Immigrants who are undocumented pay a share of sales, property, payroll, and income taxes that help support public services for all New Jersey residents. Nevertheless, undocumented workers and their families have been systematically excluded from many of the state and federal programs that they help fund, including unemployment insurance benefits.[1] In the midst of a global pandemic, this exclusionary practice will only push immigrants who are undocumented further behind. Undocumented immigrants are not only disproportionately at risk of health impacts due to the coronavirus,[2] but they are also overrepresented in the service sector industries at risk of the most job loss.[3] In order for all New Jerseyans to recover from the current crisis, it is critical that lawmakers address barriers to relief and assistance for immigrants. Anything short of that will only deepen existing structural inequities and slow the state’s recovery.
New Jersey is facing unprecedented job loss as a result of COVID-19,[4] with 1.2 million claims for unemployment benefits since the onset of the pandemic.[5] Unemployment insurance, which provides financial support to people who lose their jobs through no fault of their own, has been essential to helping New Jersey residents meet their financial obligations during this challenging time.[6] Unemployment insurance systems, which are funded by unemployment insurance trust funds, are financed by a payroll tax that employers pay to state and federal governments on behalf of all workers.[7] While considerable contributions to unemployment insurance funds are made based on the work of undocumented immigrants, these workers are ineligible[8] to collect unemployment benefits.[9]
Over the past ten years, unemployment insurance taxes paid based on undocumented immigrants’ work in New Jersey added more than $1.36 billion to state and federal unemployment insurance trust funds, according to a recent analysis[10] conducted by the Institute on Taxation and Economic Policy and the Fiscal Policy Institute.[11]In addition to contributions to unemployment insurance taxes, undocumented immigrants pay sales taxes, income taxes, and other taxes. Overall, New Jersey residents who are undocumented contribute approximately $587 million in state and local taxes each year.[12]
While many undocumented immigrants experience the same health and employment challenges resulting from COVID-19 as other workers, the vast majority of undocumented immigrants also face barriers to other forms of relief. For example, while federal lawmakers made stimulus payments available to most residents earning under $99,000 through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, taxpayers who filed using an Individual Taxpayer Identification Number (ITIN) were intentionally excluded from this form of relief. As a result, an estimated 686,000 New Jersey residents, including immigrant workers and their family members, many of whom are U.S. citizens, were ineligible for these stimulus payments.[13] Undocumented immigrants are also generally ineligible for safety net programs, such as food assistance under the Supplemental Nutrition Assistance Program (SNAP), cash assistance through Temporary Assistance for Needy Families (TANF), General Assistance, and most forms of public health insurance such as Medicaid.[14]
Philanthropic and grassroots organizations have taken emergency steps to address critical gaps in federal and state government responses by creating or contributing to pandemic relief funds.[15] Although these funds are helpful, these efforts are limited and are far from the scale of resources needed to address the current crisis. Rather than shifting the responsibility of responding to structural inequities onto individuals, lawmakers should take action to address gaps they helped create. One example of such action is proposed state legislation, S2480, which would provide a one-time payment to certain New Jersey residents who pay taxes using an ITIN.[16] While this is an important step and would benefit up to 35,000 residents — or one quarter of ITIN holders — this bill alone will not meet the needs of New Jersey’s immigrant families, many of whom are now in their third month without relief.[17] In addition, the maximum amount that would be provided per taxpayer in this proposal is still less than the amount afforded to most New Jersey residents through other forms of relief, including the stimulus payments and unemployment insurance.[18]
While the federal government has intentionally excluded immigrants who are undocumented from many forms of relief, New Jersey lawmakers have the opportunity to take responsibility for the health and safety of all of the state’s residents, regardless of immigration status. One concrete way to address gaps in response to the pandemic is to create a program for undocumented immigrants excluded from unemployment insurance, by way of providing weekly benefits similar to those afforded to other unemployed New Jerseyans. The cost of a program parallel to unemployment insurance would depend on the unemployment and participation rates. While the unemployment rate in New Jersey is 15.3 percent[19], many unemployed immigrants who are undocumented may be hesitant to access this type of program due to the chilling effect of anti-immigrant policies.[20] If, for example, 10 percent of the state’s 344,000 undocumented workers in the labor force in New Jersey[21] accessed a benefit comparable to what other unemployed New Jerseyans receive on average each week — the average weekly unemployment benefit in New Jersey in 2019 was $461.53[22] — the cost would be approximately $69 million per month.
New Jersey could further address gaps in the federal government’s pandemic response by establishing a state program that mirrors the Federal Pandemic Unemployment Compensation (FPUC), but is available to all workers, regardless of their documentation status. Under the CARES Act, FPUC, which went into effect in April and is set to expire at the end of July, provides an additional $600 weekly benefit to workers who are collecting unemployment insurance.[23] If 10 percent of undocumented immigrants in the workforce accessed the program weekly, the cost would be $89 million per month, and $358 million for a four month period.
While low-wage workers face disproportionate health and economic consequences from the coronavirus pandemic without benefiting from the systems they help fund, many of the wealthiest corporations and individuals are profiting from the current crisis.[24] Not only have the fortunes of many of the wealthiest increased during the pandemic, but those who are the most well-off also pay a disproportionately small amount in taxes.[25] Rather than compounding wealth inequality by giving state resources to those who do not need them, New Jersey has the opportunity to create programs and policies that reflect the state’s values.
Investing in the health and well-being of New Jersey’s families and workers — who have been paying into and yet are excluded from systems that provide relief and support — would not only promote the safety and well-being of these workers and their families, but also strengthen the state’s recovery from the current pandemic. By addressing gaps and inequities in responses to the current crisis, lawmakers can better protect the health and wellbeing of all New Jerseyans.
[8] To qualify for unemployment insurance, workers generally must have been authorized to work during the base period (the period during which the worker performed the work), at the time that they apply for benefits, and throughout the period during which they are receiving benefits.
[10] Institute on Taxation and Economic Policy. (May 2020) “Undocumented Immigrant Estimated UI Contributions 2010-2019.”
[11] This estimate, which was generated by the Institute on Taxation and Economic Policy and the Fiscal Policy Institutes, assumes that half of undocumented immigrants employed in New Jersey are paid on the book, following the approach of the National Academy of Sciences study on fiscal impacts of immigrants. Further details on this methodology are available in the Fiscal Policy Institute’s brief: Unemployment Insurance Taxes Paid for Undocumented Workers in NYS, available here http://fiscalpolicy.org/wp-content/uploads/2020/05/UI-taxes-and-undocumented-workers.pdf
[24] Chris Collins, Omar Ocampo, and Sophia Paslaski. “Billionaire Bonanza 2020: Wealth Windfalls, Tumbling Taxes, and Pandemic Profiteers.” (2020). Institute for Policy Studies. Accessed on May 29, 2020. https://ips-dc.org/billionaire-bonanza-2020/
The current pandemic has created unprecedented challenges to New Jersey’s finances, as hundreds of millions of dollars are being poured into stopping the spread of the coronavirus, saving lives, and protecting workers and communities across the state.[1] Once the immediate public health risk subsides, New Jersey will face a stark reality: the enormous costs associated with the response and the drain on incoming revenue needed to keep public services available and support struggling families and businesses. Even with federal aid and borrowing to help shore up expected revenue shortfalls, New Jersey will need to do more to address budget shortfalls in the short and stabilize the state’s finances in the long-term.
At the start of the Great Recession, New Jersey implemented a temporary income tax surcharge on earnings over $400,000 to plug budget holes and reinvest in the economy. But as the recession dragged on, the state let this policy expire and, instead, pivoted to a cuts-only approach to balancing the budget. This shift in policy slowed New Jersey’s recovery, illustrating the findings of research by economists at the Center on Budget and Policy Priorities, which found that during a recession, spending cuts are actually more harmful to a state’s economy than tax increases.[2] Facing today’s crisis, which has exposed deep-seated inequities in New Jersey’s economy, state lawmakers must avoid the mistakes of the past by avoiding damaging cuts by reforming the state’s outdated, inadequate, and unfair tax code.
A more balanced response must be taken now — one that includes increasing tax contributions from the richest five percent of earners who have repeatedly benefited from a lopsided tax system. Taken as a whole, New Jersey’s tax code has allowed the very wealthy to avoid paying their fair share towards public assets and resources.[3] These same households have also received billions of tax breaks through temporary and permanent provisions in the federal Tax Cuts and Jobs Act (TCJA) of 2017, including a reduction in the federal estate tax that only very wealthy families pay, a cut in the personal income tax rate, and a permanent cut to the corporate tax rate.
A sensible way to address revenue shortfalls and an unfair tax code is to raise income taxes on the state’s wealthiest households. By reforming New Jersey’s income tax, our recovery can be strengthened by reducing the tax burden that low-paid and middle class families pay, while generating more revenue for public programs and services that benefit all residents. Overall, increasing and adding additional tax rates on the wealthiest households would raise approximately $1.5 billion in new revenue each year while making the overall tax code fairer.[4]
A more progressive tax code can be accomplished through targeted changes on the very top tax brackets.[5] Below are two options for improvement: Proposal 1 would create new brackets at $250,000 and $1 million, and would increase the tax rate slightly at the existing $500,000 and $5 million brackets. This would ensure that the tax increase would be paid mostly by New Jersey’s ultra-wealthy, with the top 1 percent of households — with average annual incomes of $2.46 million — paying 70 percent of the total tax increase.[6]
Alternatively, the tax changes could focus solely on those who earn more than $1 million per year who live and work in New Jersey. Proposal 2 creates two new brackets at $1 million and $2.5 million, paired with a slight increase on the existing tax rate at $5 million. However, this would raise approximately $520 million less revenue than Proposal 1.
Given these findings, Proposal 1 is unequivocally the more equitable and progressive option, and should receive support from lawmakers and advocates who seek to move New Jersey’s tax code towards a more reliable and sustainable design. While Proposal 2 requires those who earn $1 million and above to contribute their fair share, choosing to exclusively focus on millionaires is a narrow and reductive view of income inequality in the Garden State. Adjusting the income tax code to modestly raise rates on those earning $250,000 and more is both a common-sense step and one which more fully addresses the disproportionate share of wealth that is held by these households. Critically, Proposal 1 also raises approximately $520 million more than Proposal 2, which would provide greater flexibility to invest in critical assets and services that can further address racial inequities rife throughout the state.
Today, middle-class New Jerseyans pay a greater share of their incomes to state and local taxes than the state’s highest earners.[7] With these proposed changes, the state income tax code would become fairer, ensuring budgets are no longer balanced on the backs of middle-class families. If Proposal 1 were adopted, the share paid by the top 1 percent would rise from 9.8 percent to 10.8 percent, a slightly higher contribution than what is paid by middle-class New Jersey families who make between $74,800 and $132,000. Proposal 2 also makes the income tax code less regressive, with the state’s top earners paying 10.7 percent of their annual income on state and local taxes, the same rate that is paid by those in the middle.
Overview and History of New Jersey’s Income Tax
New Jersey’s income tax was established in 1976 to provide better resources for schools, cities and towns, and direct property tax relief for homeowners.[8] It currently raises aproximately $16 billion in annual revenue, representing 42 percent of total state tax collections.[9] All revenue from the income tax is constitutionally dedicated to fund property tax relief, which includes school aid, teacher pensions, municipal and county aid, and direct relief for qualified veterans, people with disabilities, and senior homeowners. Despite this guaranteed revenue stream, these programs have been plagued by chronic underfunding, cuts, and delayed payments for decades. At the same time, the wealthy were given billion-dollar tax cuts and benefited from tax loopholes, lowering their overall tax responsibilities. These changes combined have created a tax code that is skewed toward the wealthy, which translates to painful cuts to public programs and services that New Jersey families, schools, and communities rely on.
Today, for single tax filers, New Jersey’s income tax ranges from 1.4 percent on incomes up to $20,000 to 10.75 percent on incomes over $5,000,000. For couples filing jointly, the tax is slightly more graduated, with lower rates in the mid-range brackets.[10]
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 $5,005,000 in earnings pays the top rate of 10.75 percent on only $5,000 of her earnings, not on the entire $5,005,000.
Currently, there are more tax brackets — four — under $75,000 than there are over it: three. The way New Jersey’s income tax code is designed means that $80,000 in annual earnings has the same income tax rate as $450,000. Similarly, $600,000 in earnings has the same rate as $4.9 million. New Jersey’s income tax code would benefit from a more stratified approach to higher levels of income by adding more brackets between $250,000 and $5 million.
New Jersey’s Income Tax Code: Outdated, Inadequate, and Unfair
New Jersey’s current income tax structure doesn’t accurately reflect the staggering level of income inequality that has taken root over the past 40 years. The share of all income held by the top 1 percent has steadily climbed since the Reagan administration and now approaches historical highs.[11] According to the latest data from the U.S. Census Bureau, New Jersey is the ninth most unequal state when it comes to income inequality, up from twelfth place in 2016.[12] The wealthiest households earn, on average, 37.9 times more than the middle 20 percent, according to 2019 data.[13]
While New Jersey has taken steps toward making the income tax code fairer in the past, it has failed to accurately reflect growing disparities in income:
In 2004, a new top rate of 8.97 percent on income over $500,000 was added.
In 2009, a temporary surcharge lowered the threshold for the 8.97 percent rate on income above $400,000 and added new tax rates of 10.25 percent above $500,000 and 10.75 percent above $1 million. This surcharge and new tax bracket expired in 2010.
In 2019, a new top rate of 10.75 percent on income over $5,000,000 was added.
The temporary changes to income tax brackets over the $400,000 threshold raised approximately $560 million at a time when New Jersey was experiencing an enormous budget shortfall due to the Great Recession. However, the legislature allowed them to sunset a year later in 2010.[14] Subsequent efforts to reinstate these new brackets, or to otherwise make the tax code more progressive, were repeatedly vetoed by then-Governor Christie. This inaction has allowed high-earning New Jersey families to enjoy over $7 billion in cumulative tax breaks between fiscal years 2010 and 2018.[15] A permanent “mega-millionaire” tax bracket on earnings over $5 million at 10.75 percent was finally added in 2019, raising an average of $363 million a year, but this left about $400 million a year in the pockets of 18,200 New Jersey resident taxpayers and 12,800 non-residents who work in the Garden State who earn between $1 million and $5 million in annual income.[16]
Advancing Racial Equity Through Income Tax Reform
Improving New Jersey’s tax code would also address worsening racial disparities laid bare by the COVID-19 pandemic. A long history of discrimination in housing, education, employment, and the criminal justice system are all rooted in the legacy of slavery. These policies were created, and continue, to perpetuate economic advantages for white families in the Garden State. The result is a landscape of undisturbed structural racism, occupational segregation, exclusionary residential laws and practices, and massive income and wealth disparities between white households and Black and Latinx households. The typical white family in the United States has 10 times the wealth of the typical Black family and seven times the wealth of the typical Latinx family.[17] In New Jersey, the typical white family has over 52 times the wealth of the typical Black family and over 44 times the wealth of the typical Latinx family.[18] This stark and long-lasting gap means some families can respond to unexpected emergencies like a pandemic without significant hardship while others are left vulnerable and at greater risk of housing insecurity and job loss.
One of the most powerful tools driving income and wealth inequality is the tax code. Just as tax policy choices are both a symptom of, and contributor to, broader injustices, they can also be utilized to repair the damage done and advance racial equity.
For example, the 2017 federal tax law, the Tax Cuts and Jobs Act (TCJA), actually worsened racial inequities by showering the wealthy with tax benefits at the expense of the economic security among middle-class and low-income families, which in New Jersey are over-represented by Black and Latinx households. Three-quarters of Black households (75 percent) and of Latinx households (77 percent) earn less than $81,000 a year in the Garden State.[19]
In New Jersey, the TCJA is more widely known for one provision: the temporary $10,000 cap on state and local tax (SALT) deductions, which limits how much taxpayers can deduct these taxes from their federal tax bill. But other provisions in the 2017 tax law — corporate tax cuts, pass-through tax cuts, and estate tax cuts — benefited the vast majority of the wealthiest taxpayers. That windfall means that even with the SALT deduction limitation factored in, New Jersey’s top 1 percent of earners, who are overwhelmingly white, will pocket an average of $37,640 this year.[20]
Targeted changes to New Jersey’s income tax code as proposed above could rectify this lopsided benefit, reversing course on the racial implications of the TCJA and providing the state with desperately needed resources — with the top 1 percent of earners still receiving an average net tax cut of about $12,500 when considering both the TCJA and the proposed income tax reforms.
Should the federal government repeal the SALT deduction limitation, as currently proposed by Congress in the HEROES Act, there is no reason for New Jersey to pull back on these targeted changes to the income tax code. That’s because over half (54 percent) of the benefit from a reversal of the SALT cap would go to the wealthiest 1 percent with nearly every one of those families getting a hefty tax break.[21] In fact, such a policy change all but solidifies why New Jersey must take action.
According to State Treasurer Elizabeth Maher Muoio, New Jersey is likely facing “an unprecedented fiscal crisis” with potential shortfalls that rival the Great Recession.[22] Tough decisions lay ahead with options that may or may not be available to the Garden State, including borrowing, flexible federal aid, and revenue reserves. Raising sufficient revenue for the recovery is not just a short-term goal. It is a strategic tool to protect vital investments, overcome racial inequities, and build a state economy whose benefits are widely shared.
The COVID-19 crisis has devastated communities across New Jersey. If we really are all in this together, we must guarantee that sacrifices will be shared among all residents. For decades, low-income and middle-class families — especially families of color and marginalized communities — have borne the brunt of economic recovery while enjoying none of the rewards. These proposed changes to the income tax code are the right policies at the right time and will help ensure that all New Jerseyans are paying more of their fair share to support the investments we all need to thrive.
End Notes
[1] New Jersey Department of Treasury, Report on the Financial Condition of the State Budget for Fiscal Years 2020 and 2021, May 2020. https://www.state.nj.us/treasury/omb/publications/NJ-Financial-Condition.pdf
[2] Center on Budget and Policy Priorities, Budget Cuts or Tax Increases at the State Level: Which is Preferable When the Economy is Weak?, April 2010. https://www.cbpp.org/research/budget-cuts-or-tax-increases-at-the-state-level?fa=view&id=1032
[3] New Jersey Policy Perspective, It’s Time to Face the Music, Jersey: We’ve Been Robbed, March 2019. https://www.njpp.org/budget/its-time-to-face-the-music-jersey-weve-been-robbed
[4] These proposals use the Institute on Taxation and Economic Policy (ITEP) Microsimulation Tax Model, 2019. Revenue estimates will be affected by COVID-19 crisis. However, because these tax changes are targeted on high-income earnings, the estimates will likely be comparable.
[5] A tax bracket refers to a range of incomes subject to a certain income tax rate.
[6] Taxation and Economic Policy (ITEP) Microsimulation Tax Model, 2019.
[7] Institute on Taxation and Economic Policy, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, 6th Edition, October 2018. https://itep.org/whopays/new-jersey/
[9] State of New Jersey, The Governor’s FY 2021 Detailed Budget, March 2020. https://www.nj.gov/treasury/omb/publications/21budget/pdf/FY21GBM.pdf
[10] New Jersey Department of Treasury, Division of Taxation, NJ Income Tax – Tax Rates, Last updated February 2020. https://www.state.nj.us/treasury/taxation/taxtables.shtml
[11] Center on Budget and Policy Priorities, A Guide to Statistics on Historical Trends in Income Inequality, January 2020. https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality
[12] The Star Ledger, The gap between the rich and poor in New Jersey keeps increasing, data shows, March 2020. https://www.nj.com/data/2020/03/the-gap-between-the-rich-and-poor-in-new-jersey-keeps-increasing-data-shows.html
[13] Institute on Taxation and Economic Policy (ITEP) Microsimulation Tax Model. Based on all New Jersey residents, using 2019 incomes.
[14] New Jersey Department of Treasury, Division of Taxation, Important Changes for 2010, Last updated March 2020. https://www.state.nj.us/treasury/taxation/new2010.shtml
[15] New Jersey Policy Perspective, It’s Time to Face the Music, Jersey: We’ve Been Robbed, March 2019. https://www.njpp.org/budget/its-time-to-face-the-music-jersey-weve-been-robbed
[16] New Jersey Treasury, Office of Management and Budget, Citizens’ Guide to the State Budget Fiscal Year 2019, December 2018. https://www.nj.gov/treasury/omb/publications/19citizensguide/citguide.pdf
[17] Center for American Progress, The Coronavirus Pandemic and the Racial Wealth Gap, March 2020. https://www.americanprogress.org/issues/race/news/2020/03/19/481962/coronavirus-pandemic-racial-wealth-gap/
[18] New Jersey Institute for Social Justice, Reclaiming the American Dream: Expanding Financial Security and Reducing the Racial Wealth Gap Through Matched Savings Accounts, April 2019. https://www.njisj.org/new_jersey_institute_for_social_justice_releases_reclaiming_the_american_dream_expanding_financial_security_and_reducing_the_racial_wealth_gap_through_matched_savings_accounts
[19] Data shared with NJPP by Institute on Taxation and Economic Policy, May 2019.
[20] Institute on Taxation and Economic Policy, TCJA by the Numbers: 2020, August 2019. https://itep.org/tcja-2020/
[21] New Jersey Policy Perspective, A Grain of ‘SALT’: New Jersey Needs More Than Workarounds to Respond to GOP Tax Plan, January 2018. https://www.njpp.org/budget/a-grain-of-salt-new-jersey-needs-more-than-workarounds-to-respond-to-gop-tax-plan
[22] New Jersey Department of the Treasury, Treasury Issues Preliminary Update on Projected Revenue Shortfall through Fiscal Year 2021, May 2020. https://www.nj.gov/treasury/news/2020/05132020b.shtml
To read a PDF version of the full report, click here.
Executive Summary
Maintaining a high-quality teaching workforce is critically important for the future of public education in New Jersey. Federal data, however, show cause for concern: New Jersey is producing far fewer teacher candidates than a decade ago. In fact, the number of candidates completing teacher preparation programs has dropped 49 percent between 2009 and 2018. These declines, which are part of national and regional trends, cut across both gender and race. The dwindling number of teacher candidates creates instability in the teaching profession and jeopardizes the ability of students to learn.[1]
While reasons for the decline in teacher candidates are complex, we know that New Jersey’s teachers are paid considerably less than other college-educated workers, even when controlling for age and time worked.[2] Of particular concern is that the evidence suggests fewer college graduates see teaching as a viable career option with adequate compensation. New Jersey must aggressively address these problems if it wishes to retain its status as having one of the best education systems in the nation.
To stem the decline in teacher candidates, New Jersey should work to make the teaching profession more attractive by raising teacher pay, shoring up benefits, and increasing the respect and appreciation shown to New Jersey’s educators.
This report explores enrollment and completion data in teacher preparation programs, gives context around state policy changes affecting education professionals, reviews the level of teacher demand in the state, and examines the change in demographics within the profession over the past ten years.
Background
This past September, NJPP published an analysis of the New Jersey teaching corps entitled, New Jersey’s Teacher Workforce, 2019.[3] Among its findings:
While factors outside of school are the strongest influences on student achievement, teacher quality is the most significant in-school influence.
The research on teacher quality suggests that qualified people become teachers based, in part, on how well teaching pays compared to other jobs.
Despite the importance of teachers, there is a significant gap in wages between New Jersey teachers and other college-educated workers in the state, even when accounting for differences in time worked.
Pensions and health benefits do not fully close the pay gap between teachers and college-educated workers in other professions.
New Jersey’s teaching workforce is mostly white and female; there is little evidence of a trend toward a more diverse teaching workforce.
New Jersey’s teacher workforce is aging, suggesting a new wave of retirements in the next several years.
These findings are similar to other analyses, which show a significant pay gap for teachers compared to other college-educated workers.[4] Critics suggest, however, that these studies are flawed in that they don’t fully account for differences in benefits and other non-pecuniary compensation, unmeasured differences in talent between workers, and other factors. Teachers, they argue, are actually well-compensated, even in today’s tightening labor market.
To test these criticisms, this report examines whether more or fewer workers are becoming teachers. If teacher pay and benefits have kept pace with compensation in other sectors, we would expect to see workers respond in kind, and continue to enter the profession at previous rates. Because compensation levels influence workers’ decisions to go into teaching those workers would judge the benefits that teachers receive as adequate to close the teacher pay gap and continue to enroll in programs to prepare to become educators.[5]
The data, however, tell a different story. Fewer workers in New Jersey are electing to enter teacher preparation programs, a clear indication that teaching is not as attractive a career option as it once was.
Teacher preparation programs across the United States can be either traditional or alternative. Traditional programs are generally run by institutions of higher education and lead to degrees or credentials that fulfill the requirements for a teaching certification. Alternative programs enroll candidates who have previous subject-matter knowledge; these candidates often are already the teachers of record in a classroom while they participate in their preparation program.[6]
At its peak in the 2009-10 academic year, the state enrolled 21,410 teacher candidates in various preparation programs. By 2017-18, however, the number of enrollees had declined to 7,950, a 63 percent drop.
Figure 1
The decline in enrollment led to a decline in the number of people who completed teacher preparation programs (henceforth referred to as “completers”), from 6,373 in the 2009-10 academic year to just 3,366 in 2017-2018, representing a 47 percent decrease.
Figure 2
To contextualize these data, it is instructive to consider the changes in the state’s policies regarding teachers over the same period of time[7]:
Chapter 78, enacted in June of 2011, was a law that forced teachers to pay substantially higher pension contributions, removed cost of living increases from pensions, and required teachers to pay substantially more for health care benefits.
TEACHNJ was enacted in August of 2012; it weakened teacher tenure protections, expanded teacher evaluation requirements, and led to the increased use of standardized test scores in teacher rating systems.
AchieveNJ was implemented by the state for the 2013-14 school year; the new regulations required the use of approved teacher observation systems, as well as the use of Student Growth Percentiles (SGPs) based on test scores, and Student Growth Objectives (SGOs) which require additional work for all teachers.
The state moved from the New Jersey Assessment of Skills and Knowledge (NJASK) to the Partnership for Assessment of Readiness for College and Careers (PARCC) exams in the 2014-15 school year. PARCC expanded the grade levels subject to testing, increased the amount of time spent administering exams, and required a substantial expansion of technology infrastructure.
It is worth noting that the number of work hours per week reported by teachers increased during this same period.[8] It is likely this is, at least in part, a result of the policy changes listed above.
While reasons for the decline in teacher candidates are complex, these policies likely contribute to working conditions that make it difficult for teachers to thrive. New Jersey’s teachers have been increasingly underpaid relative to similarly educated workers and have seen an erosion of their benefits while the demands of their jobs have grown.[9]
The Demand for Teachers
To sustain a strong teacher workforce, it is critical that New Jersey has a large pool of highly qualified candidates for school districts from which to hire. Over the last decade, the number of new teachers entering New Jersey’s workforce has varied sharply. The Great Recession of 2008-09 severely stifled the hiring of novice teachers (certified teachers with less than one year of experience) in New Jersey’s schools. 2009 saw the beginning of a sharp drop off in novice teachers, reaching a low point in 2011. The economic recovery, however, led to a substantial rise in teacher hiring; by 2014, nearly 10,000 novices were in the state’s teacher workforce.
Figure 3
The latest data indicate that New Jersey’s demand for novice teachers is back where it was before the Great Recession. However, the number of teacher candidates has not rebounded – even as the student population has remained relatively stable at around 1.37 million K-12 students from 2009 to 2017. The consequence is that the number of teacher candidates per 1,000 students has dropped significantly.
Figure 4
In 2009, there were about 13 enrollees in teacher preparation programs for every 1,000 students; in 2018, there were only about six enrollees per 1,000 students. Likewise, in 2009 there were nearly five program completers for every 1,000 students; in 2017, there were less than three completers per 1,000 students.
Overall, there are fewer New Jersey workers entering the teaching workforce than a decade ago while the student population has not declined significantly. Each year, school administrators have had to draw from a shallower pool of teacher candidates to fill the positions needed to maintain the quality of New Jersey’s schools. If this trend continues, there will not be enough well-qualified teacher candidates available to maintain the state’s teacher workforce.
“Alternate Route” Teacher Preparation
Between the 2012-13 and 2013-14 school years, there was a large drop in teacher prep program completers. This decline is a direct result of the shuttering of the New Jersey Department of Education’s (NJDOE) Alternate Route program. This program, which was administered directly by the state, allowed candidates with previous subject-matter knowledge to acquire a Certificate of Eligibility (CE) and begin employment as a teacher of record in a classroom. Candidates could eventually become a fully credentialed teacher without enrolling in a traditional program at an institution of higher education (IHE).[10] The state still issues CE’s; however, the Alternate Route program is no longer directly administered by the NJDOE, but by a variety of institutions that also offer traditional preparation programs.
The closing of the NJDOE Alternate Route program brought on a significant decline in the total number of teacher program completers. Further, the number of completers in all other programs also decreased during this time, from a high of 5,243 in 2010-11 to 3,366 in 2017-18, a decline of 36 percent.
Figure 5
When such a large and sudden drop in program completers appears in the data, it is reasonable to ask whether there may be data errors, or some other reporting issue. Conversations with NJDOE staff, however, confirm that the large declines due to the end of the old Alternate Route program were actual declines.[11] Further analysis reveals that New Jersey is not alone; the decline in enrollees and completers of teacher prep programs of all types is a national problem.
Comparing New Jersey to Neighboring States
The number of teacher candidates is declining across the United States: 31 percent fewer people completed a teacher prep program in the 2017-18 academic year than in 2008-09. New Jersey’s decline of 49 percent is high compared to the rest of the nation, but not when compared to most of its regional neighbors. Pennsylvania had slightly greater losses in teacher candidates during this same period; New York’s and Delaware’s losses were somewhat smaller. Losses in Connecticut, in contrast, were closer to the national average.
Figure 6
Demographics
Past research shows students of color benefit from having teachers of color in their schools, reporting that students demonstrate small but significant increases in academic outcomes.[12] Unfortunately, New Jersey’s teacher workforce looks nothing like its student population. While only 22 percent of the state’s students are white females, 66 percent of the state’s teachers are white women.[13]
If the state is to have a more diverse teacher workforce, it must recruit a more diverse population of teacher candidates. However, the declines in enrollees in teacher prep programs cut across gender and racial lines.
With regard to gender, between academic years 2008-09 and 2017-18, the number of men enrolled in teacher prep programs declined by 55 percent. During the same period of time, the number of women declined by 56 percent.
Figure 7
While enrollees of different races and ethnicities have all seen declines, there is some variation. Between academic years 2008-09 and 2017-18, Hispanic/Latinx enrollees of any race declined by 33 percent and Asian enrollees declined 36 percent. Even more striking is that Black or African American enrollees declined by 58 percent.
Students of color already face significant challenges in completing college, due to systemic barriers that they are uniquely forced to grapple with. These challenges are compounded when students consider entering a teacher preparation program.[14] Teacher licensure exams, for example, often have higher rates of failure for prospective teachers of color, even as studies find the exams do not consistently or accurately predict teacher effectiveness. There is a disturbing history of deliberate bias in these exams, whose results were often used to justify racially disparate hiring practices in schools.[15]
Figure 8
New Jersey has recently made efforts to recruit more men of color into teaching, but such efforts are likely to have minimal effect if college-educated workers are increasingly turning away from the profession.[16] New Jersey will only recruit a diverse teacher workforce if it both makes teaching more attractive and dismantles the systemic barriers to entry for teacher candidates of color.
Production of Teaching Degrees
While all certificated teachers in New Jersey must meet specific academic credit requirements, it is not necessary for a teacher to have a degree in education. That said, it is useful to look at the changes in the numbers of New Jersey college students who are granted education degrees by the state’s universities. If teaching has become less attractive to college students, we would expect the number of teaching degrees to decline. The degree production data here comes from a different source than the data above; therefore, any trends here that mirror the trends above bolster the validity of this analysis.
At their peak in 2011, the state’s colleges and universities awarded 5,328 education degrees specific to teaching. By 2017, the number of teaching degrees dropped to 3,911, a decline of 26 percent. Overall, fewer students are pursuing degrees and certificates in teaching than a decade ago.
Figure 9
Completers by Institution of Higher Education
While not all teacher candidates pursue degrees in education, institutions of higher education (IHEs) are the primary providers of teacher preparation programs. Federal Title II data break down completers by IHE, allowing us to evaluate program trends and assess which colleges are producing the most teachers.
While there is substantial variation from year-to-year in the number of enrollees and completers, the simplified data here shows the number of teacher prep program completers in 2008-09 and 2017-18. This comparison allows us to look across a substantial number of years at the changes in completion for each IHE.
Figure 10
Montclair State University, the state’s largest teacher program provider, has had a modest increase in completers over this time. Rutgers-New Brunswick has had a substantial increase, although much of this occurred within the last year of the available data. In contrast, the largest decline in teacher prep program completers has been at Kean University, which had almost half the completers in 2017-18 than it did in 2008-09. The College of New Jersey (TCNJ), Rowan University, and William Paterson University have also had notable declines.
New Jersey’s private colleges and universities produce far fewer teacher program completers than its public postsecondary institutions. The most notable decline has been at Georgian Court University, which had 319 completers in 2008-09, but only 56 in 2017-18.
These changes occurred at a time when the NJDOE Alternate Route program, which produced 1,819 program completers in 2011-12, was disbanded. Clearly, New Jersey’s colleges and universities were unable to produce an additional equivalent number of teacher candidates to fill the gap left by the “Alternate Route” program.
Conclusions and Recommendations
The data show that fewer people are entering and completing teacher programs. Working conditions and other factors such as the decline in pay (as compared to other professions), eroding benefits, and punitive policies are likely contributing to the shortage. Given the importance of teachers, the decline in teacher candidates should be a serious concern for New Jersey’s education policymakers. The demand for new teachers has returned to pre-recession levels, but the number of available candidates per 1,000 students has decreased significantly, threatening the state’s quality of education in the long-term.
If New Jersey is to retain its rank as one of the best performing statewide school systems in the United States, it must do a better job of attracting teaching candidates – particularly candidates of color.[17] Toward that end, the following changes are recommended:
Teacher compensation must rise to attract the best possible candidates into the profession. If we want to attract high-quality candidates into teaching, we must offer teachers competitive wages. Given the rising costs of earning a degree, college-educated workers have more incentive than ever to seek out careers that will maximize the return on their investment in college tuition.[18] Consequently, if we want great teachers, we must offer them a compensation package that reflects the value of their work. Other sectors face the same challenges when determining how to attract and maintain a high-quality workforce — teaching is no different.
New Jersey must shore up its teacher pension system and stop degrading teacher health care benefits. There is an indisputable wage gap between teachers and other college-educated employees. Good benefits can help close this gap, but New Jersey has, over the past decade, degraded the value of teacher pensions and health care benefits.[19] The decline in enrollees in teacher preparation programs suggests that these policies have had detrimental consequences. The state must take steps to reverse the eroding value of retirement and health care benefits for teachers.
The state should streamline the process of obtaining a teacher certification as much as possible without sacrificing rigor. Whether the state was previously overproducing teacher candidates is an open question. There is little doubt, however, that the number of teacher candidates has decreased while the number of students has stayed the same. New Jersey should review its certification and preparation programs for teachers to determine whether their requirements impede entry into teaching without adding value to a teacher’s training.[20]
All of the state’s teacher preparation providers should continue to work together to attract teacher candidates of color. As previous research shows, there are many benefits to having a diverse teacher workforce.[21] New Jersey has recently made commendable efforts to recruit men of color into the profession. These efforts should be evaluated as quickly as possible and, if found successful, expanded.
New Jersey’s leaders should commit to improving the state’s level of appreciation and regard for its educators. The surest, easiest – and cheapest – way to boost teacher morale is for elected officials to show respect for teachers by acknowledging the importance of their work, giving them a seat at the table when decisions are made about education policy, and refraining from unfairly blaming them for New Jersey’s fiscal troubles.
In a 2018 national poll, 61 percent of superintendents strongly agreed that recruiting and retaining talented teachers would be a challenge for their school district.[22] New Jersey must implement policies to help school district leaders develop and retain the best possible teaching staffs.
Overall, New Jersey’s decline in teacher candidates is a call to action. The state should act immediately to make the teaching profession more attractive, including raising pay, shoring up benefits, and increasing the respect and appreciation shown to New Jersey’s educators.
Technical Appendix
The primary data source for this report is “2019 Title II Reports: National Teacher Preparation Data” from the U.S. Department of Education. https://title2.ed.gov/Public/Home.aspx
Data on teaching degrees is from the Integrated Postsecondary Education Data System (IPEDS), administered by the National Center for Education Statistics. https://nces.ed.gov/ipeds/ To determine the production of teaching-related degrees, I employed this methodology:
Include only institutions designated as offering teacher certification.
Include only bachelors and masters degrees, and post baccalaureate certificates.
Count all degrees awarded in education (cipcode “13”).
Count all degrees in curriculum and instruction; educational administration and supervision; educational/instructional media design; educational assessment, evaluation, and research; social and philosophical foundations of education; teaching assistants/aides; and education, other.
Subtract this count from the total count of education degrees.
Student counts to determine teacher candidates per 1,000 students are from the New Jersey Department of Education’s fall enrollment files. https://www.nj.gov/education/data/enr/
Staffing counts of novice teachers come from New Jersey Department of Education staffing files, which were obtained through Open Public Records Act (OPRA) requests.
Citations for New Jersey teacher policy changes in Figure 2 are as follows:
Mark Weber is the Special Analyst for Education Policy at the New Jersey Policy Perspective. He is also a full-time public-school teacher in Warren Township (where he won the Governor’s Award for Excellence in Education in 2018), and a lecturer at Rutgers University in public school finance. Weber is the author of numerous academic papers on education policy, as well as many policy briefs published by the National Education Policy Center, the Albert Shanker Institute, the Education Law Center, the New Jersey Education Policy Forum, and others. Weber holds a Ph.D. from Rutgers University in Education Theory, Organization, and Policy.
[6]Preparing and Credentialing the Nation’s Teachers; The Secretary’s 10th Report on Teacher Quality. (2016) U.S. Department of Education, Office of Postsecondary Education. https://title2.ed.gov/Public/TitleIIReport16.pdf
[7] See the Technical Appendix for citations in this section.
[15] As Carver-Thomas (2018) notes: “An analysis of teacher test design later indicated that cultural bias contributed to disparate test score outcomes. Researchers found that when a version of the NTE general knowledge test replaced traditional questions with test items based on Black culture, Black women scored higher than White women. The reverse was true when questions were drawn exclusively from non-Black culture.” (p.13)
[20] As an example: in 2015, the state began requiring that teacher candidates participate in edTPA, an evaluation system for teacher candidates that requires the submission of video recordings of teaching as part of a portfolio. Yet a recent evaluation of edTPA calls into question the reliability of its assessments; see: Gitomer, D. H., Martínez, J. F., Battey, D., & Hyland, N. E. (2019). Assessing the Assessment: Evidence of Reliability and Validity in the edTPA. American Educational Research Journal. https://doi.org/10.3102/0002831219890608
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The COVID-19 pandemic hit New Jersey with a ferocious punch, leaving the state scrambling to contain the spread of the virus, save lives, and provide financial relief to the families and businesses who need it most. Depending on how quickly the state economy gets back on track and how much aid the federal government provides to offset New Jersey’s budget shortfall, many state programs and services are in serious danger of cuts or, worse, elimination. The economic fallout from COVID-19 is a stark reversal of the healthy state economy of the past two years that allowed New Jersey to expand investments in areas like pre-K education, free community college, transit infrastructure, the state’s reserves, and much more. Unfortunately, New Jersey’s recent deposits in its Rainy Day Fund will not be enough to weather this downturn; the state ran out of time, and now the departments tasked with running state government and responding to the COVID-19 crisis are facing an uncertain future, much like the rest of the economy.
Without proper funding, state government cannot fully serve the needs of the public, especially during a time of crisis when the demand for services is at an all-time high. Unfortunately, New Jersey lacks the reserves to help shore up these departments, as outlined in NJPP’s latest report. Making matters worse, tax revenue from income, sales, and corporate business taxes is collapsing at an unprecedented pace. Federal aid to help state budget shortfalls is essential to contain the damage, but it has yet to be considered in a serious way by Congress. If anything, the crisis has put a glaring spotlight on the damage done by a decade of government disinvestment. To ensure a strong and immediate recovery from the COVID-19 crisis, New Jersey cannot afford to repeat the mistakes of the past.
In response to the Great Recession, New Jersey lawmakers and Governor Christie made brutal cuts to state agencies and public programs, ultimately slowing the state’s recovery. Even before the COVID-19 pandemic hit, these cuts continued to hamper New Jersey’s ability to provide critical services that New Jersey families, communities, and the broader economy rely upon. Taken as a whole, staffing levels across all departments dropped by over 20 percent since the Great Recession in 2008. Today, funding for departments has yet to reach pre-recession levels and, for many, staffing is at a record-low for the past two decades.
Departments of Health and Human Services
During normal times, and especially now in the middle of a global pandemic, the state departments of Health and Human Services ensure the safety and well-being of New Jersey’s most vulnerable populations, including the elderly, the disabled, those in addiction recovery, and children living in deep poverty. Taken together, the Department of Health (DOH) and the Department of Human Services (DHS) now function with less funding (6 percent) and about a third less staffing (30 percent) than they had at the onset of the Great Recession in 2008.
Without the necessary financial resources and workforce, it is near-impossible for the departments to promote public health. For example, the state is unable to ensure that community hospitals are in compliance with safety standards like adequate nursing staff levels, putting patients and their communities at risk. The lack of adequate resources and proper oversight has also plagued DOH’s medical examiner system, which The Star-Ledger described as a “national disgrace” in their 2017 Death and Dysfunction report. Despite a larger workload in recent years due to the overdose epidemic, the state medical examiner offices have 20 percent fewer employees than 10 years ago. Similarly, local health departments — the frontline of the state’s COVID-19 response — have been underfunded for decades, leaving them ill-equipped to handle the workload in response to the viral outbreak. Compared to other states, New Jersey fell to the bottom quarter for spending per person on local health departments at less than $30 per person. For reference, states like New York and Maryland invest at least $70 per person in local health departments.
Department of Labor and Workforce Development
Once shelter in place became the new norm, much of New Jersey’s economy ground to a halt, with record numbers of residents losing their jobs and closing their businesses. Since the COVID-19 pandemic hit, more than 718,000 New Jersey workers — representing more than 15 percent of the state’s workforce — have filed for unemployment benefits to make ends meet.
However, many of these workers are unable to file their claims, as the department lacks the necessary staff and resources to handle all of the applications. Inadequate staffing and out-of-date software have paralyzed the department to the point where Governor Murphy has called on retired employees to return to work and help with the backlog. While the state Department of Labor and Workforce Development’s funding has remained stable since the Great Recession, it is operating with far fewer employees now than it did over a decade ago; since 2008, the department has experienced a 25 percent cut in staffing levels. This significant drop flew largely under the radar until now as residents go weeks without receiving their unemployment benefits.
Department of Community Affairs
Far too many jobs in our economy do not pay enough or provide enough hours for families to meet their basic needs. As a result, thousands of New Jersey families struggle to afford necessities and rely on state assistance to help pay for their utilities and rent. The demand for these services was acute before the COVID-19 pandemic and even more so now as residents lose their jobs and struggle to pay their bills. But an inflation-adjusted 42 percent drop in funding since just before the Great Recession means less resources for the Department of Community Affairs to do its job and help those hit hardest by this crisis.
By providing low-income households much-needed energy assistance or affordable housing opportunities now, the state could play a vital role in helping the state economy recover more quickly — but only if it has adequate funding to do so. Even the Treasury Department has had to make do with almost half the funding it used to receive, undermining its ability to develop and enforce the tax laws that secure financial resources for all of these departments.
When in a Hole, Stop Digging it Deeper
When state government finds itself in a hole, as it does now in the COVID-19 crisis, cuts will only dig the hole deeper. Scaling back essential government services should not be an option, as the safety net programs administered by New Jersey’s departments and agencies will act as the foundation for the state’s ultimate recovery. To fund these investments and prevent cuts that would be devastating to families in every corner of the state, New Jersey must find new revenue as part of its response to COVID-19 and the resulting economic fallout. We suggest starting with targeted changes to the tax code, like making the income tax more progressive and extending the corporate business tax surcharge, to help fund New Jersey’s recovery.
Methodology
State funding figures are from the New Jersey Office of Legislative Services Summary of Appropriations Act and are inflation-adjusted to 2020 U.S. Dollars. Staffing level figures are for full-time employees, according to the New Jersey Department of the Treasury, Office of Management and Budget, Comprehensive Annual Financial Report (CAFR) for FY 2008 to FY 2019, and the Governor’s Budget Message for FY 2009 and FY 2021 . The staffing levels represent total staffing, including positions funded by the state and federal government. State funding and staffing level figures are combined for the Department of Health and Department of Human Services to account for offices and responsibilities that have been transferred from one department to the other over the time period reviewed in this analysis.
Departments of Health and Human Services
In FY 2008, combined state funding for the Department of Health and the Department of Human Services was $8.1 billion; in FY 2020, state funding was $7.6 billion. In FY 2008, total full-time staffing was 17,634; in FY 2019, total full-time staffing was 12,279. In FY 2008, 66 percent of full-time staff were funded by the state and 34 percent were funded by the federal government. In FY 2019, 32 percent of full-time staff were funded by the state and 68 percent were funded by the federal government.
Department of Labor
In FY 2008, state funding for the Department of Labor was $167 million; in FY 2020, state funding was $172 million. In FY 2008, total full-time staffing was 3,418; in FY 2019, total full-time staffing was 2,547. In FY 2008, 6 percent of full-time staff were funded by the state and 94 percent were funded by the federal government. In FY 2019, 6 percent of full-time staff were funded by the state and 94 percent were funded by the federal government.
Department of Community Affairs
In FY 2008, state funding for the Department of Community Affairs was $1.6 billion; in FY 2020, state funding was $923 million. In FY 2008, total full-time staffing was 1,129; in FY 2019, total full-time staffing was 849. In FY 2008, 15 percent of full-time staff were funded by the state and 85 percent were funded by the federal government. In FY 2019, 10 percent of full-time staff were funded by the state and 90 percent were funded by the federal government.
To read a PDF version of the full report, click here.
Temporary Assistance for Needy Families (TANF) is New Jersey’s only program designed to protect low-income families with children during their times of greatest need, acting as a critical bridge to stability and a shield against the harms of deep poverty. Programs like TANF that help stabilize the take home pay of low-income families have long-lasting effects on a child’s ability to succeed in school, get a high school or college degree, and find work as an adult. By increasing the state’s inadequate TANF grant levels, lawmakers could improve maternal and child health, which will have major short- and long-term benefits for families in every corner of the state.
TANF does not provide the full supports that parents need to obtain the jobs that will permanently lift their families out of poverty. In fact, the ability to protect families in deep poverty has been undercut by many state and federal policies. This can be traced back to 1996 when Congress replaced the New Deal-era Aid to Families with Dependent Children (AFDC) program with TANF block grants. Intended to drastically limit basic assistance to struggling families, the federal TANF law set fixed federal funding, placed a five-year lifetime limit on TANF benefits, implemented punitive and ineffective work requirements, and included other harmful policies that further impoverish children and place enormous stress on families.
Making matters worse, New Jersey established its own enabling legislation in 1997 (P.L.1997, c.13) with harsher restrictions than required under federal law, resulting in an incredible 91 percent drop in enrollment from 102,000 families in 1996 to 13,000 in 2018. Prior to TANF, New Jersey assisted 93 out of 100 families below the federal poverty level compared to the national average of 72 families out of 100. In 2017-2018, the state was only assisting 15 out of 100 families living below the federal poverty level, which was below the national average of 22 families out of 100. In other words, New Jersey fell from one of the top performers in helping low-income families to one of the worst. The table in the appendix shows the incredible harm that TANF has caused in eliminating basic assistance to 180,000 children by county through 2019.
Despite recent increases in TANF benefits, they remain woefully inadequate for families living in poverty, especially since New Jersey has one of the highest costs of living in the nation. In fact, New Jersey ranks only 32nd in TANF benefits as compared with all states when housing costs are considered.[1] While this is a significant improvement as compared to the rank of 43rd in 2017 before the most recent increases in TANF benefits, New Jersey still has far to go.[2]
By reinvesting in TANF, state lawmakers choose healthier kids, safer families, and stronger communities where everyone has what they need to contribute and thrive. This report describes commonsense changes that would correct some of the flaws in the state TANF program and extend the reach of TANF to help many more families in New Jersey climb out of poverty.
The good news is that TANF allows states considerable flexibility to make changes in the program. The Legislature and governor have recently started to make improvements in TANF by increasing the assistance levels by 32 percent over the last year through 2020. This is the first increase in three decades and progress that can be built upon. The current administration, under Governor Murphy, is also emphasizing more education and training (E&T) in TANF instead of placing parents in dead-end work activities that lack opportunities to secure employment and long-term economic success. However, much more than that will be needed to turn around a program that was neglected for decades and made worse at the federal level.
The Importance of Reducing Child Poverty
Surprisingly, there is no state statutory goal in TANF to lift families out of poverty. Historically, the practice has been to get families off TANF as soon possible, which often forces enrollees to take any job, even if the pay is inadequate to support a family. Because of this narrow goal, the state has viewed a reduction in the TANF caseload as a success even when child poverty was increasing. This means that families often remain in poverty or even cycle back onto TANF. Research shows that kids who spend most of their childhood in poverty are 45 percent more likely to live in poverty at age 35 than children who live in poverty for only one year.[3] In other words, the less time in poverty, the more likely the cycle of poverty can be broken.
Although New Jersey has increased TANF benefits over the last two years, the state’s historic TANF policy of discouraging full economic opportunity is cruel, shortsighted, and discriminatory. It also does not make any economic sense because the best investment a state can make is in its children. The following are some of the benefits of reducing child poverty:
Reduces public costs in the long run
Chronic poverty causes devastating and long-term harm to children that costs the nation an estimated $1 trillion in economic activity, health, and crime.[4] The National Academies of Science, Engineering, and Medicine’s 2019 report, “A Roadmap to Reducing Child Poverty,” provides the first consensus declaration by the scientific community on the causal connection between growing up with adequate family income and positive outcomes for children that lay the foundation for better health and higher earnings in adulthood.[5] We either invest in our children now or pay much more later on.
Improves maternal and child health
Extensive research has conclusively shown the strong link between family income and infant mortality and children’s health.[6] Children born to low-income mothers have the highest rate of low birth weight. Children in poor families are four times more likely to be in poor or fair health compared to higher income kids. By directly giving pregnant mothers cash assistance, they have the flexibility to spend more of their limited income on things that lead to better health such as transportation to doctor appointments, safer housing, over the counter medications, diapers, and better nutrition. Improving health for families is especially important in New Jersey given that the state has consistently scored poorly in maternal and child health, especially for Black families. As long as pregnant mothers and parents of newborns suffer the stress of extreme poverty, New Jersey’s efforts to reduce infant mortality will be limited.
Reduces racial and ethnic income disparities.
New Jersey is a wealthy state, but wealth is not shared equally or fairly. This is especially true for kids in poverty. Due to historic discrimination, such as in housing, employment, and education, Black and Hispanic kids do not have the same opportunities white kids do. In fact, about two-thirds of all New Jersey children in poverty are Black or Hispanic, as Black and Hispanic children are more than three times more likely to live in poverty than white kids.[7] As a result, 8 out of 10 children on TANF, the poorest of the poor, are either Black or Hispanic. Failure to improve TANF means continuing to discriminate against these kids of color and robbing them of their birthright to equal opportunity. Addressing this problem would also help to reduce major income inequality, where New Jersey is ranked the seventh worst in the nation.[8]
Improves the economy
Child poverty is a drag on New Jersey’s economy and makes the state less competitive because parents are not working or do not have opportunities for good paying jobs. There are also employers who do not want to train their employees because they do not want to invest in them to only have them leave for other jobs, which is also problematic. This could be reduced by improving TANF so it better provides the E&T that parents need. In addition, increasing TANF benefits would stimulate local economies where it is needed the most. Research shows that providing direct assistance to low-income people is one of the most effective ways to stimulate the economy because the money is spent quickly and directly in local communities.[9] State expenditures have decreased by over $5 billion since TANF was established, which has not only harmed thousands of poor families but the economies of low-income communities as well.[10]
Common Sense Measures to Improve TANF
1. Ensure that no families on TANF remain in deep poverty
The current level of NJ TANF benefits ($559 a month for a family of three) is only one-third of the federal poverty level, guaranteeing that families continue to live in deep poverty, defined as below half of the federal poverty level. This remains true despite the state increasing TANF benefits by 32 percent over the last two years. The low benefit level also costs the state more for many families because they cannot afford any housing and end up receiving much more expensive emergency assistance in a shelter or other arrangements to avert homelessness.
Solution: Require a set annual increase in TANF benefits so it reaches 50 percent of the federal poverty level within three years for each household size. For every year after, automatically adjust the TANF benefit for inflation.
2. Get families off the caseload and out of poverty
Historically, the goal of TANF has been to get a family off TANF as soon as possible, regardless of the outcome. As a result, parents are pressured to take jobs that are so low paying or temporary that the family remains in poverty and may be forced to return to TANF. Previous governors, therefore, have measured the success of TANF not by how many families in poverty have been helped but rather how quickly the caseload can be reduced regardless of the number of families that need assistance. This goal has resulted in punitive policies and practices in TANF that can make it a bureaucratic nightmare. The state also does not follow employment or earnings outcomes for families who left TANF to determine if TANF was successful in promoting economic independence.
Solution: In addition to federal TANF goals, the state should add the goal of lifting families out of poverty. To measure that goal, the state should be required to monitor the employment rates and earnings of families that leave TANF, including identifying where TANF leavers fall with respect to various percentages of the federal poverty level.
3. Provide better supports for children
Historically, TANF has focused on parents rather than the whole family. In fact, TANF often punishes children to get their parents to comply with the many TANF rules. For example, if a parent does not meet the rigid work requirements, the parent loses his or her assistance in the second month and the child loses assistance by the third month if the parent is still non-compliant or cannot find suitable employment. Further, if a parent is denied assistance because they have reached the five-year limit, the child is also denied assistance as long as the child lives with the parent. In 2017, benefits were taken away from 328 families who reached the arbitrary time limit.[11] This increases stress and homelessness, which threatens family stability. Continuing to provide benefits to children will increase costs, which could be from state or federal TANF funds, but it is one of the best investments the state can make.
Solutions:
Only end TANF benefits for the parent when the parent is not in compliance with work activity but continue to provide them to the child.
Restore parents’ reduced TANF benefits due to a sanction if the parent becomes in compliance within 60 days.
Allow children to continue to be eligible for TANF even when their parents have reached the five-year TANF limit, encouraging home and family stability. The state can use federal funds so long as no more than 20 percent of caseloads are over the five-year limit. The state can also use existing state funds for these kids.
Exclude parents from the five-year TANF limit if they have followed all the TANF rules and continue to do so.
Expand quality childcare and provide adequate information to parents to ensure they can identify such care.
4. Increase child support payments
Currently New Jersey and the federal government keep all the child support that is paid to a family on TANF except for the first $100 a month regardless of how many kids are in the family. In 2020, the state and federal government estimates that they will collect $24 million in child support whereas kids will only receive $2 million in New Jersey.[12] This not only shortchanges the kids who live in deep poverty, it also means that the non-custodial parent is less likely to pay the full support because they know most of it would not go to their child. Recent research shows that when children on TANF are allowed to receive their full child support payments, those payments increase.[13] Therefore, New Jersey should accept the federal government’s offer to waive its share of the child support collected for up to $200 a month (when there are two or more children) when the support is passed through to the family and disregarded as income. This waiver of the federal share of collected support makes increasing the amount of child support passed through to the family at essentially half-price to the state.
Solution: Increase this child support pass through to $200 for families with two or more children, which will benefit the children and encourage non-custodial parents to pay more in child support.
5. Provide the education and training parents need for better jobs
Historically, in order to meet TANF’s work requirements, more parents have been placed by the state, sometimes without pay, in job search activities or the Community Work Experience Program (CWEP) than in education and training programs. This policy too often results in “make work” placements that perpetuate poverty and creates enormous stress for the parents who in some cases have little or nothing to do in their CWEP placement. Unfortunately, because of the declining caseloads due to harsher requirements and greater reliance on CWEP, fewer parents are receiving E&T in TANF.
Solutions:
Prioritize education and training with the goal of getting parents to qualify for livable wage jobs that lift families out of poverty.
Expand existing options for E&T to provide parents with the skills that are needed for growing New Jersey industries, such as through apprenticeships, internships, work study programs and other opportunities as well as greater utilization of community colleges. A large body of research has shown that sectoral-based skills training programs can result in major gains in employment and wages for low-income adults who have the most difficulty finding jobs.[14]
Restrict the time period in CWEP placements to 6 months within any 12-month period.
Allow placements with for-profit entities to satisfy “alternative work experience,” provided that they are limited to 6 months and will likely lead to full-time employment with the employer.
Require businesses that receive state tax incentives to collaborate with local community organizations that provide support to TANF participants in the form of work-study, apprenticeships, internships, sector-based contextualized literacy training, skills-based training in growing New Jersey industries, and/or job-retention and advancement services.
6. Eliminating work requirement provisions that are much harsher than required by federal law
Federal rules require a parent to participate in a work activity for 30 hours a week, or 20 hours if their child is under six, but the state goes beyond that by requiring between 35 and 40 hours in unpaid work placements.[15] This higher hourly requirement is not always realistic for parents; for example, a parent who must also take their children on a bus to childcare then take another bus to participate in a work activity. Also, while federal policy allows a state to exempt parents of infants from work activities for up to 12 months, New Jersey only allows three months. The current state requirements often set up parents for failure and make it impossible for them to support and bond with their children, which is critical for their development. TANF sanctions historically have been the leading cause of case closures.[16]
Solution: Consistent with federal rules, allow parents with infants to be exempt from work requirements for up to 12 months, and reduce the current 35-hour week work requirement to 30 hours, and 20 hours if their child is below age 6.
7. Improving case management
Because of the five-year lifetime limit on TANF, it is critical that families receive supportive case management to ensure that the parents have all the resources they need to find good jobs before that limit is reached. Currently, participants who reach their 48th month of assistance must participate in the Supportive Assistance to Individuals and Families (SAIF) program. This program provides intensive case management for families who have been unable to become independent due to multiple barriers to employment.[17] While this has helped some families, it has been reported that it starts too late, and can sometimes mean parents have to meet even more requirements, which can cause them to just give up in frustration.
Solution: Offer additional case management and supportive services, based on an assessment of their barriers to securing employment, once a parent reaches a total of 36 months of enrollment.
8. Broadening TANF eligibility for lawfully present immigrant families
The New Jersey law sharply limits which immigrant children or parents that are lawfully present in this country are eligible for TANF. For example, immigrant children and parents who have been in the U.S. for five years or less are ineligible for TANF. People who were born outside the U.S. have the same needs as native-born people from New Jersey who live in poverty and should not be discriminated against. Excluding immigrants is also antithetical to the state’s public message that it welcomes them. Moreover, studies have shown that immigrants strongly contribute to the state’s economy.
Solution: Make all immigrant children and their parents who are lawfully present in this country eligible for TANF and who otherwise meet TANF eligibility standards.States can use state funds but not federal TANF funds for those immigrants who were made ineligible or excluded for five years under the 1996 law.
9. Improving the exit ramp off of public assistance to support work
It is important that a family’s TANF benefits be reduced gradually once the parent obtains a job to avoid a “cliff,” which is when a small increase in income from a job causes a disproportionate drop in TANF benefits, causing the family to be worse off financially. This cliff also becomes a disincentive to increasing hours or accepting potential raises. The current policy allows the parent to keep their full TANF benefits in the first month of employment, which is then phased down in subsequent months. The phase down rules differ for part-time and full-time workers, which is confusing for the parents and even the case workers. Simpler policies that also do not start grant reduction until after two months of earnings will allow TANF families time to stabilize their family budget after getting a new job.
Solutions:
Increase the current incentive for employment by allowing the employed family to receive their full TANF benefits for two months.
Remove some of the limits on how many times the earnings disregards can be applied.
No longer count the time receiving TANF due to earnings disregards towards the five-year time limit on TANF. While the federal TANF rules do not have a “stop the clock” provision, a state can choose when to run time or stop time clocks so long as not more than 20 percent of the caseload receive federal TANF funds beyond 60 months. Most working families do not stay on TANF for five years, but if the state chose, it also could simply use state funds to serve families whose clocks are stopped.
Conclusion
Collectively, these policies would provide a boost in basic assistance that gives families needed flexibility to use the income in the ways that best help their household live in a high cost of living state like New Jersey. This means diapers, medicine, clothing, bus fare, school supplies, rent and utility payments, car repairs, and more. Income matters: when Black, Brown, and white families struggling to meet their basic needs get more income, their children have a better chance of growing up healthy and with an opportunity to thrive.
TANF is the main income assistance program for families experiencing extreme financial hardship, and it can play a key role in ensuring that they are able to climb up and out of poverty. When we support the well-being of our neighbors, we make sure that everyone can reach their full potential and contribute to our communities.
To read a PDF version of the full report, click here.
Crafting a state budget is a tricky task in the best of times as lawmakers juggle competing needs while attempting to predict future economic conditions. This year, however, the COVID-19 pandemic has turned the fairly straightforward FY 2021 budget season into one that will force lawmakers to address sudden and dramatic changes in New Jersey’s finances and the state’s broader economy.
New Jersey is facing a dual threat from the COVID-19 pandemic: a public health crisis that requires mandatory business closures and social distancing, along with the economic fallout from these necessary measures. The state is taking in dramatically less revenue in income, sales, and corporate business taxes, stretching its finances thin. At the same time, lawmakers are hoping to ramp up spending to curb the spread of COVID-19 and provide relief for workers and families struggling to make ends meet. The Murphy administration has already frozen $920 million in planned expenditures in anticipation of a significant drop in revenue collections.[1] New Jersey’s Rainy Day Fund, which is meant to offset the impact of unexpected emergencies, is not sufficient to meet the state’s pressing needs in the coming days and months. Progressive sources of revenue will be needed to ensure the state has the resources to meet our rapidly growing public health and economic needs.
Under the first two years of the Murphy administration, New Jersey has moved away from trickle-down strategies and toward progressive tax structures that enable sufficient investment in public services and assets. Unfortunately, these policies have not been in place long enough to undo decades of underinvestment, nor has there been enough progress to blunt the impact of COVID-19 on the state’s economy. By implementing new, reliable sources of revenue, state lawmakers can avoid harmful cuts to vital services, protect New Jersey families harmed during this economic downturn, and build an economy that works for the many.
New Jersey’s Revenue Problem
New Jersey has a revenue problem. In fact, the state has failed to bring in enough revenue to cover annual expenses since at least 2002. Looking at the latest available data, New Jersey has the worst fiscal deficit in the nation at 91.1 percent.[2]
This lack of revenue has resulted in flat funding and cuts to department budgets, the raiding of trust funds and emergency savings to make ends meet, and forgoing investments into our Rainy Day Fund. For instance, over $300 million in dedicated funds meant for the Affordable Housing Trust Fund were diverted over the course of the last decade to cover chronic budget shortfalls, severely hampering the state’s ability to construct affordable homes and address its continuing housing and foreclosure crisis. Similarly, the New Jersey Department of Environmental Protection has a limited capacity to hold big polluters accountable and enforce clean air, water, and waste standards as its funding was cut 35 percent since the Great Recession.[3] All in all, these fiscal decisions have not only limited the ability of state government to do its job, but have also led to an unenviable record of 11 credit downgrades by the major credit rating agencies since 2010, making borrowing for capital improvement projects more expensive.[4]
To make matters worse, the Garden State has turned its back on working families by relying on trickle-down economic policies, namely lopsided tax cuts for the ultra-wealthy and large corporations and deeply flawed economic development strategies that put a tremendous burden on the state budget for years to come. Under the Christie administration, New Jersey cut taxes and reduced revenue by a cumulative $15 billion while awarding over $8 billion in tax subsidies to already wealthy corporations.
The state’s failed experiment with trickle-down economics started in 2010 when the millionaires’ tax was allowed to sunset, giving wealthy families a cumulative $5 billion in tax breaks and undermining property tax relief programs that allow low-income seniors and adults with disabilities to remain in their homes. In 2018, the estate tax was fully repealed, which was only paid by the wealthiest 4 percent of households in the state. Since the repeal of this tax, wealthy heirs have collectively benefited to the tune of $923 million at the expense of middle-class families. What’s more, in 2017 the state began gradually reducing the sales tax from 7 percent to 6.625 percent. This small decrease in the sales tax has cost New Jersey $1.7 billion in lost revenue, making it even more difficult for the state to fund key priorities, build a healthy Rainy Day Fund, and meet its existing obligations.
These cuts also have deepened structural inequality in the very communities that have been historically deprived of meaningful investments. Already, 25 percent of New Jersey families don’t have enough savings to withstand an emergency without falling into poverty, despite the state’s ranking as one of the wealthiest in the nation.[5] It’s disproportionately worse for New Jersey’s Black households at 45 percent and Hispanic/Latinx households at 60 percent. For these families, a layoff or a visit to the emergency room can easily translate into a financial crisis.
What’s worse, everyday New Jersey families now pay a higher percent of their income in state and local taxes than the state’s wealthiest households do. Middle-income earners — those who make $74,800 to $132,000 annually — pay the highest effective tax rate. They also pay the highest percentage of their annual income in property taxes, at an average of 5.8 percent. Those in the top one percent pay a much smaller share of their income in property taxes at an average of 2.2 percent. The state tax code also disproportionately harms households of color, who are more likely to earn less (due in large part to the nation’s legacy of slavery and generations of discriminatory state and federal policies), and thus pay a larger share of their incomes in state and local taxes than white households.
Breaking Bad Habits: Governor Murphy’s First Two Budgets
The first two budgets enacted under Governor Murphy’s tenure were a good start to repairing years of flat funding, raids on dedicated funds, and disinvestment across the board. Collectively, they were the most progressive budgets New Jersey has seen in at least a decade due to a commitment to tax fairness that, in turn, reinvested in key assets that create strong communities and help grow the state’s economy.
In the last two years, New Jersey made back-to-back record-breaking pension payments, protecting the retirement security of 800,000 public workers. Major investments were made in New Jersey’s most important assets like pre-Kindergarten expansion, K-12 education, and NJ Transit after years of neglect. The state prioritized working families and those struggling to get by with an expanded state Earned Income Tax Credit (EITC) and a new Child and Dependent Care Credit for low-paid working parents. Tuition-free community college was offered for the first time, giving 18,000 low-income students a path toward a more prosperous future. Funding for property tax relief programs improved and state-funded care workers, who are disproportionately women of color, were given an overdue raise. Finally, cash assistance for families living in extreme poverty, including 20,000 children, was raised twice, by a total of 32 percent, after 30 years without an increase.
The state’s last two budgets also prioritized good faith negotiation tactics and addressed an overreliance on budget raids. Through collective bargaining, the Murphy administration successfully secured about $800 million in real and lasting savings in the delivery of public employee health care in the FY 2020 budget — a 16 percent year-over-year decrease from the previous budget. This year’s budget also moved further away from the habitual raiding of the Clean Energy Fund and the Affordable Housing Trust, boosting their funds by $70 million and $59 million, respectively.
Finally, the state made its first, long overdue deposit of $401 million into the Rainy Day Fund, which had been empty since the height of the Great Recession. Though a relatively small investment — national budget experts recommend states save 16 percent of their annual spending in reserves — it is an important step in rebuilding an emergency savings account that the state can use during tough times without having to make detrimental cuts which commonly put low-income communities of color at the most risk. Unfortunately, it is likely to be used up quickly in response to the COVID-19 crisis.
All these investments were possible due to a steady job growth rate, a stable economy, and an administration that, over the last two years, prioritized new, renewable sources of revenue after a decade of tax breaks for wealthy families and large corporations. By restoring the 10.75 percent income tax rate on earnings over $5 million (a part of the millionaires tax that sunset under the Christie administration), applying the sales tax to purchases made on the Internet, closing corporate tax loopholes, and enacting a new (but temporary) surcharge on corporate profits, New Jersey has established a more fiscally sound foundation for the future — albeit one that is now at severe risk due to the harmful effects of the coronavirus pandemic.
Regardless of the current crisis, these last two years demonstrate how a budget can promote tax fairness and help New Jersey families gain economic security by making meaningful investments in their communities. Decades of neglect cannot be fixed in just a few years, however. Many departments that provide critical services and programs remain flat-funded and the raiding of dedicated funds to fill budget holes has continued. More will have to be done to help the state rebuild its assets and invest in long-term initiatives again.
Looking Ahead to FY 2021: Governor Murphy’s Budget Proposal
Prior to the COVID-19 pandemic, Governor Murphy’s FY 2021 budget proposal relied on healthy economic growth and adequate resources to fund new investments. That view has now shifted significantly to mitigating harm from a once-in-a-lifetime public health crisis while providing critical economic relief for workers, families, and small businesses.
As is, the $40.85 billion proposal commits to making substantial investments in affordable housing, education, and NJ Transit, as well as expanding programs designed to address racial, gender, and economic disparities. Like previous budgets under Governor Murphy, the FY 2021 proposal restates the importance of budgeting responsibly by scaling back on raids of dedicated funds, making the next scheduled pension payment in full, and growing a healthy surplus and Rainy Day Fund to better weather unexpected shortfalls without resorting to damaging cuts.
The Murphy administration and legislative leaders must now find a way to retain the overarching values of this proposal without shortchanging measures most needed during this pandemic. It is imperative that the state continue to adequately fund essential services to protect public health and provide relief to all affected workers and local businesses. The state’s modest Rainy Day Fund will be wiped out almost immediately, leaving it in no shape to handle immediate emergency needs. To sustain current needs, prop up the state economy, and reduce the harm to families and communities, Governor Murphy has requested at least $20 billion in aid from the federal government as part of a $100 billion multi-state package.[6] As of this writing, the federal government has provided $3.44 billion in support to New Jersey.[7] It seems that most, if not all, of the relief package is meant for COVID-19 specific interventions rather than helping New Jersey replace lost revenue due to the burgeoning economic recession. Regardless, if the state is to successfully tackle these challenges, the federal government will need to provide much, much more economic relief that is flexible for New Jersey to use as it needs. Only then can New Jersey policymakers begin to piece together a state budget that meets the needs of families and communities without making dramatic cuts during these extraordinary times.
In response to the COVID-19 crisis, New Jersey is going to have to think outside the box. The effects of this crisis on New Jersey’s economy will create major upheaval for the state budget due to a surge in demand for public services just as multiple sources of revenues needed to fund them begin to evaporate. Federal support for NJ Transit and COVID-19 response has been approved, but without knowing how long this public health crisis will last, New Jersey’s fiscal outlook is precarious at best. Policymakers have a choice: either prioritize and increase resources to protect the most vulnerable New Jersey families or continue giving massive tax breaks to the well-connected.
In these challenging times, it is more important than ever that New Jersey resist the impulse to cut vital programs and services. That would be a repetition of the mistakes made during the Great Recession, mistakes which slowed the state’s recovery and set it further back.[8] Raising revenue in a progressive manner is crucial to having the resources for a proper emergency response. Without additional revenue, the state won’t be able to fully assist workers, families, and businesses who are vulnerable to economic calamity during this crisis.
In order to provide critical relief, state lawmakers should prioritize and even expand existing programs that can support and protect frontline workers like first responders, health care providers, childcare staff, and those employed by businesses providing essential services like groceries and garbage pick-up. Workers who may not qualify for federal assistance because they lack income tax filing information must also be given priority. Programs that are best positioned to protect vulnerable households from losing their home or going hungry need to be protected. Extra funding will be needed to mitigate the spread of the virus among the incarcerated and the homeless population, too. All programs that make public colleges and universities more affordable must also be spared. College tuition aid and grants for community colleges play a critical role during an economic downturn, helping jobless workers expand their skills now for economic prosperity in the future.
The next state budget must prioritize tax policies that deliver very targeted benefits to families most in need. The scheduled increase of the state’s EITC to 40 percent must remain in place as should plans to expand the eligibility to young adults without children.[9] It would also be prudent to establish a state-level child tax credit, designed to help working parents meet the costs of raising children, during this time of economic instability. The lack of a robust social safety net is precisely why so many families are at increased risk by the economic fallout brought on by COVID-19.
Lawmakers must table all efforts to cut taxes and instead focus on relief for those most in need by generating short- and long-term tax revenue from those who are in the best position to contribute: wealthy households and successful corporations. The Governor’s proposed budget, although crafted before the coronavirus pandemic, includes $1.2 billion in new sources of revenue through a true millionaires tax and a variety of fees and sin tax increases. To mitigate the harms posed by the current crisis, reverse revenue shortfalls, and enhance widespread prosperity and racial equity, the state must continue to prioritize responsible and progressive budgeting practices to overcome the current challenges. The proposed package of tax reforms is a good start, but it could and should go further.
For example, Governor Murphy has proposed applying the 10.75 percent income tax rate to earnings over $1 million — a 2-cent increase on every dollar earned over $1 million — to raise an additional $500 million in annual revenue. There is, however, a better way to make the income tax code more accurately reflect the lopsided income gains made by the top 15 percent of households over the past 40 years. Under the current tax code, individuals earning slightly over $75,000 are in the same bracket as those who earn just under $500,000. Creating new brackets between $250,000 and $2.5 million would make the tax code fairer and ensure budgets are not balanced on the backs of middle-class families. Further, New Jersey lawmakers should increase the marginal tax rate on annual incomes over $5 million. These changes would raise twice as much revenue as Governor Murphy’s proposal for property tax relief, school funding, and municipal aid.[10]
Governor Murphy’s proposed budget also contains a new health insurance assessment.[11] This was previously levied by the federal government but was repealed as part of the 2017 federal tax cuts. Governor Murphy’s budget estimates the new state-level policy would generate $280 million in its first year, the majority of which would support subsidies for New Jerseyans purchasing health insurance. This new revenue source is slated to generate up to $500 million annually after FY 2021.
The Governor also proposed a tiered fee for private employers that have more than 50 employees receiving state Medicaid benefits. The fee is designed to encourage large corporations to improve the quality of their health benefits and reduce their reliance on state resources. However, national budget experts warn this untested policy may only encourage employers to resort to a variety of tactics to avoid the fee, potentially leading to discriminatory hiring practices and lay-offs that would disproportionately impact people of color, single mothers, and young workers.[12] There are other more-direct and proven ways to ensure large corporations are paying their fair share in taxes. New Jersey could instead raise revenue through extending the 2.5 percent corporate business tax surcharge, closing tax avoidance loopholes, and reversing business tax cuts made in 2013.
There are multiple sources of revenue that must be put back on the table during these extraordinary times. Here are other policy recommendations to consider:
Revise taxation on inherited wealth to reverse the $500 million in tax breaks now going to wealthy heirs.
Repeal the 2016 sales tax cut and broaden the sales tax base by including services typically utilized by wealthy households, such as limousine services and chartered flights.
The purpose of fair taxation is to raise revenue in an equitable manner that can fund the critical public services and assets New Jersey families rely on with enough left over to save for a rainy day. A progressive tax code is also crucial to improving racial equity and undoing centuries of discrimination that have left communities of color behind,[13] making them particularly vulnerable during moments of crisis.[14] Unfortunately, New Jersey spent the last decade largely ignoring these important priorities. Had the state spent that time making annual investments in the Rainy Day Fund that match what it made last year, we would have nearly $4 billion to help tackle the COVID-19 crisis instead of the $401 million currently available. Going forward, implementing sound tax policies that help the state plan for future challenges will be paramount.
New Jersey’s economic future is at risk with the ongoing COVID-19 pandemic, the associated economic fallout from social distancing measures, and the uncertain amount of federal assistance New Jersey will ultimately receive. Workers, families, and businesses need real help and the state needs to prepare and act quickly. State lawmakers simply cannot afford to fall back on old habits by cutting government services and waiting out the storm. New Jersey needs new, reliable sources of revenue to build up a healthy surplus, avoid harmful cuts to vital services, and protect those most at risk during this economic downturn. Only then can we say with confidence that our state budget lives up to the values we all share and hold dear.
The COVID-19 pandemic is a major threat to New Jersey, presenting unique and pressing challenges to the state’s public health infrastructure and broader economy. As the number of positive cases climbs daily, state and local leaders have called for mandatory business closures and restrictions, as well as a voluntary curfew to contain the spread of the virus. These are necessary measures to avoid inundating the state’s health care system, but they come with an enormous cost to working families who will see their hours cut or jobs eliminated entirely.
The economic fallout from COVID-19 will not be felt evenly. Those who earn the least are the most likely to suffer from a loss of income or loss of health coverage as a result of business closings and quarantines. New Jerseyans of color will particularly be harmed as they have fewer earnings on average and minimal amounts of wealth to fall back on in an emergency. And, because the state has not sufficiently invested in its Rainy Day Fund to help mitigate the challenges of the pending recession, the damage to people of color will be even greater. As such, the tax and budget policy decisions made by state lawmakers in the coming days and weeks will be critical in determining the size and scale of New Jersey’s recovery — and whether or not those harmed most by COVID-19 are centered in the state’s response. What follows is a list of tax and budget policies to pursue and avoid to help ensure New Jersey has the resources necessary to support and protect its residents in the coming months.
Do: Strengthen and Stabilize State Finances
New Jersey requires significant financial resources to adequately address the combined public health and economic crises from COVID-19. However, as the pandemic unfolds, unanticipated public health care costs will inevitably increase while state revenues, specifically from income and sales taxes, decline sharply. Implementing a more progressive tax code in this year’s budget will provide the state with the necessary revenue and flexibility to rapidly respond with targeted interventions. Restoring the millionaires tax and estate tax, strengthening the inheritance tax, and extending the corporate business tax surcharge would ensure wealthy individuals and corporations who have not been paying their fair share in taxes finally do so.
Workers who become unemployed, have their work hours reduced, or are laid off will be the first to experience economic insecurity under this health crisis. Therefore, lawmakers must expand access to all workers in the following state programs: earned sick days, temporary disability insurance, family leave insurance, and unemployment insurance. Access for these interventions can be improved by waiving eligibility requirements, removing waiting periods that prevent workers from accessing benefits right away, speeding up application and approval processes, and utilizing emergency funds to pay for these policy expansions. It is paramount that New Jersey leave no one behind in the COVID-19 recovery.
In addition, state lawmakers must ensure that existing social safety net programs remain well-funded so that more families have their needs met, even if the state experiences a revenue shortfall. More families will likely need public assistance during this crisis. Programs like emergency nutritional assistance, food pantries, Medicaid coverage, cash assistance (TANF), subsidized child care, shelters, and other critical services provide necessary and stabilizing support and they must be funded to deliver payments and benefits as fast as possible.
Finally, New Jersey must respond to this health crisis by eliminating barriers to health care. For instance, the state can waive costs for everyone seeking treatment for the COVID-19 virus. Funding should be provided to support better outreach regarding policies implemented in response to the pandemic so that all communities stay informed of critical developments. This means communicating in multiple languages and working directly with institutions like worker centers, school districts, community clinics, as well as state agencies who are providing services. Finally, the state should expand access to CHIP and NJ FamilyCare to ensure all New Jersey children have comprehensive health coverage and can get the care they need during these challenging times.
Do: Provide Relief Directly to Small Businesses Who Need It
One immediate concern created by this crisis is the increased likelihood of small businesses laying off employees and closing down as the economy heads into a recession. During an ordinary recession, a sizable stimulus could be expected to keep businesses afloat and put people back to work. With a health crisis also underway, workers and businesses could be shut down for weeks if not months, leaving them unable to earn or spend money.
While some policymakers have proposed payroll tax cuts or sales tax holidays to provide relief to small businesses, those interventions are severely flawed and would do much more harm than good (as explained below in Don’ts). Instead, policymakers should focus on interventions that work quickly and target the most at-risk businesses. As the crisis unfolds, states need to implement policies that will directly encourage businesses to keep their employees and continue paying them.
Rather than throwing hundreds of millions of dollars at major corporations, the state should be prioritizing main street businesses and smaller firms. While the state Economic Development Authority (EDA) is largely known for providing tax subsidies to already wealthy and well-connected corporations, it would be much better off prioritizing smaller businesses, especially during this crisis. By extending lines of credit to troubled businesses, offering low or no-interest loans, and focusing the benefits of tax credits on those businesses most at-risk of employee layoffs and closure, New Jersey can help them stay afloat and protect local economies.
Finally, as much as possible, policymakers should seek to tie employee protections to any business assistance programs. The primary goal of providing relief to businesses is for them to maintain payroll and avoid layoffs. As such, the New Jersey Department of Labor should work in conjunction with the EDA and other organizations to ensure businesses guarantee they will meet these requirements and pay their workers as a condition for receiving assistance from the state.
Don’t: Declare a Sales Tax Holiday or Cut the Sales Tax
The sales tax is one of the biggest sources of revenue for the state of New Jersey, generating approximately $1 billion on a monthly basis. In 2016, New Jersey cut the sales tax from 7 percent to 6.625 percent, reducing revenue to the state by about $600 million a year and growing; by fiscal year 2022, the loss is expected to be $655 million annually.
The combined challenges of the coronavirus pandemic and pending recession will create a crisis of consumer demand in the short and long term. If people can’t get to work or don’t have disposable income to spend, suspending the sales tax won’t cause them to make purchases. In fact, they will end up doing more harm than good, starving the state of much needed revenue at a time when New Jersey needs to expend resources and expand public health services and assistance to workers, families, and businesses hit hardest by the fallout from this crisis.
Other sales tax holiday proposals are designed to delay the collection of sales tax for several months. This would not have the intended effects of stemming a recession or spurring consumer spending. It would do little more than withhold critical resources from the state at a time when it needs revenue and resources the most. Furthermore, New Jersey’s sales tax already exempts food and clothing, meaning there is little benefit to low-paid families and those in poverty who are already struggling to afford basic needs. This is easily understood by reviewing the regressive impact of New Jersey’s 2016 sales tax cut.
Consider, for example, a payroll tax cut of 2 percent of workers’ earnings:
A single parent getting by on $25,000 a year would receive just $500 over the course of a year, even as a couple with a combined $275,400 income (with each spouse earning half this amount) got $5,500. Even if the tax cut’s dollar value were capped, only higher earners would get the maximum benefit. That’s not sound economic policy, since affluent households generally spend a much smaller share of any added income than lower-income households do.
Chye-Ching Huang, Center on Budget and Policy Priorities
Further, cutting the payroll tax would not benefit people without earnings, even though they are most likely to spend any additional resources they receive on basic and immediate needs. This group includes those who are laid off from their jobs and no longer receiving a paycheck, as well as seniors and people with disabilities. Those supporting children or other dependents would also not receive any additional help from a payroll tax cut.
A payroll tax cut would benefit big businesses, however, as half of the payroll tax is paid by employers. Eliminating the employer side of these taxes would provide a windfall to corporations and other businesses that are not at greatest risk for failure. Better interventions would be extending lines of credit and no-interest loans to businesses in need of support.
To read a PDF version of the full report, click here.
Removing barriers to opportunity is necessary for growing strong economies and resilient communities. Over the past few years, 14 states, the District of Columbia, and Puerto Rico have expanded access to driver’s licenses to all residents, creating broadly-shared opportunity through safer roads, increased state revenue, and enhanced economic opportunities for working people while removing the fear of deportation for minor traffic offenses.[i]
The latest proposal in the New
Jersey legislature (A4743 / S3229) includes best practices from
other states and would make it possible for 737,418 more New Jersey
residents to obtain a much-needed driver’s license.[ii]
It would also give everyone the opportunity to apply for a standard license if
they do not want to get a REAL-ID due to privacy concerns.[iii]
Here are the top six reasons
why driver’s license expansion is good public policy for all New
Jersey residents.
1. Makes the Road Safer for Everyone
Driver’s license expansion would ensure that all drivers are
trained, tested, and insured, making New Jersey’s roads safer. Road safety is
critical in the Garden State, where over four in five workers commute to work
by some form of private transportation each day.[iv]
Based on the experiences of
some other states, licensing more drivers reduces fatal car accidents and the overall number of hit-and-run accidents. A 2017 study of California’s law
found that driver’s license expansion reduced hit-and-run accidents by 10
percent (or 4,000 accidents) within just a few years of implementation.[v]
Connecticut had a similar decline between 2016 and 2018 when hit-and-run
accidents dropped by nine percent.[vi]
New Jersey is primed to experience a similar reduction in accidents
with driver’s license expansion due in part to the state’s high percentage of
uninsured drivers. As of 2015, one in seven New Jersey drivers were uninsured,
ranking among the top 15 states with the highest rate of uninsured drivers in
the nation.[vii]
2. Keeps Families Together and Makes Communities Safer
Immigrants without documents are under constant threat of
deportation. In fact, routine traffic stops can lead to kids being separated
from their parents.[viii]
In addition, immigrants are uncertain how minor traffic violations can impact
their future in the country since they are asked about it on the application to
cancel their deportation and adjustment of status.[ix]
Family separation comes with a social cost to immigrant families in New Jersey. Across the state, there are 168,000 children — of which, 76 percent of U.S. citizens — who have a parent without status and at risk of deportation.[x] In total, there are more than 605,000 U.S. citizens in the state who have at least one family member without status living in the same household; these residents live in constant fear that their families will be torn apart.[xi] Driver’s license expansion will make these families more mobile with a renewed peace of mind.
In addition to helping families stay together, expanding access to driver’s licenses will make state and local law enforcement more efficient because new drivers will be more forthcoming in interacting with the police and other government agencies.[xii] Law enforcement would thus have more time to spend on critical priorities.[xiii]
3. Benefits a Large and Diverse Group of People
The
ability to drive legally and safely is central to vibrant New Jersey
communities where everyone can get where they need to go and provide for
themselves and their families. Some communities, however, cannot access the
documents they need to obtain a license. Driver’s license expansion would
address these barriers for a diverse group of New Jerseyans by expanding the
scope of documents accepted by the New Jersey Motor Vehicle Commission’s (MVC)
6 Point ID Verification process.
New Jersey Policy Perspective (NJPP) estimates that approximately
737,418 people will benefit from driver’s license expansion, 40 percent of whom
are low-income residents.
Those Earning Under $25,000 Per Year
Residents who work in low-paying jobs face financial barriers to obtaining a driver’s license. In the Garden State, there are 288,000 adult citizens (including naturalized citizens) who earn less than $25,000 per year and are thus less likely to have state-issued identification.[xiv] For example, some low-paid residents are less likely to use a lease or utility bill as proof of address to demonstrate New Jersey residence to the MVC because they lack the financial resources to rent an entire apartment on their own.[xv]
Allowing more documents to verify New Jersey residence, such as proof of eligibility or enrollment in a state or federal safety net program, could help low-paid residents secure a license and more fully participate in their community.
Formerly Incarcerated Individuals
Individuals who were formerly incarcerated are often prevented from obtaining a driver’s license because they lack basic identification documents like a birth certificate, Social Security card, or a state-issued photo ID. Allowing residents to verify their identify with a prison discharge slip or Department of Corrections identification card —neither of which are currently accepted by the MVC — would help thousands of New Jersey residents. In total, approximately 10,800 inmates are released each year,[xvi] about half of those individuals do not have basic identification.[xvii]
Survivors of Domestic Violence
Survivors of domestic violence often have to flee abusive partners and risk losing identifying documents. Under driver’s license expansion, the MVC would expand the scope of acceptable documents to verify one’s identity. This would benefit some of the estimated 40,000 annual survivors of domestic violence in the Garden State, helping them gain freedom and independence from their abusive partners and restart their lives.[xviii]
Immigrants Without Status
Expanding access to driver’s licenses will benefit 444,000
driving-aged residents who do not have status. Based on the experiences of
other states, NJPP projects that approximately half of these residents —
222,000 — will obtain a license for the first time during the first three years
of implementation.[xix]
Residents across the entire state will benefit from this proposal, especially
those in Central and North Jersey. Hudson County has the largest number of
driving-aged immigrants without status, followed by Middlesex, Bergen, Essex,
and Union Counties.[xx]
Residents Concerned About Privacy
To obtain a REAL ID license, identifying documents must be scanned into the MVC database and cross-checked by the federal government. Privacy concerns with the federal REAL ID implementation have been raised from groups on both sides of the political spectrum, including the Tea Party and the American Civil Liberties Union.[xxi] New Jersey residents who do not want their documents scanned into a federal database would be able to get a standard license without having sensitive information collected by the MVC.
New Jersey drivers pay some of the highest automobile insurance premiums in the nation, with an average payment of $1,309 per year.[xxii] At the same time, the state has among the highest rates of uninsured drivers in the nation at nearly 15 percent.[xxiii] When these uninsured drivers are in an accident, the associated costs are covered by drivers who are insured.
With driver’s license expansion comes a larger auto insurance pool, which would help hold down premium costs for all while generating fewer claims that originate with uninsured drivers. This was seen in California, where drivers saved $3.5 million in out-of-pocket expenses for car repairs.[xxiv]
In Utah, which has allowed immigrants without status to drive legally since 1999, the rate of uninsured motorists dropped from 28 percent in 1999 to 8 percent in 2011 — an astonishing 250 percent drop.[xxv] As a result, auto insurance rates increased at a lower rate than in other states that restricted access to driver’s licenses.[xxvi]
5. Promotes Healthier Communities
Expanding access to driver’s licenses not only broadens mobility for more residents in the state, it also addresses social determinants of health, which includes factors like neighborhood and physical environments and access to health care and education.
The effects of early childhood education are far-reaching. It can narrow achievement gaps, increase access to health-care screenings, improve nutrition, increase graduation rates, and decrease the chance of substance abuse as adults.[xxvii] However, due to the lack of a robust public transportation system, many low-income families without licenses cannot fully participate in early education and care programs.[xxviii] Yet, immigrant parents are three to five percentage points more likely to enroll their children if they have access to a driver’s license, according to a 2018 study by the University of Rhode Island.[xxix]
6. Increases State Revenue and Boosts Local Economies
Over the first three years of implementation, driver’s license expansion is projected to generate $21 million in revenue from permit, title, and driver’s license fees.[xxx] New Jersey could also expect an additional $90 million from registration fees, the gas tax, and taxes paid on the sales of motor vehicles and auto parts.
New
Jersey’s economy will benefit further from expanding driver’s licenses to
immigrants without status, who have $9.8 billion in spending power per year.
Immigrants support local businesses, contribute to our communities, and form an
essential part of our workforce. In fact, they pay over half a billion dollars
each year in state and local taxes.[xxxi]
[xx] The Migration Policy Institute estimates the undocumented population by county. We assume that New Jersey would have a high-end participation rate, similar to Illinois’ rate of 47 percent. We project New Jersey’s rate will be slightly higher at 50 percent given driving is necessary to getting around the state’s sprawling suburbs. The Fiscal Policy Institute (FPI) similarly uses this take-up rate in their projections for New York. Thus, we multiply the number of undocumented residents of driving age (93 percent) by the take-up rate of 50 percent to project that the number of immigrants without status by county who would obtain a driver’s license during the first three years of implementation.
To read a PDF version of the full report, click here.
For the past decade, New Jersey lawmakers fixated on big-ticket corporate tax subsidies as a key driver of economic development without any sound evidence that they worked. As a result, New Jersey is now a national outlier in both the size of its corporate subsidy awards and how little the state receives as a return on its investments. Thankfully, there has been a wealth of research and analysis in this area over the past several years that can help lawmakers better understand the true impact of these programs. The findings do not paint a pretty picture, an unfortunate reality that proponents of corporate tax subsidies must reckon with. As policy analyst Jason Brainerd told a special Senate committee in September, “There is no evidence the number of economic tax incentives bear any relation to the broader performance of a state’s economy.”[i]
At least 75 percent of the time, tax breaks for corporations do not affect a business’s decision on where to locate and expand.[ii] In other words, these tax breaks are often nothing more than a colossal giveaway with no additional benefit to a state’s economy. Even when subsidies do tip a location decision, they do not pay for themselves. Relocated workers raise costs to local public services offsetting at least 90 percent of any increased revenue.[iii] Nationally, only 10 to 30 percent of those new jobs go to state residents who are not already employed, doing little to boost overall employment rates and broadly shared local benefits.[iv]
Considering these damning findings, along with the fact that New Jersey’s fiscal situation is so poor that the state cannot afford such risky and poorly performing investments, the state would be far better off redirecting its economic development strategy away from corporate tax subsidies. Instead, New Jersey should focus on investments that are proven economic drivers, like public colleges, transportation infrastructure, development of affordable homes, and providing a stronger safety net for the growing numbers of working New Jersey families and children struggling to make ends meet.[v]
If the state is going to operate a corporate tax subsidy program as part of a broader economic development strategy, there are several critical and necessary reforms that must be implemented to mitigate further fraud, waste, and abuse of taxpayer dollars. The next generation of tax subsidy policies must be carefully designed to promote inclusive, local economic growth, target the right businesses in the right areas of the state with local hire and community input requirements, and have the safeguards necessary — namely hard caps on awards and robust assessment of programs — to ensure these investments provide a positive and significant return.
The next cycle of corporate tax subsidies must also break away from overly generous tax breaks to large corporations and instead focus on promising industries in areas of the state that have the greatest need for job opportunities. Economic development dollars saved can then be redirected back into public assets that benefit all New Jerseyans and have a more proven track record of economic growth.
Governor Murphy and the legislature have released competing drafts of legislation to replace New Jersey’s now-expired corporate tax subsidy programs.[vi] The legislature enlisted former state Senators Ray Lesniak and Joe Kyrillos to craft their version of what the next generation of corporate tax subsidies should look like. The legislature’s version (hereinafter referred to as Senator Lesniak’s proposal), largely mirrors the previous iteration — the Economic Opportunity Act (EOA) — and does not address the need for good government policy in the wake of findings of fraud made by the Governor’s task force and investigative journalists. The Murphy administration’s proposal addresses some of the bigger flaws of the EOA and incorporates a few proposals found in the legislature’s bill.
Overall, both plans include important improvements like targeting industries that demonstrate real economic potential and addressing community-centered investment needs, like affordable housing and food deserts. Both offer sizable tax subsidies for redevelopment projects in economically distressed areas and for high-tech businesses like wind energy and research and development. Community benefit agreements also appear in both plans, opening the door for job training and apprenticeships, which experts say accomplish development goals in a more cost-effective manner. Nonetheless, both proposals tend to overemphasis mega-projects rather than the tried-and-true cultivation of small- and medium-sized businesses. This caveat balloons the potential overall price tag of both proposals, paving the way for more foregone revenue that could be better spent on other state investments.
What’s New in Both Proposals
In the latest iteration of Governor Murphy’s corporate tax subsidy reform proposal, he has adopted three new provisions from Senator Lesniak’s draft bill. One would offer tax credits to large-scale developments “anchored” by a nonprofit or government institution. To qualify for the tax break, the project would need to be either be located in an opportunity zone (more on that later) or designed to help a targeted industry — like biotechnology and advanced transportation and logistics — to take root. Another proposal would provide state grants to cover some rental costs of collaborative workspaces for start-up companies in technology or renewable energy sectors.[vii] Additionally, in an effort to take a more active role in addressing food deserts, Governor Murphy’s proposal establishes the designation of up to 75 areas that lack access to a grocery store to help pinpoint qualifying communities.
Senator Lesniak’s bill makes a significant push to address New Jersey’s affordable housing crisis by offering up to $100 million a year to community development or nonprofit housing organizations for developments in low- and moderate-income areas. The bill also expands the existing Film and Digital Media tax credit program, a favorite of Governor Murphy’s, by five years and removes the annual spending cap after the first year.[viii]
Overall, Senator Lesniak’s bill shies away from new reforms with one exception: any commercial developer who is more than two years behind in loan payments is automatically disqualified from applying for tax subsidies.[ix] This restriction, however, would not apply to the biggest recipients of tax subsidies: residential developers or any business looking to relocate or expand in New Jersey.
What’s the Same: The Good
Governor Murphy and Senator Lesniak align on several key reforms, a positive sign that nationally recognized best practices — and reforms promoted in previous NJPP reports — will be incorporated in the next iteration of corporate subsidy programs. Important measures found in both bills include:
Preference to industries that show promise for economic growth[x]
Bonus structure for workforce housing development (this is a requirement for newly-constructed housing)
Mandated reporting to verify outcomes
Sunset provision (except in Senator Lesniak’s food desert and historic preservation proposals)
Bonus structure for labor agreements and fair wages (only Governor Murphy’s proposal covers all programs)
Clawback formula whereby the state can recoup some tax subsidies if a corporation breaks a promise (though Governor Murphy’s formula is stronger and includes wage level protections)
Smaller subsidies for jobs retained with no loopholes
Creation of a state-run venture capital program
Requirement of fair wages for construction and building service jobs
Requirement of minimal environmental and sustainability standards that promote best practices
Mandated disclosure of tax credit sales (excluding most programs in Senator Lesniak’s proposal)
What’s the Same: The Bad
Not all of the common measures are worthy of praise, however. Several important provisions in both bills do not reflect best practices of economic development and, left unchallenged, would repeat mistakes of the past.
Overly Generous Dollars-Per-Job Caps
The removal of spending caps in the EOA enabled the per-job cost of tax subsidies to skyrocket to unprecedented levels. Throughout the 1990s and early 2000s, the per-job cost of subsidized jobs was approximately $20,000. After the passage of the EOA, this cost ballooned to over $100,000 per job created or retained.
Senator Lesniak’s proposal does little to get this cost under control. The dollars-per-job caps in his bill range from $70,000 to a whopping $150,000 for new or retained jobs for a “mega-project,”[xi] or a project in a specified New Jersey investment zone.[xii] This sort of giveaway blatantly ignores the excessive spike in corporate tax breaks over the last decade and deprives the state of revenue needed for other state investments. Governor Murphy’s job creation proposal has a cap of $32,000 per job, which is within the range of the national average but still relatively high compared to other states. Virginia, for example, successfully secured the Amazon HQ2 deal with tax breaks capped at $20,000 per job.
Over Reliance on the “Material Factor” Eligibility Criteria
Governor Murphy’s proposal requires corporations to verify they are in “good standing” with the state departments of environmental protection, labor, and treasury, and allows the Economic Development Authority (EDA) to commission a third party background check on tax subsidy applicants. These good governance reforms should help ensure tax breaks are not given to corporations with a history of polluting their communities, violating wage and hour laws, or evading state taxation. Both proposals require that the potential tax subsidy award be a “material factor” in a corporation’s decision to relocate to or expand in New Jersey. To satisfy this requirement, a corporation must submit evidence showing that if not for the tax credits it would leave New Jersey or choose to set up shop in another state.
According to national experts, however, there is no agreed-upon method to assess this factor properly, making the requirement meaningless, untestable, and as found by the Governor’s task force, highly susceptible to manipulation.[xiii] Nonetheless, Governor Murphy’s proposal doubles-down on this provision with a laundry list of required documentation certified as truthful under threat of perjury. This provision is more likely to bolster the real estate consulting industry than it is to guarantee the credibility of the applicant’s need for tax subsidies. It also provides coverage for elected officials who might otherwise come under fire for handing over tax money to corporations and developers.
Over Reliance on the Flawed “Net Benefit” Test
To protect taxpayers and ensure that tax subsidies are only awarded when the benefits clearly outweigh the costs, stricter standards must be applied to the statutory formula the EDA uses to estimate the economic benefits of any proposed tax break. The EDA’s “net benefit test” looks at the direct and indirect costs and benefits of a new business or redevelopment project. This model has gone through some internal improvements through regulation, but further legislative reform is needed to restore financial integrity and bring transparency to this test.
One noteworthy improvement to the net benefit test in both proposals was instigated by a recent finding that large tax breaks were awarded under the EOA to corporations that tipped the scales in their favor by counting exempted taxes as a benefit.[xiv] The Governor’s and Senator Lesniak’s proposals address this egregious provision by disqualifying “phantom taxes” like property tax abatements from being calculated into the net benefit test. However, Senator Lesniak’s proposal excludes the entire redevelopment program from this basic protection.
Both proposals require that the largest programs and megadeals go through a state-conducted fiscal impact analysis with the glaring exception of Governor Murphy’s job creation program, which allows a corporation to submit their own analysis with a requirement that the net positive benefit equals a predetermined percentage of the award. Given that even the EDA’s cost-benefit benefit analysis is hidden from public scrutiny, a debate about who is most qualified to analyze them or about the standards being used to estimate the efficiency of tax incentives is seemingly impossible. The result is that the public doesn’t know if the costs and benefits are calculated in a way that accurately captures the local economy and its unique needs. Does it estimate the employment benefits, particularly the proportion of new jobs likely to go to local, unemployed residents? What effect would the wage rate have on similar local jobs? Does the analysis look at wage gains across the income distribution and per capita income growth? Can the existing infrastructure accommodate the expected job growth and can the local government absorb the added costs that come with new residents? The model used for the net benefit test should be made publicly available and calculated exclusively by the EDA, not the corporations vying for tax breaks, to ensure the state is not losing money on any tax subsidy deals.
Bonus Tax Subsidies for Community Benefit Agreements
Communities are rarely at the table of a statewide economic development strategy. A community benefit agreement (CBA) can address this, but too often the corporation receiving the tax break dictates the terms, leaving out community voices and crucial benefits that would meet their needs. Providing bonuses for businesses that enter a CBA without meaningful parameters and oversight is a recipe for manipulation and token investments that don’t contribute to the economic growth of struggling areas of the state. In the aftermath of Governor Murphy’s task force findings and multiple pieces of investigative journalism, the next generation of job creation and redevelopment program must require a truly inclusive CBA to protect communities from predatory corporate interests.
Senator Lesniak’s bill offers bonus tax subsidies to applicants of the job creation program if it and a local county or town enter a CBA based on the support or operation of a so-called “One Stop Career Center.” Senator Lesniak defines this as a clearing house of either customized job training apprenticeship programs or development of infrastructure, affordable housing and public transit. But it also includes options like “greenspaces” or “other community amenities,” providing a giant loophole for corporations to do the bare minimum in exchange for a bonus tax credit of $5,000 per job. The proposal contains no protections to ensure the corporation’s compliance of the CBA, opening the door to abuse or fraud.
For the most part, Governor Murphy’s proposal gets this right by making a CBA a requirement in both the job creation and redevelopment programs. The agreement may include job training, employment, youth development, and free services to underserved community members. Prior to entering a CBA, the county or town would be required to hold at least one public hearing to give the affected community a chance to voice their needs. The resulting CBA must include the establishment of a community advisory committee to oversee implementation and compliance. Should the developer break the agreement, Governor Murphy’s proposal includes clawback provisions to protect the affected community and New Jersey taxpayers.
Given the level of fraud that was allowed to prosper under the previous economic development legislation, the EDA must be given a stronger role to ensure community voices are heard and that compliance with this type of agreement is enforced. “At least one” public hearing before the establishment of a CBA has all the characteristics of a token gesture. The process needs to encourage meaningful community engagement and input. In fact, recipients of tax subsidies should first be put on mandatory probation for year one, and if compliance of a CBA is not established, the EDA would have the authority to rescind and recapture the tax subsidies. Job training should be required as a main component of the CBA given its proven long-term economic impact, even if the subsidized jobs no longer exist. The CBA proposal should also require that the advisory committee accurately reflect the demographics of the community and prohibit any advisory committee members from having a financial interest in the project or deriving any form of income from the corporation receiving the tax credits.
Tax Subsidies for Businesses Located in a Qualified Opportunity Zone
Created by the 2017 federal tax law, the opportunity zone (OZ) provision allows investors to defer tax on capital gains by putting those gains into funds that invest in properties or businesses located in designated communities. After a certain number of years, investors get more tax breaks, including a permanent tax exemption on capital gains on their OZ investment. Governor Murphy’s proposal dips its toes into this new provision by offering bonus tax subsidies to developers or businesses that invest in an opportunity zone. Senator Lesniak’s plan fully endorses the concept in both the job creation program and a mega-project proposal.
If the OZ tax break is truly intended to improve the lives and opportunities of low-income residents of the zones, it should target investments that focus on that goal. Instead, it encourages investors to abuse the provision.[xv] That’s because the provision was enacted with nearly no government oversight and very few restrictions. This no-strings-attached policy has drawn predatory capital into neighborhoods most at-risk of displacement. Members of Congress including Senator Cory Booker, who helped create opportunity zones in the first place, have called for an investigation into the program by the federal Government Accountability Office.[xvi] New Jersey should not subsidize real estate projects already poised to get a hefty federal tax break without assurances that they will help — not push out — current low-income residents. The state should regard investors looking for more tax breaks in opportunity zones as the least in need of state assistance and redirect these tax credits to small-to-moderate-sized businesses. Better yet, drop “opportunity zones” from the proposal and replace it with recognized qualifiers, like investment zone or qualified incentive tract, to describe areas of the state in need of economic investment.
Massive Tax Subsidies for “Transformative” or “Community-Anchored” Projects
Both proposals allow for so-called mega-deals by setting aside $50 million to $100 million in tax breaks that do not count against annual spending caps. Mega-deals, as defined by Good Jobs First, provide at least $50 million in tax subsidies to either large-scale development projects or well-established corporations with a large workforce.[xvii]
Over the past two decades, New Jersey has rewarded 30 mega-deals, more than half (16) of which received nine-figure awards, including Fortune 500 companies Prudential Financial, Subaru of America, and JPMorgan Chase Bank.[xviii] Given the mounting evidence that such large-scale tax subsidies do not pay for themselves, megadeals are a risky investment for New Jersey, a state struggling to pay its bills as the cost of already-approved tax subsidies explode.[xix]
These deals also help wealthy corporations avoid the competitive subsidy application process and parachute into a community without a thorough impact analysis. Similarly, opportunities for collaboration with research institutions, teaching hospitals, colleges or universities are plentiful and already market-driven. Let these assets speak for themselves without offering sweeteners like covering 100 percent of project costs or offering up to $250 million in tax subsidies.
Tax Credit Buyback Option
Both proposals would allow the Division of Taxation to buy back unused tax credits from businesses that don’t need them to lessen their tax bill — at a deep discount. Effectively, this allows businesses to convert tax credits into cash grants valued at 75 percent of the awarded credit. Such a provision should not be entertained without full transparency of all sellers and buyers.
What’s Missing
Hard Caps on Job Growth Programs and Commercial Redevelopment
New Jersey’s corporate tax subsidies have always included annual limitations on cost — until the passage of the Economic Opportunity Act of 2013. Bypassing such an important cost-control mechanism opened the door for enormous tax breaks for the next several years. As the state committed billions in lost tax revenue to already profitable corporations, the state simultaneously cut funding for public schools, NJ Transit, property tax relief, colleges and universities, and affordable housing — all proven drivers of widespread economic growth.
Senator Lesniak’s bill commits to annual spending caps for some programs but, most alarming, they are absent in the two largest programs: commercial real estate development and the job creation and retention program previously known as Grow NJ. This policy design contradicts extensive research that shows corporate tax breaks do not translate into more economic growth, and is based on the disproven notion that New Jersey must offer limitless tax incentives in order to compete with other states. Caps must be a central component of the next generation of corporate tax subsidies because they make New Jersey’s economic development policies less costly to the state budget and create more job opportunities for New Jersey residents.
Governor Murphy’s bill features annual spending caps for every program. However, the redevelopment program allows for some flexibility, making it vulnerable to the political pressures of a proposed megadeal and, in the end, costly to New Jersey taxpayers. In fact, the proposal has over $800 million worth of exemptions over the lifespan of the legislation to support up to six potential large-scale development projects and removes caps altogether for a qualifying wind energy support facility. These projects may not all come into fruition, but their presence undermines the Murphy administration’s top priority of reining in subsidies and abiding by realistic expectations of what a state government can do to foster economic growth. The Governor’s recent support of lifting the annual cap of the Film and Digital Media tax credit program demonstrates this willingness to revise what should be a non-negotiable budget item.[xx]
Shorter Award Timeframes
Senator Lesniak’s proposal allows for subsidy awards to be paid out annually for 10 to 20 years, depending on the program. This measure ignores research that shows corporations generally don’t consider tax subsidies ten or more years out as valuable as those offered within a shorter timeline, like one to five years.[xxi] They also absolve current lawmakers from the future costs while giving them political credit for new jobs. Offering shorter timeframes means New Jersey can control the cost of subsidies and better predict when a business will redeem them. In contrast, the Murphy administration’s job creation and retention proposal includes this best practice by imposing a maximum timeframe of five years. Most of the other proposals in the Governor’s plan have one-year timeframes.
Recurring Evaluation by an Independent Entity
Lawmakers must fully commit to establishing a regular, independent evaluation process to effectively analyze the design, administration, and effectiveness of the state’s subsidy programs. Both proposals require a biennial, independently produced report with a detailed analysis of the tax subsidies’ effect on a business’ relocation decision, the return on investment for the award, the impact on the state’s economy, and other metrics based on national best practices. However, Senator Lesniak’s bill fails to require such a report for the job creation program, the same proposal that has no annual spending cap. This key reform should be a requirement for every program to ensure accountability and fiscal responsibility. But to ensure objectivity, a biennial performance audit should be produced by the state Comptroller or a public advocate rather than a subcontracted college or university given that academic institutions are eligible for and have benefited from these tax subsidies in the past, and that public universities depend on the legislature for state aid.
Other Important Reforms Missing in Both Proposals to Further Bolster Accountability
Mandated annual forecasting/multi-year cost projection The Treasury must release the Unified Economic Development Report (UEDR), an annual report that enumerates the direct costs and indirect loss of revenue from tax breaks with detailed information about larger tax subsidies and the types of jobs they created. The EDA should also be required to release an annual 15-year forecast of the cost of each program to better estimate long-term future revenue losses.
Addition of hiring information in the UEDR To better ensure local and representative hiring, the Treasury should analyze the match between a business’s labor needs and the labor force potential in the relevant geographic area.
Requirement to put investment into state budget Putting tax subsidies into the budget process as a line item would promote a better debate about the best ways to foster broad prosperity in New Jersey. This would take corporate subsidies out of the abstract and explicitly state what they are costing the state and its taxpayers.
Requirement that application consultants register as lobbyists Tax subsidies support a cottage industry of real estate consultants working on commission to help corporations navigate through the application process and get the biggest tax breaks possible. Requiring these consultants to register as lobbyists means the disclosure of their identity, compensation terms and other contractual details which takes away the monetary incentive.
Regional corporate tax subsidy policy Implementing a corporate tax subsidy ceasefire with neighboring states would end the costly practice of giving tax credits to companies within the same metro area and demonetize the blackmail tactics corporations deploy in exchange for tax subsidies.
Update: This report was updated on December 5, 2019 to clarify that the cap exemptions in Governor Murphy’s Aspire NJ proposal are for the 5-year life of the program, not annually.
[ii] Prepared testimony of Dr. Timothy J. Bartik, Senior Economist, W.E. Upjohn Institute for Employment Research before New Jersey State Senate Select Committee on Economic Growth Strategies, September 2019. https://research.upjohn.org/presentations/60/
[vii] Targeted industries listed in Senator Lesniak’s rental assistance proposal: advanced computing, advanced materials, biotechnology, electronic device technology, information technology, food technology, life sciences, medical device technology, health care technology, logistics technology, mobile communications technology, agricultural technology, and renewable energy industries.
[ix] Senate Bill No.1576: Prohibits awarding of economic development subsidy to business if payment of principal and interest on previously awarded loan or loan guarantee is greater than 24 months overdue. https://www.njleg.state.nj.us/2018/Bills/S2000/1576_I1.PDF
[x] Governor Murphy’s job creation proposal targets advanced transportation and logistics, advanced manufacturing, aviation, clean energy, life sciences, information and high technology, finance and insurance, and non-retail food and beverage businesses. Murphy’s mega-development proposals target wind energy, food deserts and R&D. Targeted industries listed in Senator Lesniak’s mega-project proposal: biotechnology, life sciences, pharmaceuticals, aeronautics, clean energy, advanced manufacturing, large-scale food and beverage production, advanced transportation and logistics, finance, financial technology, insurance, media, information technology, machine learning, and artificial intelligence.
[xi] “Mega” means a business other than a warehouse or distribution business at which the business intends to employ at least 1,000 new or retained full-time jobs and having a capital investment in excess of $100 million.
[xii] “Investment zone” means means a distressed, densely populated municipality or a government-restricted municipality.
To read a PDF version of the full report, click here.
The Earned Income Tax Credit (EITC) is one of the most effective anti-poverty programs for working-age households in the U.S.[1] It raises incomes for workers with low-wages and advances income and racial equity. In fact, the EITC has helped millions of workers better make ends meet and afford basic needs for themselves and their families, particularly among Black and Latino households.[2]
In 2000, New Jersey created its own version of the EITC, building upon the federal credit and providing a bigger boost to the state’s working families. Originally, the state credit provided a benefit at 10 percent of the federal credit. Over the years, the value of the state credit has increased – and occasionally decreased – to the point where it now provides a benefit at 40 percent of the federal credit.
Nearly two decades after adopting an EITC in New Jersey, the impact of the program is clear. In 2018 alone, the state EITC infused $400 million into local economies and provided a much-needed boost to over 500,000 workers and families struggling to meet basic needs.[3] While both Republican and Democratic lawmakers recognize the program’s value and have supported several expansions to the credit, the EITC’s reach is still limited. Specifically, workers, who are not raising children at home, have a disproportionately lower income cap and lower maximum credit than qualifying families with children. Further, single workers who are not raising children at home lose the benefit completely after earning more than $15,570, and childless workers under the age of 25 and over 64 are completely ineligible for the credit.
Recognizing such disparities in the federal EITC, several lawmakers have proposed changes to the program. However, New Jersey does not need to wait for federal changes to be enacted. The state, like several others, can take steps to expand eligibility beyond federal rules. The following report examines these proposals and evaluates the potential impact of strengthening New Jersey’s EITC.
This report makes three recommendations to improve parity and accessibility of the state EITC:
Reduce the minimum age requirement for workers without qualifying children from 25 to 18.
Increase the refundability of the New Jersey EITC for workers without qualifying children from 40 percent to 100 percent of the federal credit.
Increase the income threshold for workers without qualifying children from $15,570 to $25,000.
If all three recommendations are implemented, over 400,000 workers would benefit, infusing $156 million into local New Jersey economies.
Introduction
The Earned Income Tax Credit (EITC), a refundable tax credit for low- and moderate-income working individuals and families, has long been one of the most successful tools for reducing poverty, promoting economic security, and improving the quality of life of working families. In 2017 alone, the federal EITC lifted approximately 5.7 million people out of poverty, including about 3 million children. And the credit further reduced the severity of poverty for an additional 19.5 million people, including about 7.3 million children.[4]
Recognizing the effectiveness of the EITC, federal lawmakers have repeatedly expanded the credit since its enactment as a temporary provision in 1975, including adjustments to both the amount of the credit and eligibility rules.[5] The federal EITC is now among the nation’s largest anti-poverty programs, with 25 million taxpayers receiving approximately $63 billion in 2018.[6]
In 2000, New Jersey enacted a state EITC to supplement the federal EITC. While the EITC has since boosted the economic security of workers and families in the Garden State, several groups of New Jersey workers receive little or no benefit from this program. The EITC for workers who are not raising children at home, in particular, is currently not available for people under the age of 25. Further, relative to the credit for households with children, the childless EITC has a disproportionately small income cap and low maximum credit amount. In short, the current state (and federal) EITC falls short for childless workers in New Jersey as compared to other groups.
With common-sense changes to the state EITC, New Jersey could better support hard-working taxpayers who are just entering the workforce. Further, expanding the credit for childless workers would improve parity between families with children and families who do not have qualifying children at home. The following report provides an overview of New Jersey’s EITC program, as well as an examination of other jurisdictions’ efforts to expand EITC eligibility. This report also provides an analysis of the impact of targeted expansions of EITC eligibility in the state as well as recommendations for improving the New Jersey’s EITC program.
Federal EITC Rules Exclude Childless Workers
Enacted as a part of the Tax Reduction Act of 1975 to reduce participation in federal assistance programs, encourage employment, and promote economic recovery from the recession, the EITC reduces the tax liability of low- and moderate-income workers. Each year, the federal EITC improves the economic security of Garden State residents and strengthens state and local economies. In 2018, for example, the EITC benefitted over 576,000 New Jersey workers and infused $1.4 billion into New Jersey’s economies.[7]
In order to qualify for the credit, households must have earned income and file a tax return with the IRS. The amount of the credit is a function of the worker’s income; the percentage of income increases with the amount of income until reaching a maximum credit threshold, at which point the value of the credit remains flat until it reaches a phase-out point.[8] After the phase-out point, the amount of the credit incrementally declines with additional income. If the amount of the credit that an individual or family qualifies for is greater than their tax liability, they can receive the balance as a refund.
Eligibility for the federal EITC is contingent on several factors, including age, citizenship, residency, number of qualifying children, marital status, tax filing status, and income.[9] The adjusted gross-income cap for eligibility for the federal EITC increases based on family size. In tax year 2019, for families with one qualifying child, the income cap is $41,094 ($46,884 if married filing jointly).[10] The cap rises to $46,703 ($52,493 for married filing jointly) for families with two qualifying children, and to $50,162 ($55,952 for married filing jointly) for families with three or more qualifying children. For workers without qualifying children, the income cap is substantially lower than for families with children: $15,570 ($21,370 for married filing jointly).
While the maximum credit for families with children ranges from $3,526 (for families with one child) to $6,557 (for families with three or more children), the maximum credit for childless workers is only $529. As a result, the amount of the tax credit received by the eligible childless workers is often less than their tax liability and fails to provide sufficient support to low-income workers.[11]
In addition to a very low adjusted gross income cap and low maximum credit for workers without qualifying children, age and residency restrictions further limit the EITC eligibility. In order to qualify for the EITC, childless workers must be older than 25 years old and younger than 65.[13] Accordingly, while the majority of households that qualify are childless, over 90 percent of the federal EITC is distributed to families with children.[14] While this program was designed with the assumption that workers under 25 are dependent on parents, the reality is that many young New Jersey workers are struggling financially to meet their basic needs.[15]
Federal Proposals Recognize Shortfalls in EITC
During the past year, federal lawmakers have announced several proposals to mitigate poverty by strengthening tax credits for low- and moderate-income people. While the details of these proposals vary substantially, several of these proposals would improve parity between the EITC for families with children and families who do not have qualifying children at home.
The table below provides an overview of the impact of three of these proposals—the Cost of Living Refund Act of 2019, the Working Families Tax Relief Act, and the LIFT the Middle Class Act—on tax credits for childless workers. While the Cost of Living Refund Act and Working Families Tax Relief Act would expand the EITC, the LIFT the Middle Class Act would create a new credit that supplements the EITC.[16]
Sources: Center on Budget and Policy Priorities[17]; Ibid[18]; LIFT the Middle Class Act[19]
Cost-of-Living Refund Act
Introduced in both the House and Senate in February 2019, the Cost of Living Refund Act of 2019 (H.R. 1431, S. 527) would decrease the age eligibility for workers without qualifying children from 25 to 21, extend eligibility to qualified students, and expand qualified dependents to include seniors and other relatives.[20] The proposal would also increase the amount of the EITC by raising the credit percentage and phaseout amount, which would nearly double the maximum credit for households with children as well as increase the maximum credit for workers without children nearly six-fold from $529 to approximately $3,054.[21] This Act would also increase the maximum income cap for workers without qualifying children from $15,570 to $38,498, and for households with one child from $40,320 to $61,393. According to a microsimulation produced by Institute on Taxation and Economic Policy (ITEP), this proposal would lead to an $1,950 average decrease in tax liability for the poorest 20 percent of New Jersey residents (with incomes of less than $24,300) and a $1,330 average decrease for the second poorest 20 percent (those earning $24,300 to $43,500).
Working Families Tax Relief Act
Introduced by Senators Sherrod Brown, Michael Bennet, Richard Durbin, and Ron Wyden in April 2019, the Working Families Tax Relief Act would expand the EITC by changing both the eligibility rules and the amounts of the credits. In addition, it would make the Child Tax Credit (CTC) fully refundable and create a Young Child Tax Credit (YCTC) for children under age 6. The bill would expand the age limits for eligibility for the EITC for childless workers from 25 to 64 to 19 to 67. Further, this proposal would increase the maximum EITC for families with children by up to 25 percent (the exact amount depends on family size) and quadruple the benefit for workers without children.[22] The bill would also increase the phase-in and phase-out rates and raise the maximum income limits for eligibility for the credit. According to a microsimulation produced by ITEP, this proposal would lead to an $1,510 average decrease in tax liability for the poorest 20 percent of New Jersey residents (with incomes of less than $24,300) and a $560 average decrease for the second poorest 20 percent (those earning $24,300 to $43,500).[23]
LIFT the Middle Class Act
Introduced by Senator Kamala Harris, the LIFT the Middle Class Act would create a new credit that would operate alongside the EITC. The new credit is designed to match a taxpayer’s earnings, providing up to $3,000 per worker ($6,000 for a married couple). In addition, this credit would consider income from Pell grants, a need-based form of financial aid for college students. Because the credit does not take family size into account and drops the minimum age requirement for all workers to 18, all childless workers would see considerable increases in tax credits under this proposal.
States Leading the Way on EITC Expansion: Addressing Gaps in Federal EITC
Since 1986, New Jersey and 28 other states as well as the District of Columbia, Puerto Rico, and some municipalities have created an EITC to supplement the federal credit. State EITCs largely mirror federal criteria and are calculated as a percentage of the federal credit. For example, in a state where the EITC is calculated at 40 percent of the federal credit, an EITC beneficiary who is eligible for a $100 federal credit would also be eligible for a $40 state EITC, for a combined total of $140. Additionally, all but 6 state EITCs are refundable, meaning that a tax filer can receive a refund for the amount by which the credit exceeds their federal income tax liability. The percentage of the federal EITC varies considerably among states.[24] Further, several state EITCs deviate from other aspects of the federal EITC, including maximum credit amounts and eligibility criteria.
Many jurisdictions have recently taken steps to address the limitations of the EITC by making targeted changes to eligibility rules. In 2014, the District of Columbia, for example, was the first jurisdiction to extend the EITC to workers without qualifying children. Further, Washington D.C. increased the match for workers without children from 40 percent to 100 percent. In addition, D.C. increased the income limit of its EITC beyond the federal cap.[25] As a result, the D.C. EITC provided a boost for 26.8 percent more workers, most of which has been attributed to 12,940 new applicants without children—9,507 of which were ineligible for the federal EITC.[26]
In 2017, Minnesota expanded eligibility for its state EITC by reducing the minimum age for childless workers without qualifying children from 25 to 21. Other states have also extended the credit to specific groups that would not otherwise benefit from this program, including New York, which provides the EITC to non-custodial parents, and Massachusetts, where survivors of domestic violence who are separated from a spouse are eligible to receive the credit.[27]
Most recently, Maryland and California expanded eligibility beyond the federal EITC’s rules, as well. In 2018, Maryland eliminated the minimum age requirement for its state EITC, which was previously set at 25.[28] This eligibility change is expected to extend the credit to an estimated 40,000 more workers.[29] Also in 2018, California expanded the program to childless workers between the ages of 18 and 24 and over the age of 64. The legislation that led to these changes also included measures to expand the state’s EITC to immigrant workers with ITINs; however, this proposal was rejected during budget negotiations.[30] In addition, in 2017, California increased its income cap, allowing people working full-time at the minimum wage to be eligible for the credit.
New Jersey’s EITC Has Improved, But Prior Expansions Continue to Leave Young and Childless Workers Behind
In 2000, New Jersey enacted a state EITC. In order to be eligible for the state EITC, applicants must meet the eligibility requirements of the federal EITC and file both a federal tax form and state income tax return. The amount of the state EITC that a taxpayer can claim, which is currently calculated as a percentage of the federal EITC, has undergone several changes during the last two decades. After remaining at 20 percent for several years, the state EITC percentage of the federal EITC increased to 22.5 percent in tax year 2008, and to 25 percent in 2009.
In 2011, the New Jersey EITC was reduced from 25 percent to 20 percent of the federal credit. Despite attempts to increase the EITC, the credit was not restored until Fiscal Year (FY) 2015,[31] when it was increased to 30 percent of the federal amount. In 2016, alongside a gas tax increase for New Jersey’s Transportation Trust Fund, the state EITC was increased to 35 percent of the federal credit. Most recently, legislation was enacted in 2018 that increased the state’s EITC from 35 percent to 40 percent over the course of three years (37 percent in tax year 2018, 39 percent in tax year 2019, and 40 percent in tax year 2020 and thereafter) and that added a new Child and Dependent Care Credit.[32]
Current Impact
Each year, New Jersey’s EITC infuses hundreds of thousands of dollars into local economies by putting cash in the hands of workers struggling to meet basic needs. This helps lift thousands of families out of poverty and eases the challenges faced by families still in poverty. Under the state EITC’s current structure, the program has helped over 510,000 workers and their families and added $415.7 million to the state’s economy in 2018 alone. Passaic, Hudson, and Essex counties had the highest number and amount of approved EITC claims in 2018.
Many New Jersey Workers Are Left Still Behind
As noted above, the EITC has been one of the most successful anti-poverty programs in the U.S., helping lift millions of people and their families out of poverty while injecting billions of dollars into local economies.[33] Due to the fact that people of color often face barriers to reliable employment with sufficient wages, they also make up a significant share of residents who qualify for the EITC. As such, the EITC is a critical tool to combating income inequality and racial inequities, which benefits all New Jerseyans. Considering the positive impacts, it is important to expand the benefits of this credit to all of New Jersey’s low-wage workers – especially childless workers.
While the EITC has benefited Garden State residents, and the incremental increases in the amount of the credit have strengthened its impact, several groups continue to be excluded from this program. Due to the current eligibility requirements, low- and moderate-income childless workers are left behind. Like the federal EITC, workers under 25, who do not claim a child as a dependent, only benefit if they have exceedingly low-income, and those that do claim a child receive a disproportionately smaller benefit. Further, workers under 25 and over 64, who do not claim children as dependents, are ineligible for any EITC credit. By removing arbitrary age restrictions for childless workers, New Jersey could expand access to the EITC to provide a more stable foundation for young people entering the workforce.
New Jersey Can Expand and Strengthen Its EITC to Provide an Important Boost for Workers and Economies
There are several mechanisms for increasing the impact of New Jersey’s EITC. The following recommendations can be used in combination with one another to improve the impact and scope of the state EITC. Unless otherwise noted, the estimates included in this section were produced by ITEP using their Microsimulation Tax Model, which is based on tax year 2015 tax returns and other data.[34]
Recommendation #1: Lower the minimum age for the childless New Jersey EITC from 25 to 18
Under the current state rules that provide workers with 40 percent of the federal EITC amount, reducing the minimum age threshold for workers, who are not raising children at home, from 25 to 18 would benefit approximately 137,199 additional young New Jersey workers and add an estimated $17 million to state and local economies. For this newly eligible population, the average credit, which could be used for basic necessities, like clothing or transportation for work, would be $121.
While expanding eligibility for the state EITC would provide an important boost for young workers beginning their careers, the amount of the credit would remain modest under current EITC rules. By both lowering the minimum age and increasing the state EITC amount for young childless workers from 40 percent to 100 percent of the amount they would receive if they were eligible for the federal credit (see Recommendation #2), the credit could have a more meaningful impact on young people. At 100 percent of the federal rate, funds added to state and local economies would increase to an estimated $42 million, and the average credit for young childless workers would be $304.
Similar amounts of young men and women would benefit from this eligibility expansion, with men (51.6 percent), representing a slightly larger proportion of the new beneficiaries than women (48.5 percent). Additionally, compared to the New Jersey population, newly eligible Non-Hispanic White, Non-Hispanic Black and African American, and multiracial workers would make up a slightly larger amount of the newly eligible population, while Asians and Hispanics would make up a smaller amount of the potential beneficiaries.
Lowering the minimum age for the childless EITC would infuse money into under-resourced areas with high poverty rates and high populations of young people. Over one-third of the newly eligible population of beneficiaries reside in four counties – Camden (9.7 percent of the potential beneficiaries), Essex (9.5 percent), Middlesex (9.0 percent), and Ocean (8.4 percent). Relative to each county’s total population, Warren (1.66 percent), Gloucester (1.63 percent), and Mercer (1.59 percent) counties had the highest percentage of potential beneficiaries.
Recommendation #2: Increase the New Jersey EITC for childless workers from 40% of 100%
Even those childless workers struggling to meet basic needs who are currently eligible for the EITC under existing rules are only entitled to a small credit. Increasing the percentage of the federal credit for childless workers who are currently eligible for the state EITC from 40 percent to 100 percent (under existing rules) would benefit an estimated 142,310 workers between the ages of 25 and 64 and add $24 million to state and local economies. At 100 percent of the federal credit, childless workers, who are currently eligible for the EITC, would see an average increase of $166 in their EITC.
Recommendation #3: Increase the income threshold for workers without qualifying children from $15,570 to $25,000
Under current EITC eligibility rules, workers without qualifying children lose the benefit after earning more than $15,570. Raising the income threshold to $25,000 for childless workers would allow more hardworking New Jersey residents with low-wages to benefit from this program. Extending the maximum income cap to $25,000 by increasing the phase-out starting point, for example, while expanding eligibility rules to include young workers ages 18 to 24 (as in Recommendation #1) and increasing EITC amount to 100 percent for all childless workers of the federal credit (as in Recommendation #2) would benefit an estimated 408,207 childless workers and add $156 million to New Jersey’s economies.)
New Jersey Residents Need a Stronger EITC
Expanding the EITC can help increase the program’s parity and support many workers struggling to meet basic needs; however, the credit excludes many New Jerseyans. The EITC’s attachment to earned income, for example, leaves out taxpayers who are unable to participate in the formal economy, including some people with disabilities and those who serve as unpaid caregivers. A more robust set of mechanisms to promote equity that extends beyond the paradigm of paid labor is needed. Moreover, the EITC’s restrictions on immigration status excludes noncitizens and mixed-status families from benefiting from the credit.
While targeted expansions of the EITC to reach these groups would certainly provide an important boost for other low-income workers and families, New Jersey will need more than a stronger EITC to address the systemic causes of poverty. The Garden State can and should do more to ensure that all residents are equipped with the resources needed to live with financial security and dignity.
Appendix
Appendix A: Demographic Breakdown – Methodology
The demographic estimates included in this report were produced by using the 2017 American Community Survey (ACS) to evaluate the impact of lowering the minimum EITC eligibility age for workers without qualifying children from 25 to 18. In order to estimate the size and sociodemographic characteristics of the population that would benefit from this targeted expansion, ACS microdata were used as a proxy for eligibility criteria for the New Jersey EITC.
The methodology for the demographic estimates updated and built upon the target group analysis approach employed in the Closing the Gap: Expanding the Earned Income Tax Credit to Younger, Childless Workers in New Jersey,[35]which employed ACS 2016 data. In addition, distinct choices around variables used to estimate dependency status to more closely reflect EITC eligibility parameters. While household type was used to exclude all family households in Closing the Gap, for example, the present report used more narrow exclusion parameters to isolate only individuals who are likely to be claimed as a dependent by another taxpayer. Further details on the variable selection process are provided below.
Data Source
The American Community Survey is an ongoing, monthly survey that is used to produce population and housing estimates each year. This analysis employed ACS 2017 microdata, which were extracted and downloaded from Integrated Public Use Microdata Series (IPUMS USA) online data extraction tool.[36] The IPUMS sample included both household- and person- level records. IPUMS USA samples are unweighted, and the sample size for the ACS 2017 dataset for New Jersey residents is 88,114. In order to obtain representative statistics, person-level sample weights (variable “perwt”) were applied. The ACS response rate for housing units in New Jersey in 2017 was 88.4%.[37]
While the ACS provides rich information about New Jersey’s population, there are also several limitations to this dataset. As the ACS is a survey that consists of self-reported data rather than tax filing information, it is subject to error. In addition, because this study employed the ACS 2017 dataset, the results suggest the impact of extending the credit if it had been in effect in 2017 and therefore do not account for economic and demographic changes that have since taken place. Finally, while the ACS contains information on several personal and household characteristics, not all EITC eligibility criteria have corresponding variables in this dataset. A detailed explanation of the selection and limitations of each variable used in this analysis is provided in the following section.
Eligibility Parameters and Target Group Creation
In order to be eligible to receive the EITC, tax filers without qualifying children must meet several criteria related to residency, age, income, marital status, immigration status, and family relations. Variables related to each of these criteria were combined to create a target group representing an estimate of the population that would become eligible if the New Jersey EITC were expanded to include workers without qualifying children between the ages of 18 and 24. An overview of the measures of these characteristics employed in this study and any recoding of these variables is provided below.
Residence. The ACS2017 household variable “statefip” was used to limit the IPUMS data extraction to households in New Jersey (FIPS code 24).
Age. The ACS 2017 dataset included a continuous variable for age ranging from 1 to 95. As workers without qualifying children between the ages of 25 to 64 are currently eligible, and this study sought to estimate the impact on two potential expansion groups (childless workers 18 to 20 and 18 to 24), age was recoded into categorical variable (age5cat).
Original Variable
New Variable
N (Weighted)
% (Weighted)
age
Age5cat
0 to 17
1 Under 18”
1,976,538
21.95
18 to 20
2 “18 – 20”
337,134
3.74
21 to 24
3 “21 – 24”
449,174
4.99
24 to 64
4 “25 – 64”
4,827,300
53.60
65 to 95
5 “65 and Older”
1,415,498
15.72
Immigration Status. While the EITC eligibility criteria allow filers who are either U.S. Citizens or resident aliens all year, the ACS 2017 only captures citizenship status and does indicate whether or not a respondent is a resident alien. For this analysis, all non-citizens are treated as ineligible, likely resulting in an underestimate of eligible immigrants.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Citizen
cit2cat
0 “N/A (Born in the US)”
1 “Citizen”
6,879,510
76.39
1 “Born abroad of American parents”
1 “Citizen”
77,181
0.86
2 “Naturalized Citizen”
1 “Citizen”
1,135,086
12.60
3 “Not a citizen”
0 “Not a citizen”
913,867
10.15
Marital Status. The ACS 2017 person-level data includes the marital status of respondents; however, it does not include tax filing status information. For this target group analysis, respondents that are never married/single, widowed, or divorced are assumed to be single for tax filing purposes. Respondents that are married with a spouse present are assumed to be married and filing jointly. Respondents that are either separated or are married with a spouse absent are treated as married and filing separately, and therefore ineligible for the EITC.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Marst
Marst3cat
1 “Married, spouse present”
1 “Married, likely filing jointly”
3,463,260
38.46
2 “Married, spouse absent” 3 “Separated”
2 “Married, likely filing separately”
309,945
3.44
4 “Divorced” 5 “Widowed” 6 “Never married/single”
0 “Not married”
5,232,439
58.10
Investment Income. The EITC eligibility criteria require that the investment income of filers be less than $3500. The ACS 2017 person variable incinvst (range: -2100 to 24700), which measures income from an estate or trust, interest, dividends, royalties, and rents received, was recoded to reflect this cap. Households with $3500 or less in investment income was marked as eligible, while households with $3501 or more in investment income were marked as ineligible. Respondents under 15 are coded as missing.
Original Variable
New Variable
N (Weighted)
% (Weighted)
incinvst
Incinvst_3500
-2100 (min) to 3500
1 “Eligible – $3500 or less”
448,296
4.98
$3501 to 247000 (max)
0 “Ineligible -$3501 or more”
6,929,598
76.95
999999
.i “N/A – under 15”
1,627,750
18.07
Earned Income. As EITC filers are required to have earned income, respondents without earned income were excluded from this analysis using the 7-digit numeric variable “incearn”, which records respondents’ self-reported income earned from wages or a person’s own business or farm for the previous year.
Original Variable
New Variable
N (Weighted)
% (Weighted)
incearn
incearn2cat
-6300 (min) to 1 (max)
0 “Ineligible – no personal earned income”
4,103,220
45.56
1 to 1025000 (max)
1 “Eligible – has personal earned income”
4,902,424
54.44
Personal Income. For unmarried individuals, the variable inctot, which captures respondents’ pre-tax personal income or losses from all sources for the previous year was used to create a dichotomous variable for income eligibility. As the maximum adjusted gross income for single tax filers is $15,270, individuals earning more than this amount were considered ineligible in the target group analysis.
Original Variable
New Variable
N (Weighted)
% (Weighted)
inctot
inc0child
-6300 (min) to $15,270
1 “Eligible – $15,270 or less”
2,609,153
28.97
15271/1272000 (max)
0 – “Ineligible – $1571 or more”
4,768,741
52.95
999999
.i. “N/A – under 15 years”
1,627,750
18.07
Total Family Income. For married individuals assumed to be filing jointly, the variable ftotinc, which captures the total pre-tax money income earned by one’s family (as defined by family unit) from all sources for the previous year, was used to create a dichotomous variable for income eligibility. As the maximum adjusted gross income for single tax filers is $15,270, individuals earning more than this amount were treated as ineligible in the target group analysis.
Original Variable
New Variable
N (Weighted)
% (Weighted)
ftotinc
faminc0child
-6300 (min) to 20950
1 “Eligible – $20,950 or less”
1,003,393
11.14
20951 to 1684500 (max)
0 – “Ineligible – $20,951 or more”
7,811,460
86.74
999999
.i. “N/A”
190,791
2.12
Qualifying Child Status. In order to be eligible for the New Jersey EITC, tax filers must not be claimed as a dependent or qualifying child of another person. Tax filers may be claimed as another person’s qualifying child until the age of 19 if they are not a student, and until the age of 24 if they are a student. Accordingly, three variables were combined to create a composite measure of whether or not a respondent was likely to be a qualifying child or dependent of another person. Respondents were coded as possible qualifying children of other tax filers if they indicated that were either 1) under 19; and the child, sibling, or grandchild of the head of household, or under 2) under 25; a student, and the child, sibling, or grandchild of the head of household. Respondents that were identified and possible qualifying children were treated as ineligible for the EITC in this analysis.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Relate
Qualchild
3 “Child” 7 “Sibling“ 9 “Grandchild” AND age <=19, OR age <=25 AND in school
1 “Ineligible – Could be a Qualifying Child/Sibling/Grandchild”
2,286,485
25.39
1 “Head/Householder”; 2 “Spouse”; 4 “Child-in-law”; 5 “Parent”; 6 “Parent-in-Law”; 8 “Sibling-in-Law”; 10 “Other relatives”; 11 “Partner, friend, visitor”; 12 “Other non-relatives” OR if age >= 20 AND not in school
0 “Eligible – Likely Not a Qualifying Child”
6,624,630
73.56
13 “Institutional inmates”
2 “Ineligible – Institutional Inmates”
94,529
1.05
Number of Qualifying Children. The ACS 2017 household variable “number of related children in household under 18” The number of related children in the household was used as a proxy for qualifying children. Any respondents living with related children under 18 were excluded from the target group analysis. As the ACS does not capture which household member claims qualifying children, it is likely that the number of people without qualifying children is underestimated.
Original Variable
New Variable
N (Weighted)
% (Weighted)
us2017a_nrc
numrelchild
0
0
4,389,570
48.74
1
1 “1 Child”
1,607,720
17.85
2
2 “2 children”
1,721,873
19.12
3 to 18
3 “3 or more children”
1,103,408
12.25
BB
.i “N/A (Group Quarters or Vacant)”
183,073
2.03
Sociodemographic Measures and Descriptive Statistics
After establishing the parameters for the target group, the following variables were employed to examine the characteristics of the newly eligible population.
Original Variable
New Variable
N (Weighted)
% (Weighted)
Sex
N/A
1. Male
–
4,398,062
48.84
2. Female
–
4,607,582
51.16
County
0. Not Identifiable
–
579,997
6.44
3. Bergen
–
948,558
10.53
5. Burlington
–
448,537
4.98
7. Camden
–
511,228
5.68
13. Essex
–
808,506
8.98
15. Gloucester
–
292,408
3.25
17. Hudson
–
691,893
7.68
19. Hunterdon
–
124,745
1.39
21. Mercer
–
374,077
4.15
23. Middlesex
–
841,893
9.35
27. Morris
–
499,306
5.54
29. Ocean
–
597,268
6.63
31. Passaic
–
511,844
5.68
35. Somerset
–
335,557
3.73
37. Sussex
–
141,896
1.58
39. Union
–
564,008
6.26
41. Warren
–
107,349
1.19
Race/Ethnicity (composite of two variables, race and Hispanic origin (hispan)
Race = 8 “Two or more races” or 9 “Three or more major races” hispan = 0 “Not Hispanic”
7. NH Two or More Races
152,839
1.70
Appendix B: Demographic Breakdown – Tables
Due to data availability limitations, the demographic estimates were generated using ACS 2017 data and the total impact and cost estimates were produced using ITEP’s Microsimulation tax model. Because the two analyses are based on different data sets with unique sampling frames and assumptions related to eligibility criteria, the total number of potential beneficiaries in demographic breakdown differs from the estimates generated by ITEP’s Microsimulation Tax Model. Further information on the methodology used to produce demographic estimates is available in Appendix A. Further information on ITEP’s methodology is available here: https://itep.org/itep-tax-model-simple/.
Potential Beneficiaries of Lowering Age Limit for Childless EITC to 18 in New Jersey
County
Total Pop (Weighted)
Total Pop % (Weighted)
Total Number of Potential Beneficiaries (18 to 24, Childless) (Weighted)
Potential beneficiaries in county among total beneficiaries
Potential beneficiaries in county among total county population
Not Identifiable
579,997
6.44
5,011
6.1%
0.86%
Bergen
948,558
10.53
4,578
5.6%
0.48%
Burlington
448,537
4.98
3,673
4.5%
0.82%
Camden
511,228
5.68
8,013
9.7%
1.57%
Essex
808,506
8.98
7,839
9.5%
0.97%
Gloucester
292,408
3.25
4,757
5.8%
1.63%
Hudson
691,893
7.68
5,550
6.7%
0.80%
Hunterdon
124,745
1.39
588
0.7%
0.47%
Mercer
374,077
4.15
5,930
7.2%
1.59%
Middlesex
841,893
9.35
7,384
9.0%
0.88%
Monmouth
626,574
6.96
5,041
6.1%
0.80%
Morris
499,306
5.54
3,002
3.7%
0.60%
Ocean
597,268
6.63
6,916
8.4%
1.16%
Passaic
511,844
5.68
4,004
4.9%
0.78%
Somerset
335,557
3.73
2,234
2.7%
0.67%
Sussex
141,896
1.58
849
1.0%
0.60%
Union
564,008
6.26
5,080
6.2%
0.90%
Warren
107,349
1.19
1,785
2.2%
1.66%
Source: NJPP Analysis of ACS 2017 Data
Note: Atlantic, Cape May, Cumberland and Salem counties are not included because they are not identified in the IPUMS USA sample. Because these counties are not identified in public use microdata, they are grouped together in the “Not Identifiable” category at the top of the table.
Potential Beneficiaries of Lowering Childless New Jersey EITC Age Limit to 18 by Race/Ethnicity
[5] Crandall-Hollick, Margot L. (2018). The Earned Income Tax Credit (EITC): A Brief Legislative History. Congressional Research Service. https://fas.org/sgp/crs/misc/R44825.pdf
[36] Steven Ruggles, Sarah Flood, Ronald Goeken, Josiah Grover, Erin Meyer, Jose Pacas, and Matthew Sobek. IPUMS USA: Version 9.0 [dataset]. Minneapolis, MN: IPUMS, 2019. https://doi.org/10.18128/D010.V9.0
