percent of New Jersey’s working mothers were able to use state-funded preschools, this would mean roughly 200,000 mothers benefitting from the program, with a wage impact of $7.5 billion. In total, these mothers would generate over $400 million in property and income taxes.

Although calculating all the benefits of expanding early care and education through preschool is beyond the scope of this report, it’s worthwhile to present a rough estimate of the costs. According to NIEER, the high-quality preschool provided in New Jersey costs $12,424 per student. There are about 200,000 3- and 4-year olds in New Jersey. If New Jersey could reach 75 percent enrollment this would mean preschool for 150,000 children, with a cost of roughly $1.8 billion.

A Policy Agenda for Working Mothers and Families

New Jersey’s working mothers of young children face a variety of challenges that make balancing work and parenting extremely difficult, with poor and low-income mothers struggling the most. Even if all mothers had access to affordable, high quality child care, a large portion would still be living in poverty, or on the edge of poverty, and would face unfair scheduling practices imposed on them by service sector employers. To solve this complex set of problems, a comprehensive policy response is necessary.

Early Care and Education

* New Jersey lawmakers should increase preschool aid, and call on the federal government to invest further in state preschool programs, with the ultimate goal of funding universal preschool. It is critical that the resources provided are sufficient to ensure high-quality programs; early care and education experts caution against settling for lower-quality programs in order to serve more children, and high-quality preschool has the largest benefits for society.

* Wraparound care in state-funded preschool districts is crucial for working families, but since 2011, income limits and strict work requirements have been in place. Lawmakers should consider increasing the eligibility for wraparound care to 250 percent of the federal poverty level and ensuring that mothers who work part time can access the wraparound care. Many mothers who work in retail and food service are involuntary part-time workers and they should not be punished for this workplace practice.

* New Jersey lawmakers should call on the federal government to protect Head Start and the Child Care and Development Fund, and to increase funding so that these programs can provide families in need with quality, affordable early care and education.

* There are many families who don’t qualify for child care assistance yet struggle to make ends meet in high-cost New Jersey. The state can piggyback on federal tax credits that help families with the cost of raising children and paying for care. A state Child Tax Credit would reach more low-income families, and benefit those with a stay-at-home caregiver. A state Child and Dependent Care credit would provide relief to working parents who pay out of pocket for child care. In 2015, over 223,000 New Jersey tax filers received this federal credit; the best way to target it to low- and middle-income families is to make the credit the most generous for the lowest earners, phase down the value as income goes up, and cap it at a reasonable income level.

Supportive Work-Family Policies

* Mothers with service sector jobs need predictable and stable work schedules. Fair scheduling policies – like ensuring advance notice of schedules, giving employees a say in their schedules, limiting on-call scheduling and more – can help put an end to workplace practices that make it harder for low-paid New Jerseyans to balance work and care.[55] The state should follow the lead of Oregon and cities like Seattle, San Francisco and San Jose and pass comprehensive fair scheduling legislation.

* The number of New Jersey mothers with young children living in poverty, or near poverty, is alarming. As breadwinners and co-breadwinners, these mothers are responsible for the economic security of their families, and they need living wages. New Jersey can support these families by enacting a statewide $15 minimum wage.

* All women deserve equal pay for equal work. Pay disparities – rooted in occupational sex segregation, discrimination and the “mommy penalty” – exist across occupations regardless of education or skill level. The state should pass the New Jersey Equal Pay Act, which was vetoed in 2016 by Gov. Chris Christie, to give women better legal tools to fight pay discrimination.

* Parents must be able to take time off when they or their children are sick. While most New Jersey workers have access to this benefit, many low-paid workers do not, adding yet another burden to the difficulty in managing care giving and jobs. Several New Jersey municipalities have passed earned sick day policies; New Jersey should enact a strong statewide policy to support working families.

Appendix: Methodology & Acknowledgments

This report used American Community Survey data and program data to examine New Jersey’s working mothers of young children and evaluate the extent to which state and federal early care and education programs provide assistance to them. Data on the number of working mothers of young children, their demographics, occupations, and incomes were generated from the American Community Survey (ACS) Public Use Microdata Samples Five-Year Estimates of 2011-2015.

For each program under consideration – state-funded preschool, New Jersey Cares for Kids, and Head Start – program data were analyzed to estimate the number of mothers of young children receiving assistance. The National Institute for Early Education Research enrollment data on preschool and the Education Law Center’s data on preschool expansion were used to estimate the number of mothers benefiting. Data on child care subsidies from the New Jersey Cares for Kids program were gathered from the New Jersey state budget. A Program Information Report for New Jersey Head Start programs was accessed to gather data on this federal program.

Wage impacts for New Jersey mothers of young children who currently use state and federal child care programs, and those who would benefit from preschool expansion and universal preschool, were generated using income data from the ACS. Finally, an estimate of the income and property tax revenue generated from these same groups was estimated by using effective tax rate estimates from the New Jersey Statistics of Income and the Rutgers Center for Government Services NJ Data Book.

A more detailed methodology with PUMS variables and all calculations is available upon request. Contact info@njpp.org for a copy.

Thank you to Professor Henry Coleman and Professor Michael Lahr for their expert guidance. Thank you to the following individuals who generously shared their time and knowledge with me as I researched early care and education in New Jersey: W. Steven Barnett, Ana Berdecia, Adriana Birne, Kathy Burke, Lorraine Cooke, Ellen Frede, George Kobil, Cynthia Rice and Alana Vega.

Endnotes

[1] In this report “low-income” is defined as living at or below 200 percent of the federal poverty level, while “poor” is defined as living at or below 100 percent of the federal poverty level.

[2] New Jersey Association of Child Care Resource and Referral Agencies (2013). The High Price of Child Care 2013: A Study on the Cost of Care in New Jersey. Retrieved from www.childcareconnection-nj.org.

[3] Friedman, A., Frede, E., et al (2009). New Jersey Preschool Expansion Assessment Research Study (PEARS). National Institute for Early Education Research. Retrieved from www.ccanj.org.

[4] Ibid.

[5] Olivetti, C., and Petrongolo, B. (2017). The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High Income Countries. Journal of Economic Perspectives. Volume 31, Number 1. Pages 205–230. Retrieved from http://pubs.aeaweb.org.

[6] Krause, E. and Sawhill, I. (2017). What We Know and Don’t Know About the Declining Labor Force Participation Rate. The Brookings Institution.

[7] Steverman, B. (2017). Modern Motherhood Has Economists Worried. Bloomberg. Retrieved from www.bloomberg.com.

[8] Parker, K. and Wang, W. (2013). Modern Parenthood: Roles of Moms and Dads Converge as They Balance Work and Family. Pew Research Center. Retrieved from www.pewsocialtrends.org/.

[9] Brown, B. and Traill, S. (2006). Benefits for All: The Economic Impact of the New Jersey Child Care Industry. The New Jersey Child Care Economic Impact Council. The John S. Watson Institute for Public Policy at Thomas Edison State College.

[10] Detailed data on New Jersey was generated by analyzing the American Community Survey (ACS) Public Use Microdata Sample, also known as PUMS. This allows for a custom analysis of actual responses to the ACS survey. Unless otherwise noted, all findings in Section III were generated from the PUMS analysis.

[11] American Community Survey (ACS), Five-Year Public Use Microdata Sample, 2011-2015.

[12] Advocates for Children of New Jersey (2017). New Jersey Kids Count 2017: A Statewide Profile of Child Well-Being.

[13] National Women’s Law Center (2017). The Wage Gap, State by State. Retrieved from https://nwlc.org/resources.

[14] Vogtman, J. and Schulman, K. (2016). Set Up To Fail: When Low Wage Work Jeopardizes Parents’ and Children’s Success. National Women’s Law Center. Retrieved from https://nwlc.org.

[15] State of New Jersey Department of Human Services (2016). SFY 2016 Income Eligibility Schedules for Publicly Subsidized Child Care Assistance or Services. Retrieved from http://www.state.nj.us/humanservices.

[16] Economic Policy Institute (2015). Family Budget Calculator. Retrieved from www.epi.org/resources/budget/.

[17] Barnett, W.S. and Friedman, A., et al (2017). The State of Preschool 2016: New Jersey Profile. The National Institute for Early Education Research. Retrieved from http://nieer.org.

[18] For background on New Jersey’s Abbott districts, see Education Law Center’s Abbott Overview at http://www.edlawcenter.org/cases/abbott-v-burke/. For more detail on state funded preschool in New Jersey school districts see Education Law Center’s Preschool Data at http://www.edlawcenter.org/research/preschool-data.html.

[19] Barnett, W.S. and Friedman, A., et al (2017). The State of Preschool 2016: New Jersey Profile. The National Institute for Early Education Research. Retrieved from http://nieer.org.

[20] Education Law Center (2017). Preschool Data. Retrieved from www.edlawcenter.org.

[21] Ibid.

[22] Friedman, A., Frede, E., et al (2009). New Jersey Preschool Expansion Assessment Research Study (PEARS). National Institute for Early Education Research. Retrieved from www.ccanj.org.

[23] Ibid.

[24] Ibid.

[25] State of New Jersey Department of the Treasury (2017). Analysis of Division of Family Development Evaluation Data for Child Care Payments for Eligible Families. Department and Branch Recommendations in New Jersey State Budget Years 2003-2018. Retrieved from www.nj.gov/treasury/omb/publications/archives.shtml.

[26] U.S. Department of Health and Human Services (2016). “About the Office of Head Start”. Office of Head Start: An Office of the Administration for Children and Families. Retrieved from: https://www.acf.hhs.gov.

[27] U.S. Department of Health and Human Services (2016). “Head Start Program Facts: Fiscal Year 2016”. Data and Ongoing Monitoring. Retrieved from: https://eclkc.ohs.acf.hhs.gov.

[28] State of New Jersey Department of Human Services (2016). SFY 2016 Income Eligibility Schedules for Publicly Subsidized Child Care Assistance or Services. Retrieved from http://www.state.nj.us/humanservices.

[29] U.S. Department of Health and Human Services Office of Head Start (2016). Program Information Report (PIR) Family Information Report – 2016 – State Level – New Jersey. Retrieved via request from https://eclkc.ohs.acf.hhs.gov.

[30] Barnett, W.S. and Friedman-Krauss, A. State(s) of Head Start (2016). National Institute of Early Education Research. Retrieved from http://nieer.org/.

[31] U.S. Department of Health and Human Services Office of Head Start (2016). Program Information Report (PIR) Family Information Report – 2016 – State Level – New Jersey. Retrieved via request from https://eclkc.ohs.acf.hhs.gov.

[32] U.S. Department of Health and Human Services Office of Head Start (2016). Analysis of Program Information Report (PIR) Family Information Report – 2016 – State Level – New Jersey. Retrieved via request from https://eclkc.ohs.acf.hhs.gov.

[33] Barnett, W.S. and Friedman-Krauss, A. State(s) of Head Start (2016). National Institute of Early Education Research. Retrieved from http://nieer.org/.

[34] Ibid.

[35] State of New Jersey Department of the Treasury (2017). Division of Family Development Evaluation Data for Child Care Payments for Eligible Families. Department and Branch Recommendations in New Jersey State Budget Years 2003-2018. Retrieved from www.nj.gov/treasury/omb/publications/archives.shtml.

[36] U.S. Department of Health and Human Services (2016). Office of Child Care. FY 2016 CCDF Allocations. Retrieved from https://www.acf.hhs.gov/occ/resource/fy-2016-ccdf-allocations-including-redistributed-funds#1.

[37] Administration for Children and Families Office of Child Care (2017). State/Territory Profile: New Jersey. State Capacity Building Center. Retrieved from https://childcareta.acf.hhs.gov/state-profiles/profiles/NJ/pdf.

[38] Schulman, K. and Blank, H. (2016). Red Light Green Light: State Child Care Assistance Policies 2016. National Women’s Law Center. Washington, D.C. Retrieved from www.nwlc.org.

[39] Tencza, Jacqueline (2017, June 12). Spokeswoman for New Jersey Division of Family Development. Phone interview.

[40] State of New Jersey Department of the Treasury (2017). Division of Family Development Evaluation Data for Child Care Payments for Eligible Families. Department and Branch Recommendations in New Jersey State Budget Years 2003-2018. Retrieved from www.nj.gov/treasury/omb/publications/archives.shtml.

[41] U.S. Department of Health and Human Services (2016). Office of Child Care. FY 2015 Preliminary Data Table 9 – Average Monthly Percentages of Children in Care By Age Group (FY 2014). Retrieved from https://www.acf.hhs.gov/occ.

[42] U.S. Department of Health and Human Services (2016). Office of Child Care. FY 2015 Preliminary Data Table 7 – Number of Child Care Providers Receiving CCDF Funds. Retrieved from https://www.acf.hhs.gov/occ.

[43] State of New Jersey Department of Human Services (2017). Christie Administration Raises Pay Rates for Certain Child Care Providers [Press release]. Retrieved from http://www.state.nj.us/humanservices.

[44] U.S. Department of Health and Human Services (2016). Analysis of Office of Child Care. FY 2015 Preliminary Data Table 10 – Reasons for Receiving Care, Average Monthly Percentage of Families. Retrieved from https://www.acf.hhs.gov/occ.

[45] Matthews, Hannah and Walker, Christina (2016). Child Care Assistance Spending and Participation in 2014. Center for Law and Social Policy. Retrieved from http://www.clasp.org.

[46] Schmit, Stephanie and Walker, Christina (2016). Disparate Access: Head Start and CCDBG Data by Race and Ethnicity. Center for Law and Social Policy. Retrieved from www.clasp.org.

[47] Ibid.

[48] New Jersey Association of Child Care Resource and Referral Agencies (2013). The High Price of Child Care 2013: A Study on the Cost of Care in New Jersey. Retrieved from www.childcareconnection-nj.org.

[49] Rutgers Center for Women and Work (2016). New Jersey’s Benefits “Cliff Effect” and Economic Self Sufficiency: Center for Women and Work Fact Sheet. Retrieved from http://smlr.rutgers.edu.

[50] New Jersey Department of Human Services Division of Family Development. Child Care and Development Fund (CCDF) Plan for New Jersey FFY 2016-2018. Retrieved from http://www.state.nj.us/humanservices/dfd/programs/child/.

[51] New Jersey Department of Human Services (2008). Child Care and Early Education Service Eligibility Application. Retrieved from www.childcarenj.gov/getattachment/Parents/SubsidyProgram/Subsidy-Application-English.pdf.aspx?lang=en-US.

[52] See Appendix for tables.

[53] See Appendix for calculations.

[54] Barnett, W.S. and Friedman, A., et al (2017). The State of Preschool 2016. The National Institute for Early Education Research. Retrieved from http://nieer.org.

[55] National Women’s Law Center (2017). Workplace Justice: Recently Enacted and Introduced State and Local Fair Scheduling Legislation. Retrieved from: https://nwlc.org/wp-content/uploads/2017/01/Fair-Scheduling-Report-1.30.17-1.pdf.

2018 Minimum Wage Hike Will Boost 300,000 Low-Paid New Jersey Workers

Posted on by Brandon McKoy

16-cent inflation adjustment is good news but lawmakers must do more to boost workers and the state’s economy

To read a PDF version of this report, click here.

On January 1, 2018, New Jersey’s minimum wage will rise by 1.9 percent to $8.60 per hour,[1] providing approximately 300,000 workers throughout the state with a small but welcomed pay increase.

While it was prudent of policymakers to index the minimum wage to the rate of inflation – helping ensure that workers don’t fall further behind than they already are – the fact remains that a minimum wage of $8.60 per hour isn’t nearly enough for a single low-wage worker to make ends meet in the Garden State.

A full-time worker at the minimum wage in 2018 will take home less than $18,000 for the year, assuming they don’t take any time off. According to analysis by the Economic Policy Institute, a single worker in the Garden State needs to make $37,974 in 2018 just to earn a wage that can provide stability.[2]

Fortunately, Governor-Elect Murphy and legislative leaders have made it clear that they intend to increase the minimum wage to $15 per hour, a move that would help a diverse group of workers – nearly 25 percent of the workforce – and improve their chances of being able to provide for themselves and their families in our high-cost state.[3]

In the meantime, the January 1 increase to $8.60 per hour will boost the wages of 7.5 percent of New Jersey’s workforce. Of the 300,000 workers affected by the wage increase, 91,000 are directly affected – meaning they currently make between $8.44 and $8.60 per hour – and the remaining 209,000 are indirectly affected – meaning they currently make between $8.60 and $8.76 per hour, and will see an increase in their pay as employers adjust their pay scales upward to reflect the new minimum wage.[4]

On average, these 300,000 workers will see their annual earnings rise by $469 in 2018. The total increase for all affected workers will be $140.5 million in 2018. While it is important that the minimum wage is increasing in 2018, the change represents just an average hike of $9.02 a week – not nearly enough to allow a worker to get by, let alone climb into the middle class.

In fact, the basic cost of living in 2018 for a single adult working full time requires an hourly wage between $15.15 in the Ocean City metro area and $20.83 in the Bergen-Passaic metro area – far above the 2018 minimum wage of $8.60 an hour.[5]

This basic family budget, designed by the Economic Policy Institute, includes money for the major expenses of housing, food, transportation, health care, child care and taxes, as well as modest amounts for other necessary items like clothing, personal care items, school supplies, entertainment and household supplies. It does not include other typical expenditures of a middle-class family like weekend trips or savings of any kind.[6]

January 1 Increase Will Help a Diverse Group of Low-Paid Workers

Due to ongoing shifts in the nature of low-wage work in America, the low-paid Garden State workers who will see a boost from the January 1 increase are older, more educated and working more hours than they have been in decades – despite the insistence of minimum wage opponents that low-paid workers are primarily teenagers looking for extra cash.[7]

Four of every five workers who will get a raise (81 percent) are at least 20 years old, while most are working either full-time (45 percent) or between 20 and 35 hours a week (33 percent). Almost half – 44.6 percent – have attended or finished college, and an additional 30 percent have finished high school.

The majority, 56 percent, are women and one in five – 20 percent – are parents. A total of 111,000 New Jersey kids have at least one parent who will benefit from the January 1 increase. When looking at race and ethnicity, 44 percent of affected workers are white, 30 percent are Hispanic, and 18 percent are black.

Endnotes

[1] New Jersey Department of Labor and Workforce Development, Notice of Administrative Changes N.J.A.C. 12:56-3.1, September 2017.

[2] NJPP analysis of Economic Policy Institute family budgets by metro area, adjusted to 2018 to account for inflation using projections for the Consumer Price Index from the Congressional Budget Office. Calculations assume each adult is working full-time for the entire year (2080 hours per adult).

[3] New Jersey Policy Perspective and the Economic Policy Institute, Raising the Minimum Wage to $15 by 2024 Would Boost the Pay of 1.2 Million New Jerseyans, May 2017.

[4] All economic and demographic information in this report is from the Economic Policy Institute’s analysis of the Current Population Survey (CPS), Outgoing Rotation Group public use microdata from the fourth quarter of 2013 to the third quarter of 2014. The number of workers is estimated from the CPS respondents for whom either a valid hourly wage is reported or one can be imputed from weekly earnings and average weekly hours. Consequently, this estimate tends to understate the size of the full workforce. All figures are rounded for clarity and readability.

[5] Ibid 2

[6] For more on how the family budgets are calculated, see: http://www.epi.org/resources/budget/

[7] For example, see: Center for Economic and Policy Research, Low-Wage Workers Are Older and Better-Educated Than Ever, April 2012.

Fixing New Jersey’s Broken Corporate Tax Code Will Help Small Businesses, Boost the Economy

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

New Jersey’s corporate tax code is littered with loopholes, special breaks and preferential treatment for large and well-connected corporations. This broken system caused the state to lose billions of dollars over the past decade – billions that could be better used to help create a prosperous state with a strong economy and thriving communities in the coming decades.

Four states and the District of Columbia levy higher corporate business tax rates than New Jersey’s 9 percent rate.[1] And with the help of tax loopholes, rebates and subsidies, many larger corporations operating in New Jersey are paying just a fraction of the statutory rate, and some none at all.

Partly as a result of this fact, corporate taxes have been a shrinking share of state revenues even as, on the whole, businesses have fared quite well. This has led New Jersey to rely more on income and sales taxes while putting a strain on the state’s ability to invest in services that all businesses rely upon. Without the necessary reforms, revenue from New Jersey’s corporate business tax will continue to stagnate, forcing the state to either raise other state taxes or diminish vital public services to make ends meet.

For example, there are at least 25 Fortune 500 companies doing business in the Garden State that effectively pay an average 3.5 percent in business taxes in all states where they operate.[2] Eleven of those 25 profitable corporations paid no state income tax at all in at least one year between 2008 and 2015 costing states over $12 billion in total lost revenue in the past decade.

Policymakers ought to level the playing field and allow small businesses a better chance of competing with larger companies while raising the revenue necessary to help the entire economy thrive – not just the shareholder set. And federal proposals to cut corporate taxes may mean that New Jersey needs to do even more to ensure all businesses have a fair shot and larger corporations aren’t gaming the system.

New Jersey lawmakers should:

  • Close corporate tax loopholes by expanding combined reporting
  • Rein in corporate subsidy programs
  • Repeal or reform some recent business tax breaks

Taking these actions could raise over $450 million a year in new revenue, while relieving long-term budget pressures that will plague New Jersey for years to come if not addressed. Without these meaningful reforms, New Jersey will be crippled in its ability to provide public services and make investments that actually help the economy grow.

Close Major Corporate Loopholes

New Jersey’s broken tax code currently allows large multistate corporations to – on paper – shift profits they make here to other states that have lower tax rates, or no corporate taxation at all. Corporations often do this by creating “subsidiaries” that exist only for tax purposes. States are combating this by adopting what is called combined reporting, and New Jersey should join them. Doing so would help level the playing field for the state’s small and local businesses and raise up to $290 million a year in new revenue to invest in resources entrepreneurs and businesses across the state need to thrive.[3]

Combined reporting is a common-sense tax policy that treats the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. Their nationwide profits are added together and the state then taxes its appropriate share of the combined income. Right now the state’s casinos are the only entities required to follow combined reporting rules. Expanding combined reporting to all multistate corporations would put New Jersey in line with 25 other states that require it.

These states recognize that failing to include combined reporting in their corporate income tax structures gives profitable multistate corporations almost free rein to artificially shift income out of the state and reduce their taxes. Combined reporting stops these corporations from taking advantage of existing tax loopholes and new ones that corporate accountants may come up with in the future.

When New Jersey’s legislature last addressed business tax reform in 2002, combined reporting was mostly left off the table. A commission appointed to review the new law essentially tabled the possibility of expanding combined reporting beyond the casino industry. At that time, only 16 states had fully adopted combined reporting. Since then, nine more states plus Washington D.C. have passed legislation to require this pragmatic corporate tax policy. And policymakers in several other states – including Louisiana, Maryland, Pennsylvania, New Mexico and Alabama – are currently considering mandatory combined reporting legislation.

In fact, combined reporting is so commonplace that nearly all of New Jersey’s largest employers already use it when filing state taxes elsewhere. Of the state’s 98 largest employers, 94 percent already maintain facilities in at least one combined reporting state. And the vast majority of these corporations maintain facilities in multiple combined reporting states. More than 75 percent have facilities in five or more combined reporting states and about half have facilities in 10 or more such states.[4] That speaks volumes about the neutral impact this tax policy has on economic development. For these corporations, combined reporting is nothing out of the ordinary and is accepted as just another cost of doing business.

Put the Brakes on Corporate Tax Breaks

Because of legislative changes made in 2013, New Jersey’s surge in corporate tax subsidies has risen to unprecedented levels, further cramping New Jersey’s ability to invest in schools, transportation and other areas known to be the real drivers of job creation.

The “Economic Opportunity Act of 2013” dramatically expanded corporate tax break offerings, making them more generous to corporations and removing key financial safeguards, including most ceilings on how much the state can spend on subsidies. The increasing reliance on big-dollar tax breaks has done little to significantly improve the state’s economy, and will in fact cause a long-term drag on growth as future tax credits are paid out over the next decade. After all, every dollar that the state loses to future tax subsidies is a dollar it can’t invest in the true building blocks of a strong state economy like affordable public colleges and universities, safe and reliable infrastructure and more.

As of November 2017, New Jersey has approved $5.7 billion under the 2013 law, and $8.3 billion total since January 2010. And it’s not just the overall amount of subsidies that has exploded. These tax breaks have become far more expensive to taxpayers ­– with the state giving up more and more tax dollars for each job a subsidy recipient creates or retains. The cost per job is now about $80,000 – twice the amount it cost earlier this decade and more than five times higher than the cost in the 2000s.[5]

And the long-term cost to all of us is enormous, with the official estimate for 2017-2021 alone at $3.3 billion in lost revenue.[6] (It’s worth noting that this is merely the tip of the iceberg in terms of the true long-term fiscal impact. NJPP estimates that once the annual revenue loss tops $1 billion a year – likely to happen in 2022 – New Jersey will lose at least $1 billion a year for at least the next 10 years.)

Ten key reforms could help rebalance the scales and ensure a more responsible approach to economic development in the Garden State:[7]

  • Restore spending caps
  • Mandate better reporting on outcomes and improve evaluation
  • Fix the net benefits test to prevent taxpayer losses after companies exit
  • Eliminate, or develop more stringent standards for, subsidies for existing jobs
  • Put subsidies in the state budget
  • Restrict corporations’ ability to redeem more in credits than they owe in taxes
  • Ensure fair wages
  • Prevent extra rewards for known federal tax dodgers
  • Include automatic sunset provisions
  • Cooperate with, rather than compete against, New Jersey’s neighbors

These reforms would help put New Jersey back on track before more damage is done to the state’s economy and before the bills we’re passing on to future taxpayers become even larger. Reining in the use of tax breaks for large corporations would allow policymakers to focus more on economic-development strategies that offer much better returns, like targeted job training or entrepreneurial assistance, for example.

Repeal or Reform Recent Business Tax Breaks

Rolling back some recent costly tax breaks for businesses and replacing them with viable alternatives could restore equity to the state’s tax code while raising more than $150 million a year that could be used to invest in assets and opportunities that drive economic growth for all the state’s businesses.

Reverse Tax Cut for Large S Corporations and Update Tax on LLCs

When new businesses incorporate in New Jersey, they have a choice between filing taxes as a C-corporation, a S-corporation or a limited liability company (LLC). C-corporations are taxed as a separate entity while S-corporations are taxed the same as a sole proprietor or partnership: the profits and losses are “passed-through” and reported on the owner’s personal tax returns.[8]

Although S-corporations’ profits are taxed on their owner’s personal income tax returns, the businesses themselves are subject to nominal fixed fees that are calculated based on gross receipts. This “minimum tax” ensures that these entities make a modest financial contribution toward state services, like the education system that furnish them with trained workers and a dependable transportation system for moving goods and services. Though some states do impose a separate tax or fee on LLCs for the privilege of doing business in the state, New Jersey does not.

Policymakers in 2011 cut the minimum tax by 25 percent for all but the very largest S-corporations. Reversing course for S-corporations with more than $250,000 in gross receipts would recoup some of the lost $41 million in revenue and restore a meaningful tax on larger businesses that benefit from state services just as businesses that are subject to state corporate income taxes do.[9] To help pay for the reduced minimum tax on smaller S-corporations, lawmakers should consider imposing the same fee structure on LLCs to encourage level treatment of both pass-through entities.

Revise How New Jersey Taxes Multistate Businesses

Until 2012, New Jersey relied on three factors – property, sales and payroll – to determine the share of a multistate corporation’s profits that the state could tax. This “apportionment formula” was scrapped in 2011, and now New Jersey only takes into account one factor: sales. Known as the “single sales factor,” this formula has given many large multistate corporations a significant tax break that now costs New Jersey over $100 million every year.

The single sales factor formula can create perverse incentives that can deter economic growth in the state. If an out-of-state company that only ships products into the state (and thus pays no income tax to New Jersey) decides to put down roots here, even a small investment in employees or property will immediately mean much of its income is apportioned to the state because the sales factor counts so heavily. In fact, the most recent research finds that single sales factor does not achieve its asserted goal of boosting state economic development.[10]

New Jersey can address this problem and regain the revenue lost due to the single sales factor by adopting a measure called a “throwback rule.” The majority of states with corporate taxation have adopted this policy, which recoups taxable income by including so-called “nowhere sales” in the sales factor.[11]

“Nowhere sales” are not assigned to or taxed by any state because they are made by purchasers in states where a company has no physical presence. The throwback rule says that the profits from sales that are not taxable are “thrown back” and taxed in the state where the products are made. This rule then increases the relative weight of in-state sales in the sales factor, thus increasing the income apportioned to the taxing state. The lack of a throwback rule is currently costing New Jersey about $127 million in annual revenue, according to the state.[12]

Adopting a throwback rule in New Jersey would remove accounting features that reduce large corporations’ state tax bills at the expense of small businesses and the state’s ability to finance vitally important long-term public investments that all businesses depend on (like police and fire protection and mass transit). A bill to enact a throwback rule was introduced by Assemblyman Troy Singleton this year but has not moved in the legislature.[13]

Endnotes

[1] The Tax Foundation, State Corporate Income Tax Rates and Brackets for 2016, February 2016.

[2] Institute on Taxation and Economic Policy (ITEP), 3 Percent and Dropping: State Corporate Tax Avoidance in the Fortune 500, 2008-2015, April 2017.

[3] New Jersey Office of Legislative Services, Legislative Fiscal Estimate, Senate Bill No. 982, March 2016.

[4] New Jersey Policy Perspective, Nearly All of New Jersey’s Largest Employers Already Subject to ‘Combined Reporting’ in Other States, January 2016.

[5] NJPP analysis of New Jersey Economic Development Authority’s Public Information – Incentives Activity Reports, up-to-date through the EDA’s November 2017 meeting.

[6] New Jersey Economic Development Authority, Response to Office of Legislative Services Questions in Fiscal Year 2018 Budget Hearings, May 2017.

[7] For more detail, see New Jersey Policy Perspective, It’s Time for New Jersey to Rebalance the Economic-Development Scales, May 2017.

[8] Only those LLCs that elect to be treated as a corporation for tax purposes must pay the state’s corporation business tax.

[9] New Jersey Office of Legislative Services, Fiscal Note Senate, No. 2981, July 2011.

[10] Center on Budget and Policy Priorities, Case for ‘Single Sales Factor’ Tax Cut Now Much Weaker, April 2015.

[11] New Jersey once had what is known as a “throwout rule,” whereby receipts from sales destined to a state where the taxpayer is not subject to an income tax are thrown out of both the numerator and denominator of the sales factor. The rule was subject to multiple constitutional challenges but upheld by the courts. Nonetheless, it was repealed for tax periods starting in fiscal year 2010. Repeal of the throwout rule cost the state $89 million annually [New Jersey Department of Treasury, Division of Taxation, Fiscal Note Senate, No. 3, November 2008. ftp://www.njleg.state.nj.us/20082009/S0500/3_F1.HTM]. Enacting a throwback rule would likely generate more revenue than that, because the throwout rule effectively assigns “nowhere” sales in the same proportion as a corporation’s existing in-state and out-of-state sales, while the throwback rule would assign all the “nowhere” sales to New Jersey.

[12] New Jersey Department of Treasury, Division of Taxation, Tax Expenditure Report, Fiscal Year 2018.

[13] State of New Jersey Legislature, Assembly No. 4668, March 2017.

Sabotage of the Affordable Care Act Puts Middle-Class New Jerseyans in the Crosshairs

Posted on by Raymond Castro

To read a PDF version of this report, click here.

The Trump administration and Congressional Republicans’ sabotage of the Affordable Care Act’s health insurance Marketplace is driving up premiums and making insurance unaffordable for millions of Americans. In New Jersey, about 150,000 of the 341,000 people who buy insurance through the individual market will see an average 22 percent[1] – or $1,245 – increase in their premiums in 2018.

A typical four-person middle-class family will see their annual premium increase to about $23,000 for a mid-level plan next year – in addition to their deductible, copay and co-insurance – making it unaffordable for many families.[2] In all, these already-struggling New Jerseyans will face a total of $187 million in increased health care costs next year.[3]

One of the principal actions that President Trump and the Republicans in Congress took to undermine the Marketplace is defunding Cost Sharing Reduction payments, which will result in a loss of $166 million in federal funds to New Jersey insurers even though the insurers will still have to provide those subsidies to eligible consumers. Those subsidies are limited to a Marketplace customer who has an income below 250 percent of the federal poverty level ($51,000 for a family of three). In addition, Republicans in Congress have been unable or unwilling to pass legislation funding such payments.

The Trump administration has also issued conflicting statements on whether, or how well, the individual mandate will be enforced, and Republicans in the Senate propose to eliminate it entirely in the tax overhaul bill. The mandate is important because it results in healthier Americans obtaining insurance, which holds down the cost for everyone else insured in the Marketplace. Lastly, the Republicans in Congress have not extended the deadline for the Health Insurance Tax on insurers; without this tax revenue, $186 million in costs will be passed on to New Jersey Marketplace consumers.

New Jersey’s Middle Class Will See More Harm Than Peers in Other States

While most New Jerseyans in the individual market will be protected from these increases because they will still receive premium subsidies, almost half (44 percent) of the state’s residents in the individual market receive no subsidy, and therefore will have to subsidize their eligible neighbors plus bear the costs of their own increase.[4] This will be a much bigger problem in New Jersey than most states because it has one of the highest costs-of-living and average earnings in the nation. The resulting increase will likely leave many unsubsidized New Jerseyans uninsured.

These New Jerseyans do not receive subsidies because their incomes exceed four times the federal poverty level – or $81,700 for a family of three. While that income level may be a lot in lower-cost states, in New Jersey it is clearly middle-class and well below the median family income of $96,126.[5] This illustrates a deeper problem with using the federal poverty level to determine benefits, because this measurement does not consider dramatically different costs of living in states across the country.

Many of these New Jerseyans will have to drop their coverage entirely because it will be unaffordable, or they will pay their premium and not be able to afford other essentials like food and transportation. Another danger is that they will purchase plans that have a lower premium but higher cost sharing that they may not be able to afford when they need medical care.

New Jerseyans across the state will face higher premiums, but people residing in Congressional Districts represented by Republicans are more at risk than people in Democratic districts. The share of all non-elderly adults who face these premium increases is about a third higher in districts represented by Republicans (3.2 percent) than in districts represented by Democrats (2.4 percent). The total number of New Jerseyans harmed by these premium increases is higher in Congressional Districts represented by Democrats because they represent more districts (7-5).

New Jerseyans With Employer-Based Insurance Could Also Be Harmed

While middle-class New Jerseyans in the individual market will see the most direct harm, the pain could very well spread to many other New Jerseyans who currently have coverage through their employer. While these residents once had the peace of mind knowing that if they lost their employer coverage they could always purchase affordable insurance on the individual market, the dramatic premium increases that are resulting from this sabotage change that equation. In fact, about 2.6 million New Jerseyans have incomes above four times the federal poverty level. If these residents were to lose insurance through their employer, they may not be able to afford the new higher premiums in the individual market.

Older New Jerseyans Will Be Hit the Hardest

All age groups are affected by these premium increases, but older New Jerseyans will be harmed the most. Half (50 percent) of New Jersey residents in the Marketplace are over age 45 and over a quarter (27 percent) are over 55.[6] While the percentage increase for older New Jerseyans is about the same as their younger peers, on average they pay much more for insurance – so this is actually a much higher dollar increase. For example, a 62-year-old New Jerseyan making $49,000 will have to pay the full cost of insurance that, on average, will increase by $12,400 to $14,500 a year. That dollar increase is almost twice the state average in the individual market.

In addition, the out-of-pocket limit rises to $7,350 next year, increasing the total potential costs for this older New Jerseyan to $21,850 – almost half (44 percent) of his or her income. To make matters worse, the House Republican tax bill eliminates the medical deduction, which would further reduce coverage for these New Jerseyans.

Many Low-Income New Jerseyans Are Also At Risk

Over 27,000 low- and moderate-income New Jerseyans could also be harmed by other actions – particularly cuts to outreach, enrollment assistance and education. This will likely have the greatest impact on the approximately 338,000 New Jerseyans who are uninsured and, in most cases, eligible for Medicaid or premium subsidies.[7]

For example, federal funding for outreach workers in states like New Jersey that chose not to establish a state exchange was reduced by an average of 41 percent.[8] New Jersey’s cut was the biggest in the Northeast, 61 percent. In addition, advertising was cut by 90 percent nationally.

An estimated 27,000 New Jerseyans will not obtain coverage in the Marketplace next year unless other resources are identified to replace the outreach efforts that have been lost.[9]

These cuts come at the worst possible time because there is much more confusion this year than in the past, thanks to the Trump administration and Congressional Republicans’ repeated efforts to repeal and replace the ACA this year and the shortest-ever open enrollment window (it runs for just 6 weeks this year from November 1 to December 15).

Endnotes

[1] Weighted average premium increases as reported by Horizon and AmeriHealth for 2018

[2] Assumes the children are ages 6 and 8 and the parents are 35 and 36. Plans were reviewed in healthcare.gov. The highest and lowest plans were selected and the mid-point was calculated.

[3] Percent premium increase was applied to average premium in the marketplace in 2017, as reported by The Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services.

[4] New Jersey Department of Banking and Insurance enrollment report, Q22017

[5] U.S. Census Bureau, American Community Survey, 2016

[6] Kaiser Family Foundation, 2017 Marketplace Selections by Age, November 2016- January 2017.

[7] Kaiser Family Foundation, Distribution of Eligibility for ACA Health Coverage Among the Remaining Uninsured as of 2016.

[8] Preliminary Navigator Grant Awards, 2017.

[9] New Jersey’s share of marketplace enrollment was applied towards national estimate by Get America Covered, Trump’s Ad Cuts Will Cost A Minimum Of 1.1 Million Obamacare Enrollments, October 2017.

State and Local Tax Deductions Benefit Tens of Thousands of New Jerseyans of All Incomes in Every Congressional District

Posted on by Sheila Reynertson

By Sheila Reynertson and Jon Whiten

To read a PDF version of this report, click here.

As Republican lawmakers in Congress move forward with their tax proposal, much attention has been paid to the fate of state and local tax deductions, which allow taxpayers who itemize deductions on their federal income taxes to deduct state and local property taxes, and either state and local income taxes or general sales taxes.

These deductions are widely used in high-cost, high-tax states like New Jersey. In all, 41 percent of Garden State households file using these deductions – the third highest share of all states, after Maryland and Connecticut. These households deduct a total of $32.2 billion in state and local taxes each year, the third highest dollar amount after California and New York.[1]

More than 1 in 4 New Jerseyans would face a tax hike by 2027 under the House tax plan in large part because of changes to these deductions. The House’s proposal is to end Americans’ ability to deduct state/local income or sales taxes paid, while capping the amount of property taxes one could deduct at $10,000. While the latter provision is being pitched as a “compromise” to win over reluctant lawmakers from New Jersey and other similar states, nationally just 1 in 13 households would see any benefit from this change.[2] The Senate proposal, meanwhile, completely eliminates all the state and local tax deductions.

Altogether, these tax deductions are used by tens of thousands of New Jersey families across the income spectrum and in every Garden State Congressional District.[3]

And while Republican Congressional leaders point to a doubling of the standard deduction – the amount people deduct from their taxable incomes – as making up for the changes to these itemized deductions, that’s far from the case. That’s because even as the standard deduction would be doubled, personal exemptions would be eliminated and the tax rate for low-income earners would be increased from 10 percent to 12 percent. Even if the standard deduction were tripled, a significant portion of families that now itemize their deductions would still end up with tax increases.[4]

What’s more, the danger posed by the House tax proposal goes far beyond these changes to state and local deductions. In fact, the plan’s benefits are tilted to the wealthiest New Jerseyans, while the cost of the proposal would almost certainly lead to significant cuts to public services and investments on which all New Jerseyans – particularly low- and moderate-income families – rely.[5]

If the proposal moves forward in its current form, states would be squeezed on both ends: deep cuts to federal programs would reduce services for state residents, at the very same time the loss of key federal tax deductions would make it harder for states like New Jersey to raise enough revenue to provide a current baseline of services – much less make up for reduced support from the federal government.

And this problem is not alleviated by the so-called “compromise” in the House plan on the property tax deductions, because property taxes are not a major source of funding at the state level; they are levied by New Jersey’s local governments.

Millions of New Jerseyans Would Lose Ability to Deduct State Income or Sales Taxes

A total of 1.8 million New Jersey households deduct a cumulative $17 billion in state income or sales taxes from their federal taxes. At 40 percent of all taxpaying households, New Jersey ranks third highest in the nation, behind Maryland (45 percent) and Connecticut (41 percent). Of these 1,775,740 households, the overwhelming majority (1,525,000) take the income tax deduction; the remaining 250,740 take the sales tax deduction (taxpayers can’t take both).

The 11th Congressional District – represented by Rep. Rodney Frelinghuysen – has the highest number of households (195,695) and the highest share of households (53 percent) that deduct state income or sales taxes from their federal taxes. The 8th Congressional District – represented by Rep. Albio Sires – has the lowest number (92,738) and share (25.6 percent).

In terms of dollar amounts, the 7th Congressional District – represented by Rep. Leonard Lance – has the highest total amount deducted, at $2.97 billion each year and the highest average amount deducted, at $16,129 per year per family. The 2nd Congressional District – represented by Rep. Frank LoBiondo – has the lowest total amount ($586.3 million a year) and lowest average amount ($4,882 per year per family) deducted.

While a greater share of higher-income New Jerseyans deduct state income and sales taxes, the deduction is not exclusively taken by the state’s wealthiest families. In fact, 48 percent of all New Jersey households that deduct these taxes have annual incomes under $100,000 (19 percent under $50,000 and 29 percent between $50,000 and $100,000). An additional 34 percent have an annual income between $100,000 and $200,000, while 16 percent have annual incomes between $200,000 and $1 million. Just 1 percent of these households have annual incomes over $1 million.

Millions of New Jerseyans Would Lose Ability to Deduct Local Property Taxes

A total of 1.6 million New Jersey households deduct a cumulative $14.9 billion in local property taxes from their federal taxes. At 36 percent of all taxpaying households, New Jersey ranks third highest in the nation, behind Connecticut (37 percent) and Maryland (which at 36.4 percent just barely edges out the Garden State’s 35.7 percent). (Households can take the property tax deduction in addition to the income or sales tax deduction, so many of these 1.6 million taxpayers are from the same pool of the 1.8 million families taxing those deductions.)

Under the House proposal, an estimated 968,000 New Jersey households would no longer receive the property tax deduction, with the number of families taking the deduction falling by 60 percent next year, to just 658,000.[6] That’s because even though they’d still technically be able to take the property tax deduction, many would choose not to because the combination of itemized deductions (which would no longer include state income and sales taxes) would be smaller than the standard deduction. This would be a bad deal for many taxpayers even though the House bill makes the standard deduction more generous.

The 11th Congressional District – represented by Rep. Rodney Frelinghuysen – has the highest number of households (178,845) and the highest share of households (48.4 percent) that deduct local property taxes from their federal taxes. The 8th Congressional District – represented by Rep. Albio Sires – has the lowest number (54,069) and share (14.9 percent).

In terms of dollar amounts, the 11th Congressional District has the highest total amount deducted, at $2.06 billion a year, while the 7th Congressional District – represented by Rep. Leonard Lance – has the highest average amount deducted, at $11,745 per year per family. The 8th Congressional District has the lowest total amount deducted ($420.3 million a year), while the 2nd Congressional District – represented by Rep. Frank LoBiondo – has the lowest average amount deducted ($6,654 per year per family).

While the House tax proposal would currently maintain the property tax deduction up to $10,000, in higher-cost areas of New Jersey, property taxes can exceed $10,000 for many households that aren’t rich. New Jersey’s average residential property taxes are $8,549 a year, and 147 of New Jersey’s 565 municipalities (26 percent) have average residential property tax bills of over $10,000 a year.[7] Three Congressional Districts are home to average property tax deductions that exceed $10,000. And because the proposed $10,000 limit would not be adjusted for inflation or the growth in home values over time, it would hit more and more homeowners in the Garden State as the years went by.

While a greater share of higher-income New Jerseyans deduct local property taxes, the deduction is not exclusively taken by the state’s wealthiest families. In fact, 46 percent of New Jersey households that deduct these taxes have annual incomes under $100,000 (18 percent under $50,000 and 28 percent between $50,000 and $100,000). An additional 35 percent have an annual income between $100,000 and $200,000, while 17 percent have annual incomes between $200,000 and $1 million. Just 1 percent of these households have annual incomes over $1 million.

Endnotes

[1] All data on the use of these deductions in this Fast Facts are from a NJPP analysis of U.S. Internal Revenue Service Statistics of Income data from tax year 2015.

[2] Institute on Taxation and Economic Policy, House Plan Slashes SALT Deductions by 88%, Even with $10,000 Property Tax Deduction, November 2017.

[3] Using the 2015 IRS data referenced in Endnote 1, data by ZIP code were assigned to New Jersey’s 12 Congressional Districts. For ZIP codes in more than one Congressional District, the relevant IRS data were weighted using 2010 US Census population percentages, excluding ZIP codes with populations of less than 950.

[4] Government Finance Officers Association, Impact of Eliminating the State and Local Tax Deduction (Updated with 2015 IRS Data), 2017.

[5] New Jersey Policy Perspective, Fast Facts: New Jersey Third Hardest Hit State Under House Tax Proposal, November 2017.

[6] Institute on Taxation and Economic Policy, Flawed Data from House Leadership Attempts to Hide Tax Hikes Under Proposal, November 2017.

[7] NJPP analysis of New Jersey Department of Community Affairs, 2016 Property Tax Tables. Available at http://www.nj.gov/dca/divisions/dlgs/resources/property_tax.html

New Senate Proposal Greatest Threat Yet to Health Care in New Jersey

Posted on by Raymond Castro

To read a PDF version of this report, click here.

Legislation introduced this month by U.S. Senators Bill Cassidy and Lindsey Graham combines most of the worst elements of earlier failed attempts to repeal and replace the Affordable Care Act.

The proposal would strip coverage from millions of Americans, raise costs for millions more (including those living with pre-existing conditions) and gut Medicaid – and it would harm New Jersey more than most other states.

  • In all, about 2 million mostly low-income and vulnerable New Jerseyans would be significantly harmed by this proposal: 900,000[1] would likely lose their coverage entirely due to the cutbacks in the Medicaid expansion and Marketplace while the approximately 1.1 million additional New Jerseyans on Medicaid would be at risk of losing health coverage, benefits or access to medical services.
  • New Jersey would lose about $5 billion[2] in federal funds each year, deepening the state’s budget crisis while devastating its economy – particularly its hospitals and health care sector, which would bleed tens of thousands of jobs as a result.
  • The number of New Jerseyans without health insurance would skyrocket. An estimated 500,000 residents would become uninsured by 2027 – equaling an unprecedented 71 percent increase.[3] This would erase all the gains in health coverage New Jersey has made under the ACA, and leave the Garden State with 1.2 million uninsured residents. This would increase costs for local hospitals by $450 million, threatening their financial solvency.[4]
  • New Jersey would also be hit hard because the bill redistributes millions of federal dollars from states that expanded Medicaid to those which did not to pick up more votes to pass the bill.

Elimination of Medicaid Expansion Would Cause Widespread Coverage Loss and Lead to Deep Cuts in Federal Funds

  • Starting in 2020, this proposal turns the federal funding for the Medicaid expansion into a block grant before eliminating funding altogether in 2027. This would likely result in all of the 540,000 New Jerseyans who’ve currently obtained coverage under the expansion to lose it by 2027.
  • By 2027, New Jersey would be losing about $4 billion in federal funds each year, eliminating a major source of funding for the state’s campaign to treat opioid addicts.[5]

Radical Medicaid Changes Put Over a Million New Jerseyans at Risk

  • Like earlier proposals, this one would result in lost or reduced health care for an additional 1.1 million[6] New Jerseyans due to a permanent cap on Medicaid that would drastically reduce funding to New Jersey.
  • New Jersey would lose about $4.4 billion in federal funds between 2020 and 2026 under this cap.[7] The amount would skyrocket after 2026 due to changes in the way the cap is calculated.
  • New Jersey’s seniors and people with disabilities would be most at risk because they account for 64 percent of all Medicaid expenditures in the state.[8]
  • Prescription drug coverage, community-based care for seniors and people with disabilities, and dental coverage would be especially vulnerable to elimination because they are considered optional in Medicaid.

Marketplace Insurance Would be Unaffordable for Nearly Everyone

  • Starting in 2020, up to 200,000[9] New Jerseyans would begin to lose their insurance in the individual Marketplace due to the elimination of the individual mandate and phase out of all subsidies. These subsidies would be temporarily converted to an inadequate block grant from the federal government to states but by 2027 funding for this crucial tool to help keep insurance affordable would disappear. New Jersey would lose about $1 billion in federal funds for subsidies each year starting in 2027.[10]
  • An additional 150,000[11] New Jerseyans who don’t receive subsidies would either lose private health coverage or have to pay much more for it, because the state’s insurance premiums would likely return to the highest level in the nation (as they were before the ACA).

Protections for New Jerseyans With Pre-Existing Conditions & Coverage for Essential Health Services Could Disappear

  • The latest proposal allows states to opt out of ACA protections that prevent insurers from charging higher premiums based on health status, jeopardizing affordable coverage for millions of New Jerseyans with pre-existing conditions.
  • It also allows states to opt out of ACA requirements that insurers cover essential health benefits like hospitalization, maternal care and treatment for substance abuse; this could also harm many of the 5 million New Jerseyans who have employer-based insurance.

Endnotes

[1] Consists of 600,000 New Jerseyans who are projected to be in the Medicaid expansion by 2027, 200,000 who are projected to receive Marketplace subsidies and 100,000 who do not receive subsidies and would drop their individual insurance because it would be unaffordable.

[2] Includes all federal funding lost in Marketplace subsidies and the Medicaid expansion

[3] NJPP analysis of 2016 Census Bureau American Community Survey data & Congressional Budget Office reports on earlier, similar bills to ‘repeal and replace’ the Affordable Care Act. Estimate is preliminary, pending the Congressional Budget Office report on this proposal.

[4] Kellogg Insight, Who Bears the Cost of the Uninsured? Nonprofit Hospitals, June 2015. https://insight.kellogg.northwestern.edu/article/who-bears-the-cost-of-the-uninsured-nonprofit-hospitals

[5] NJPP analysis of New Jersey Department of Human Services data on Medicaid expansion expenditures submitted to the Office of Legislative Services for the 2018 budget, adjusted for inflation. http://www.njleg.state.nj.us/legislativepub/budget_2018/DHS_response.pdf

[6] New Jersey Division of Medical Assistance and Health Services Enrollment Reports, excluding CHIP. http://www.state.nj.us/humanservices/dmahs/news/reports/index.html

[7] Center on Budget and Policy Priorities, Like Other ACA Repeal Bills, Cassidy-Graham Plan Would Add Millions to Uninsured, Destabilize Individual Market, September 2017. https://www.cbpp.org/research/health/like-other-aca-repeal-bills-cassidy-graham-plan-would-add-millions-to-uninsured

[8] Kaiser Family Foundation, Medicaid Spending by Enrollment Groups, 2014.

[9] U.S. Department of Health and Human Services, Assistant Secretary for Planning and Evaluation, Compilation of State Data, 2016, https://aspe.hhs.gov/compilation-state-data-affordable-care-act

[10] Ibid. Includes $166 million for cost sharing subsidies and $792 million for premium subsidies.

[11] NJ Department of Banking and Insurance, Individual Health Coverage Program, 1Q2017, http://www.state.nj.us/dobi/division_insurance/ihcseh/enroll/1q17ihcmarket.pdf

Reforming New Jersey’s Income Tax Would Help Build Shared Prosperity

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

For over 40 years, New Jersey has used a state income tax to build strong communities and invest in working families across the state. While this has helped the Garden State become a better place to live and work, over the years powerful interests have prevented the tax code from keeping up with the times, depriving New Jersey of resources needed to build widely shared prosperity.

Today, the most well-off New Jerseyans hold a greater share of the state’s income than they have in nearly a century, thanks to decades of unequal economic growth, creating an off-balance economy in which many middle- and lower-income New Jerseyans face barriers to economic opportunity. In fact, New Jersey’s top 5 percent of households now have average incomes that are 15.6 times larger than the bottom 20 percent of households, ranking 7th in the country for income inequality.[1] Recent tax policy changes have exacerbated this trend, making it harder for New Jersey to foster the kind of investments that expand the middle class and narrow that gap.

By reforming New Jersey’s income tax code, we can help build the kind of state we want to see, where families across the income spectrum have a better chance to thrive.

Adding four brackets to the state’s income tax and increasing rates on the state’s wealthiest households would raise more than $1 billion in new revenue each year for education, aid to cities and towns and property tax relief for struggling households.

Doing so would raise income taxes on just the top 5 percent of the state’s households, who – after federal deductions – would collectively pay $674 million a year more in income tax.[2]

This would create new brackets at $250,000, $750,000, $1 million and $2.5 million, and very slightly increase the tax rate at the existing $500,000 bracket. The tax increase would be paid almost exclusively by New Jersey’s ultra-wealthy, with the top 1 percent – households with average annual incomes of $3 million – paying 85 percent.

These reforms would also make New Jersey’s tax system more equitable, but it would not undo the tax code’s upside-down nature, in which low-income and middle-class New Jerseyans pay greater shares of their incomes to state and local taxes than wealthy residents. With these changes, this inequity would be slightly evened out. The share paid by the top 1 percent would rise to 7.7 percent from 7.1 percent, but that would still be lower than any other group of New Jersey families.[3]

New Jersey’s Income Tax: A History 

In 1976, New Jersey took a major step toward equal opportunity by creating a state income tax and directing the new resources toward schools, cities and towns and direct property tax relief. It was meant to be a temporary fix, but the state quickly saw the benefits of making it a permanent part of New Jersey’s tax code. What started out as a relatively flat – and therefore regressive – tax of just 2 percent on income up to $20,000 and 2.5 percent on income over $20,000 has evolved over time to a robust, progressive tax with multiple brackets and fluctuating rates.

New Jersey employs marginal tax rates, which apply different tax rates to different levels of income. As income rises, it is taxed at incrementally higher rates as opposed to a flat rate which taxes at the same rate across all income levels. In other words, a New Jerseyan with $505,000 in earnings pays the top rate of 8.97 percent on only $5,000 of her earnings, not on the entire $505,000.

There are five key historical markers in the evolution of New Jersey’s income tax:

  • In 1991, the top rate was doubled to 7 percent on income over $150,000 from 3.5 percent on income over $50,000, making the tax fairer and based more on the ability to pay while raising substantial new resources.
  • Just a few years later, in 1994, the top rate was – like all rates – slashed by 10 percent, to 6.37 percent on income over $150,000.
  • In 2004, a new top rate of 8.97 percent on income over $500,000 was introduced, marking the first significant foray into taxing those at the very top of the income scale most heavily.
  • In 2009, a temporary surcharge increased the top rate to 8.97 percent on income above $400,000, 10.25 percent above $500,000 and 10.75 percent above $1 million, raising about $560 million at a time when New Jersey was experiencing an enormous budget shortfall due to the Great Recession.
  • The legislature allowed the surcharge to sunset the following year and subsequent efforts to reinstate it or to increase the progressivity of the tax have been vetoed, allowing New Jersey millionaires to enjoy over $4.2 billion in cumulative tax breaks since 2010.

Today, for single tax filers, New Jersey’s income tax ranges from 1.4 percent on income up to $20,000 to 8.97 percent on income over $500,000. For couples filing jointly, the tax is slightly more graduated, with lower rates in the mid-range brackets.

All revenue raised from New Jersey’s income tax is constitutionally dedicated to fund property tax relief, which includes school aid, teacher pensions, municipal and county aid and direct relief initiatives like rebates. Despite this influx of dedicated funds, which currently tops over $14.4 billion in annual income representing 40.5 percent of total state revenue, both indirect and direct relief programs have been chronically underfunded, cut or delayed for decades. The school aid formula has been underfunded by a $1 billion almost every year since it was enacted. And the property tax relief programs for households have been an easy target for reduced payments by the Christie administration. These cuts and delays have hurt those families that depend on property tax relief the most: qualified veterans, seniors and disabled homeowners.

While the income tax is largely based on one’s ability to pay, New Jersey’s tax code as a whole is skewed toward the wealthy, according to the Institute on Taxation and Economic Policy. The bottom 20 percent of New Jersey taxpayers pay an average of 10.7 percent of their income in taxes while the top 1 percent pay just 7.1 percent of their income in taxes each year.[4] And that gap is widening. Back in 2009 the bottom 20 percent was paying 10.7 percent of their income in taxes and the top 1 percent was paying 7.4 percent of their income.[5]

Lessons from Other States: Fairer Income Taxes Work

Since 2010, New Jersey’s top income tax rate has remained at 8.97 percent as repeated attempts to increase the rate were vetoed by the governor. While tax reform efforts have stagnated, though, other states have moved forward in creating more equitable income tax structures.

Today, New Jersey’s top income tax rate is no longer at the very top of the states; in fact, it is the 6th highest in the nation behind states like Iowa, Minnesota, Oregon and Maine – many of which also levy higher rates on lower incomes than New Jersey. And in three of the top ten states – Oregon, Iowa and New York – residents can end up paying higher total income tax rates, because cities and towns can levy their own income taxes in addition to state income taxes. These local income taxes are often levied precisely because they are located in places where the highest earners tend to cluster. For example, New York City’s wealthiest households pay state income tax of 8.82 percent plus an additional city income tax of 3.876 percent resulting in a total rate of 12.696 percent.

Meanwhile, New Jersey continues to rank as one of the wealthiest states in the nation – it has the third-highest ratio of millionaire households to total households,[6] the third-highest per-capita personal income[7] and the fifth highest median household income.[8]

Other states like California, for example, have changed course to rebalance their income tax code by asking top earners to pay more. In 2012, California voters decided to raise taxes on all residents, but mostly on the very wealthiest Californians, to help reinvest in public education.

Before California’s new tax plan took effect in 2013, the state’s income tax code was already quite progressive, meaning tax rates rose with income. California’s pre-2012 top income tax rate of 10.3 percent was applied to taxable income over $1 million.

The plan approved by voters expanded the 10.3 percent rate to income between $250,000 and $300,000 and created three new tax brackets: 11.3 percent for income between $300,000 and $500,000, 12.3 percent for income between $500,000 and $1 million and 13.3 percent for income over $1 million.

Those changes raised over $8 billion in additional revenue a year, which was invested in public schools and colleges and helped California erase $27 billion in debt. Meanwhile the state has enjoyed some of the strongest economic growth in the country with new jobs, credit rating upgrades and an explosion of well-off taxpayers. In fact, California’s share of very wealthy households (those with more than $1 million in income a year) has grown by 50 percent between 2011 and 2014.[9] Last year, voters decisively extended the income tax changes

California’s success has provided a roadmap for other state to follow.

Last year, voters in Maine chose to raise taxes on its higher earners by approving a new top marginal tax bracket, and for a similar initiative: to help fund K-12 education. Starting this year, income over $200,000 will be taxed at 10.15 percent – the second-highest income tax rate in the country. The new tax bracket is expected to initially generate over $150 million a year.

And Massachusetts is considering a constitutional amendment to add a second income tax bracket on the state’s highest earners. Voters will decide in 2018 whether to increase the current flat tax of 5.2 percent by four points on annual income over $1 million. Dubbed the “Fair Share Amendment,” the measure would raise between $1.6 billion and $2.2 billion each year to be spent on education, infrastructure and public transit.

Relocation Decisions by High Earners and Business Owners Are Influenced by Other Factors Besides Taxes  

Claims that millionaires and small business owners spooked by higher income taxes will flee the state are commonplace, but that doesn’t make them accurate. These anecdotal stories are unsupported by real-world statistics. In fact, the majority of rigorous studies on the subject have found a negligible correlation between state taxes and interstate moves.[10]

When income taxes were first raised on New Jersey’s highest earners back in 2004, one study found a slight uptick in the number of millionaires who left New Jersey. Their exit cost the state about $16 million between 2004 and 2007, but the state gained about $1 billion from those who remained.[11] In other words, the revenue loss was less than 2 percent of the revenue gained. What’s more, the number of New Jersey tax filers with income over $500,000 rose by 82 percent between 2003 and 2007, nearly doubling from 28,178 (representing 1.1 percent of all filers) to 51,187 (1.3 percent of all filers).[12]

And that trend has continued after a sharp dip during the Great Recession of 2008 and 2009. Since hitting a recessionary low point in 2009, the number of New Jersey tax filers with income over $500,000 has rebounded by 44 percent, growing from 38,496 (or 1.3 percent of all tax filers) to 55,322 in 2014 (2 percent of all filers), even as New Jersey’s overall economic recovery has remained weak.

Another way to measure wealth in New Jersey is to estimate the net worth of households.

A private wealth management firm has tracked this data for all 50 states back to 2006, and the pattern for New Jersey is consistent with the growth in high-income taxpayers.

From 2006 to 2016, the estimated number of millionaires in New Jersey – defined as those with $1 million or more in “investable assets” – has increased by more than 35,000 (or 17 percent), while the share of millionaires has risen by 14 percent. According to the latest data, New Jersey is home to 242,957 millionaires. At 7.4 percent, the state has the third largest share of millionaires in the country behind only Maryland and Connecticut.[13]

Another point of contention among business lobbyists has been the potential impact of increased tax rates on small businesses. But the fact is, most small businesses don’t make nearly enough money to fall into upper income brackets. Nationwide, only 13 percent of small businesses have $50,000 or more in taxable income in a given year. It is not too different in New Jersey.

Most Garden State businesses that file using personal income taxes (79 percent) don’t make nearly enough money to fall into upper income brackets above the $250,000 threshold.[14] Just 9 percent have taxable income over $500,000 and even fewer – 3 percent – have taxable income over $1 million.

In fact, more of these Garden State small businesses are found in the middle, and on the lower end, of the income scale than at the top, with 38 percent reporting taxable income under $75,000 and 26 percent under $50,000. These are the taxpayers and small business owners that policymakers ought to be trying to help, since they pay greater shares of their income to taxes than their wealthier peers, thanks to the state’s upside-down tax code.

Endnotes 

[1] Center on Budget and Policy Priorities, How State Tax Policies Can Stop Increasing Inequality and Start Reducing It, December 2016.

[2] Institute on Taxation & Economic Policy analysis of income tax proposal, 2017.

[3] Ibid 2

[4] Institute on Taxation & Economic Policy, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States: 5th Edition, 2015.

[5] Institute on Taxation & Economic Policy, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States: 3rd Edition, 2009.

[6] Shares of millionaire households taken from Phoenix Marketing International, Millionaires By State Ranking, 2010-2016.

[7] US Department of Commerce, Bureau of Economic Analysis, State Personal Income 2016, March 2017.

[8] Highest median household income states taken from U.S. Census American Community Survey, 2015.

[9] State of California, Franchise Tax Board, Revenue Estimates: PIT and Corporation Tax, 2011-2014.

[10] The Center on Budget and Policy Priorities, State Taxes Have a Negligible Impact on Americans’ Interstate Moves, May 2014.

[11] National Tax Journal, Millionaire Migration and State Taxation of Top Incomes: Evidence from a Natural Experiment, 2011.

[12] NJPP analysis of New Jersey Consolidated Annual Financial Reports.

[13] NJPP analysis of a number of reports produced by Phoenix Marketing International.

[14] NJPP analysis of New Jersey Treasury Department, New Jersey Statistics of Income, 2014 Income Tax Returns.

Fast Facts: Medicaid Cuts in Senate Health Bill Would Harm New Jersey Even More Than Cuts in House Bill

Posted on by Raymond Castro

To read a PDF version of this report, click here.

Given the concern of some Republican Senators regarding the proposed cuts to Medicaid in the American Health Care Act (AHCA) as passed by the House of Representatives, many expected that the Senate proposal (the “Better Care Reconciliation Act of 2017”) would be much less harmful. But the reverse is actually true – and the potential consequences for New Jersey are devastating.

The Congressional Budget Office analysis of the Senate bill finds that it’s strikingly similar to the House-passed bill – which was clearly terrible for New Jersey[1] – with 22 million Americans losing coverage by 2026 and $772 billion in federal Medicaid cuts over 10 years.[2]

While the CBO estimates that national coverage losses would continue to increase until 2026, when they peak at 22 million, in New Jersey the peak would occur in 2021 because of the likely end of the Medicaid expansion. By 2021, an estimated 520,000 New Jerseyans would lose health coverage under the Senate proposal.

And when it comes to Medicaid cuts and New Jersey, there are some substantive differences between the Senate and House bills:

Everyone in the Medicaid Expansion Would Likely Become Immediately Ineligible

Under the House bill, everyone who was in the Medicaid expansion before 2020 would be eligible for the current 90 percent federal match indefinitely, as long as they remained in the expansion. For that reason, it was assumed that New Jersey would continue to assist them until they left. The end result would be that nearly all the 540,000 New Jerseyans in the expansion would lose coverage in the matter of a couple of years, as NJPP noted in a recent report.[3]

Under the Senate bill, however, the federal match is reduced starting in 2021, eventually dropping to the regular Medicaid match of 50 percent. This change would make the state more likely to terminate everyone in the expansion starting in 2021, resulting in a larger loss of federal funding loss – $22 billion in the Senate version versus $20.6 billion in the House bill – over seven years. By 2026, New Jersey would be losing about $4 billion annually, which would cause havoc in the health care system and the loss of thousands of jobs.

Maintaining the Medicaid Expansion Would Cost New Jersey Billions, Making it Essentially Impossible

Under the Senate bill, the state’s cost to replace lost federal funds would be relatively modest in the first year but would very quickly increase to nearly $2 billion dollars a year starting 2024, making the prospect of maintaining coverage for these more than half a million New Jerseyans very expensive – and highly unlikely.

What’s more, continuing the Medicaid expansion would be more difficult for New Jersey than most other states. It has one of the largest enrollments in the Medicaid expansion and the federal matching rate that would be available to New Jersey under the bill would be only 50 percent, the 42nd lowest rate in the nation. And New Jersey is already in a state of near bankruptcy, with many other urgent and significant funding needs.

Senate Bill Has Deeper Medicaid Cuts That Would Most Harm Seniors and People with Disabilities

New Jersey could lose about $60 billion in federal funds over 20 years under the Senate bill,[4] because it includes much deeper cuts to Medicaid through the per-capita funding caps.

Both bills adjust these caps upward each year based on the medical component of Consumer Price Index (CPI-M) for adults and children, and add one percentage point on top for seniors and people with disabilities. The problem with using the CPI-M is that its growth (3.7 percent) is likely to be significantly less than what is projected for actual Medicaid spending (4.4 percent), which is how the bill generates billions of dollars in federal savings and shifts those costs to states.

The Senate bill does the same – until 2025. Then it changes the caps’ annual adjustments to be tied to the CPI–U, which is expected to grow even less (2.4 percent) than CPI-M, leaving an even larger gap between the cap increases and actual spending on Medicaid. In other words, after 2025 states would only be reimbursed for about half their increased Medicaid spending for the foreseeable future.

Even worse, after 2025 this lower index would apply to all groups, including seniors and people with disabilities. They would be particularly vulnerable in New Jersey because they consist of nearly two-thirds (61 percent) all the state’s Medicaid expenditures.

Cutting Health Care to Pay for Tax Cuts for the Wealthy is Robin Hood in Reverse

Incredibly, these Medicaid cuts that would imperil the health care of thousands of the most vulnerable people in the state are being proposed mainly to pay for massive tax cuts to the wealthy and corporations which amounts to about $15 billion in New Jersey over ten years.[5]

Due to the proposed tax cut for net investment and the additional tax cut for high earners, the top five percent of income tax filers would receive a $9.7 billion tax cut over ten years. These tax cuts are most concentrated at the very top, with the wealthiest 1 percent of New Jersey taxpayers receiving 73 percent of the tax cut. These taxpayers, with an average annual income of $2.9 million would receive an average tax cut of $23,000 a year.[6]

Endnotes

[1] New Jersey Policy Perspective, House-Passed Health Bill Would End Coverage for More Than Half a Million New Jerseyans, June 2017.

[2] Congressional Budget Office, Cost Estimate: H.R. 1628, June 2017.

[3] Ibid 1

[4] Based on NJPP extrapolation of the lower bound national estimate in AARP Public Policy Institute, The Senate Health Reform Bill Slashes Medicaid Severely, June 2017.

[5] The estimates for the insurance fee and the tax on prescription drugs are preliminary based on extrapolation of CBO national budget estimates. Further research is needed to determine how these taxes are implemented in New Jersey.

[6] Institute on Taxation and Economic Policy, Affordable Care Act Repeal Includes a $31 Billion Tax Cut for a Handful of the Wealthiest Taxpayers: 50-State Breakdown, March 2017.

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