Category: Testimony

Family Leave Expansion Would Advance Equity and Eliminate Fear of Retaliation for All of New Jersey’s Workers

Posted on by Peter Chen

Every worker in New Jersey deserves the right to take paid family leave to bond with a new child or care for a loved one. No worker should fear losing their job to care for their ill parent, or spend precious weeks with a newborn. Certainly something as arbitrary as the size of their employer should not dictate whether they can take family leave without fear of discipline or termination.

As NJPP’s June 2023 report More Than One in Five New Jersey Workers Can Still Be Fired for Taking Paid Family Leave noted, over 800,000 workers in New Jersey can be fired for taking family leave. This should never be the case.

A-5611 takes a step towards protecting this right, but the proposed amendment to the bill still leaves businesses with fewer than 5 employees unprotected – nearly 200,000 workers or 5 percent of the total workforce.

Additionally, the Family Leave Act still has gaps for coverage for workers with less than 1,000 hours worked in the last 12 months or workers who have worked for their employer for less than one year. Roughly 400,000 New Jersey workers — or 10 percent of the workforce — worked fewer than 1,000 hours and therefore did not get job protection. Workers with fewer hours nonetheless need job protection to take time to care for their loved ones.

One recent federal proposal, the Job Protection Act, would eliminate the hours requirement and reduce the tenure requirement to 90 days for the federal Family and Medical Leave Act.

Job protection alone also does not solve the many remaining gaps in coverage in the paid family leave insurance program (FLI). The comprehensive A-5703 addresses many of these concerns in one package that should move alongside A-5611 to ensure that all workers who have an ill loved one or new child to bond with have access to paid time off of work.

Without adequate job protection for all workers and other program improvements detailed in A-5703, family leave runs the risk of becoming a luxury product for higher-income workers, rather than a benefit that all workers can use. Every worker in New Jersey should be able to take family leave without fear of economic penalties.

Extending Emergency Assistance Would Help New Jersey Residents Avoid Hunger and Homelessness

Posted on by Brittany Holom-Trundy

Good afternoon Chairwoman Jimenez and members of the Committee. Thank you for this opportunity to provide my testimony on the proposed extension of Emergency Assistance eligibility. My name is Dr. Brittany Holom-Trundy, and I am a senior policy analyst at New Jersey Policy Perspective (NJPP). NJPP is a non-partisan, non-profit research institution that focuses on policies that can improve the lives of low- and middle-income people, strengthen our state’s economy, and enhance the quality of life in New Jersey.

NJPP strongly supports the eligibility extension proposed in A5549, which continues an exemption from the 12-month lifetime limit of Emergency Assistance — which, notably, is only ⅕ of the lifetime limit for other Work First New Jersey assistance — for residents who are disproportionately harmed by economic and health crises. This includes those who have disabilities, who are full-time caretakers of dependents with disabilities, who are over 60 years old, and who chronically face barriers to employment.

When the original bill passed in 2018, OLS estimated that thousands of families each year benefit from the relief that this exemption provides. As that was a pre-pandemic evaluation, it can be estimated that even more families need this help today. This means that, without this exemption, thousands of New Jerseyans who are most in need and living in the most devastating conditions would face homelessness and hunger; only arbitrarily set time limits would prevent them from receiving help. Because crises are unpredictable, these time limits back families disproportionately at risk into a corner whenever they face disaster: they end up either pressured to decide whether to use some of their very limited assistance time or they are cut off from aid simply for facing greater hardship than allowed.

The state should never let itself slip backward in its support for families, and the law’s sunsetting demands urgent action. While the Work First New Jersey programs need significant reform to avoid these urgent legislative demands in the future, this bridge remains critical for maintaining progress for families until those larger changes are made. We hope that the committee will advance the extension of these crucial services today. Thank you for your time.

Building on Existing Programs Will Help Support New Jersey’s Families

Posted on by Brittany Holom-Trundy

Good afternoon, Commissioner and DHS team. Thank you for this opportunity to provide testimony on the FY 2025 budget for the Department of Human Services. My name is Dr. Brittany Holom-Trundy, and I am a senior policy analyst at New Jersey Policy Perspective (NJPP). NJPP is a non-partisan, non-profit research institution that focuses on policies that can improve the lives of low- and middle-income people, strengthen our state’s economy, and enhance the quality of life in New Jersey.

The Department of Human Services provides crucial support for individuals and families in the face of rising costs and instability. The past year’s successes, including the expansion of All Kids health coverage, have served as essential bridges for families facing ever-changing economic, health, and political landscapes. Building on the strong foundations that these policies have provided will help to eliminate the continuing daily uncertainty that many working families, immigrants, and low-income residents still face.

In order to do this, here are four priorities for the Department to consider for next fiscal year.

1. All Kids Coverage: Building the Final Bridges
We have seen the success of All Kids in enrolling already-eligible and newly-eligible children with the expansion this past January. The Department’s support of this initiative has been key to its success thus far, and continued prioritization of full implementation remains the only path toward universal coverage.

NJPP urges DHS to continue its commitment to this effort by ensuring that the expansion remains fully funded in FY 2025 and that the final bridges for uninsured children who are not income-eligible for NJ FamilyCare (NJFC) are built. This means making sure that state funds continue to cover the approximately 35,000 newly eligible, enrolled children (approximately $105 million), as well as providing funding to open buy-in options at least for the estimated 2,000 children who are not income-eligible for NJFC and yet do not qualify for GetCovered NJ coverage due to immigration status.

2. Reforming Work First New Jersey (WFNJ) to Work for Families
Low-income residents consistently face daily economic insecurity, and yet the state’s main program helping to lift families out of deep poverty remains outdated and subject to the punitive stereotypes of 1990s welfare reform. NJPP encourages the Department to consider how to improve the WFNJ program and make it truly work for the state’s poorest families.

By investing at least $28 million, the Department can begin the process of gradually increasing the monthly grant amount to at least 50 percent of the Federal Poverty Level (FPL) over the next three years. With $95 million, this grant increase to 50 percent FPL could be achieved in the first year, setting participants on better supported paths for the future immediately. Maintaining current Emergency Assistance funding is also crucial. Finally, additional funds can help to improve off-ramps, reduce work hour requirements to better meet families’ realities, eliminate barriers for immigrants, and ensure that children and parents are lifted out of deep poverty.

3. Supporting Child Care as an Essential Building Block for Families’ Futures
NJPP urges the Department to continue or expand successful program changes from the past few years and to increase state support to fill any gaps left by the loss of federal funding. Child care providers need stability in subsidy payments, and a long-term solution to ensure pay-by-enrollment, rather than by attendance, is critical to the health of the system. Low staff salaries and insufficient data systems also require continued attention and creative solutions.

4. Welcoming New Jersey’s Newest Residents
New Jersey’s diverse immigrant communities deserve to be welcomed to the Garden State with the same enthusiasm and empathy for their families’ needs as do all New Jersey residents. To do this, the Department should ensure that funding is available to codify the Office of New Americans and to support the continuation of services like the Deportation Detention Defense Initiative, legal services for unaccompanied minors, and fee waivers and assistance for refugees and asylum seekers.

Thank you so much for your time and consideration.

New Jersey’s Transition to Clean Energy Must Be Equitable

Posted on by Alex Ambrose

My name is Alex Ambrose, and I am a policy analyst with New Jersey Policy Perspective.
Thank you Chairman Smith and members of the committee for your leadership on this issue.

I want to start by emphasizing that clean must mean clean. Ensuring a strong definition will not only make NJ a national leader in the green economy, but it will also safeguard our environmental justice communities. Black and brown families suffer disproportionately due to our state’s over reliance on dirty energy.

There’s a concept called energy privilege. The Univ of California found that communities that oppose clean energy tend to be wealthier and whiter communities, while poor communities and communities of color bear the brunt of fossil fuel-based energy generation.

The transition to clean energy must be equitable—we must ensure that a privileged few do not dictate our energy policy, but that we center the lived experience of our environmental justice community leaders.

We lift up the amendments specified by ICC and NJEJA on the definition of clean electricity production facilities. This is essential to moving our state forward and achieving true equity in our state.

We also want to lift up the importance of having strong workforce development and labor provisions. I understand that there is a balance that needs to be struck in how much energy we purchase from out of state and how much needs to be generated in state. We support a provision that maximizes the in-state benefits of clean energy job creation.

It is essential that the co-benefits of the green economy reach New Jerseyans, especially those in Black and brown communities who have historically been excluded from the benefits of energy generation.

We appreciate your work on this bill and hope you will take these amendments into consideration to ensure the best possible future for all New Jerseyans. Thank you.

All Students Benefit From a Strong and Inclusive Equity Code

Posted on by Nicole Rodriguez

Good Afternoon, Board Members,

I am Nicole Rodriguez, President of the New Jersey Policy Perspective (NJPP), a nonpartisan research institution focused on state-level policies that advance economic, social, and racial justice.

Our stated mission at NJPP is to ensure all of New Jersey’s residents enjoy lives of dignity, opportunity, and economic security.[i] This includes our state’s students; over the past several years, we have centered our education policy work on ensuring that all children in our state have equitable access to high-quality, well-resourced schools and a broad, rich, and rigorous curriculum.

It is because we are concerned for all of New Jersey’s students that we come here today to support the Department of Education’s proposed amendments to what is commonly known as the “Equity Code.”[ii]

The proposed amendments define equity as “… all students have the opportunity to master the goals of the curriculum in an educational environment that is fair, just, and impartial to all individuals.”

This is a critical time for New Jersey to focus on educational equity. The pandemic and the return to in-person schooling have increased stress on our students. As we reported in 2022, nearly three-quarters of public schools in the Northeast reported an increase in students seeking mental health services since the start of the pandemic.[iii] Getting all students the support they need in school must be a top priority.

Even before the pandemic, a group of students remained especially vulnerable: transgender students. These students require more than mental health supports; they need teachers who are trained in supporting them; school communities that are welcoming, inclusive, and safe; a curriculum, particularly in sexual health, that addresses their needs; and opportunities to learn and grow similar to those we aspire to provide to all of New Jersey’s students.

The challenges and hostilities faced by all LGBTQIA+ students have been well documented.[iv] We should remember, however, that transgender students face specific risks. A recent survey found nearly three-fourths of transgender students felt unsafe at school based on their gender.[v] Another survey conducted in 20 states, including New Jersey, found that 64 percent of middle school students and 67 percent of high school students “…felt so sad or hopeless almost every day for two weeks or more that they stopped doing some of their usual activities.”[vi] A review of the research shows “…upward of 40 percent of all trans individuals consider or attempt suicide during adolescence or young adulthood.”[vii]

These disturbing facts should be a wake-up call for all policymakers in the state. Unfortunately, it appears that policies designed to bolster the rights of transgender children have, instead, been used to stoke unjustified fears of an attack on parental rights, furthering transphobia and bias against LGBTQIA+ students.

There is nothing in the proposed amendments that would abrogate the rights of parents; to the contrary, a strong Equity Code focused on fairness and justice for all students —including transgender students—supports the right of all parents, as guaranteed by the New Jersey Constitution, to give our children access to a thorough and efficient system of public schools.

Both federal and state law support the proposed amendments to the Equity Code. New Jersey’s Law Against Discrimination (LAD) clearly states schools cannot discriminate against transgender students based on their gender or gender expression.[viii] Title IX guidance from the United States Education Department states there cannot be discrimination against transgender students when classes are separated by sex.[ix] The proposed amendments, therefore, do little more than codify what is already in state and federal law.

In sum, the proposed amendments to the Equity Code will help guide policymakers in making New Jersey’s schools more just and fairer. Of course, these amendments are only a first step: action must follow. We believe it is important to follow the recommendations of the New Jersey Task Force on Transgender Equality,[x] particularly regarding the collection and publication of data on transgender and other LGBTQIA+ students, to ensure that districts are taking the steps necessary to implement the amended Equity Code in their schools.

We applaud the Department of Education’s commitment to equity and look forward to seeing the amended code implemented in our schools. Thank you.

End Notes

[i] New Jersey Policy Perspective; Our Work and Impact https://www.njpp.org/about/our-work-impact/

[ii] Proposed Readoption with Amendments at N.J.A.C. 6A:7, Managing for Equality and Equity in Education.

https://www.nj.gov/education/sboe/meetings/agenda/2023/August/public/5e1_Chapter_7_Managing_for_Equality_and_Equity_in_Education.pdf

[iii] Weber, M. (2022). New Jersey’s Black Students Suffer a Decline in Access to School Mental Health Staff. New Jersey Policy Perspective. https://www.njpp.org/publications/report/new-jerseys-black-students-suffer-a-decline-in-access-to-school-mental-health-staff/#_edn2

[iv] Kosciw, J. G., Clark, C. M., & Menard, L. (2022). The 2021 National School Climate Survey: The experiences of LGBTQ+ youth in our nation’s schools. New York: GLSEN. https://www.glsen.org/research/2021-national-school-climate-survey

[v] Ibid., p. 85.

[vi] Youth Truth (2022) Insights From the Student Experience, Part I: Emotional and Mental Health. https://youthtruthsurvey.org/emh/

[vii] Ashley Austin, Shelley L. Craig, Sandra D’Souza, and Lauren B. McInroy (2020) Suicidality Among Transgender Youth: Elucidating the Role of Interpersonal Risk Factors, Journal of Interpersonal Violence 2020 37:5-6, NP2696-NP2718.

[viii] New Jersey Law Against Discrimination N.J.S.A. 10:5-1 et seq. https://www.nj.gov/oag/dcr/downloads/NJ-Law-Against-Discrimination-Most-Updated.pdf

[ix] United State Department of Education, Office of Civil Rights: Questions and Answers on Title IX and Single-Sex Elementary and Secondary Classes and Extracurricular Activities (p. 25).

https://www2.ed.gov/about/offices/list/ocr/docs/faqs-title-ix-single-sex-201412.pdf

[x] New Jersey Transgender Equality Task Force. (2019) Report and Recommendations

Addressing Discrimination Against Transgender New Jerseyans. https://www.gardenstateequality.org/our-work/resources/

It’s Time for New Jersey to Eliminate Public Defender Fees

Posted on by Marleina Ubel

Good morning, Chairman Sarlo and distinguished members of the committee. My name is Marleina Ubel, and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice for New Jersey residents.

Thank you for posting this bill and allowing me the opportunity to testify in support of eliminating public defender fees. As a social worker and policy analyst with extensive knowledge of this issue, I am compelled to highlight the importance of this legislation for our legal system and the urgent need for its implementation.

New Jersey has long been a trailblazer in criminal legal system reform, recognizing the importance of equitable access to justice for all individuals, regardless of their socioeconomic status. However, the imposition of public defender fees creates an insurmountable burden for low-income individuals, exacerbating existing inequities and undermining the principles of fairness and equality upon which our justice system is built. Most Americans cannot afford a $400 emergency and based on the federal poverty level, over 800,000 New Jerseyans live in poverty, whereas estimates based on the “True Poverty Level” suggest that closer to 3 million residents—a third of the state’s population—live in poverty.[i] These individuals often struggle to afford to meet their basic needs, let alone bear the financial burden of legal representation.

Eliminating public defender fees is not only a matter of justice but also a fiscally responsible decision. The administrative costs associated with collecting and enforcing these fees often surpass the revenue generated. Additionally, by removing this financial burden, we can redirect resources towards the Office of the Public Defender, ultimately leading to better outcomes for defendants, the public defenders who represent them, and the justice system as a whole.

Moreover, the general public is largely under the assumption that public defenders are free. Many people were shocked to learn that in New Jersey, of all places, this is not the case. This is because everyone has a constitutional right to representation and has heard time and time again in popular media that if you cannot afford an attorney one will be appointed for you. I know that being a lawmaker involves balancing what one believes to be good policy, grounded in facts, and the wants and needs of the public that one is chosen to represent. This is one of those bills that does both.

Several states across the country, including our neighbors New York and Pennsylvania, do not charge for public defenders. By joining them, New Jersey can continue to lead by example and demonstrate its commitment to upholding the principles enshrined in our Constitution.

In conclusion, I urge you to support S3771 and work towards the elimination of public defender fees in New Jersey. By doing so, we can ensure that our justice system remains accessible to all, regardless of their socioeconomic status. Let us strive towards a more equitable future, where constitutional rights are not behind a paywall.

Thank you for your attention. I am available for any questions.

End Note

[i] New Jersey State Policy Lab, Rutgers University. October 21, 2022. https://policylab.rutgers.edu/perspectives-on-poverty-in-new-jersey-2008-2020/#:~:text=Based%20on%20the%20federal%20poverty,in%20poverty%20the%20same%20 year.

New Jersey Should Invest Opioid Settlement Funds to Effectively Tackle the Opioid Crisis and Prevent Future Harm

Posted on by Marleina Ubel

Good afternoon to all the members of this critical advisory council. Thank you for your thoughtfulness and attention as we provide testimony today.

My name is Marleina Ubel, and I am a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice for New Jersey residents.

New Jersey has been significantly impacted by overdose death, with devastating consequences for individuals, families, and communities across the state. The recent opioid settlements present a unique opportunity to channel substantial resources towards initiatives that can effectively tackle this crisis and prevent future harm.

As a representative of an organization that focuses on equitable, evidence-based policies, and in order to maximize the impact of these funds, I recommend the three following investment strategies:

Prioritize Harm Reduction Based Approaches: Decades of research and the experiences of people on the ground have consistently shown that harm reduction strategies are effective in reducing the harms associated with opioid use. It is crucial that a significant portion of the settlement funds be allocated towards expanding access to evidence-based harm reduction interventions that follow a comprehensive approach to drug user health and overdose risk reduction, such as: syringe access programs,  community-based naloxone distribution, and medication-assisted treatment (MAT). These initiatives have proven to save lives, prevent the spread of infections, and provide critical support to individuals who use drugs.

Support Drug Decriminalization Efforts: The criminalization of drug use has failed to recognize it as a public health issue and has perpetuated systemic inequities, disproportionately impacting communities of color. A portion of the settlement funds should be directed towards supporting initiatives that aim to decriminalize drug possession, promote alternative non punitive responses, and invest in diversion programs that prioritize treatment and rehabilitation. I want to emphasize, here, that none of these funds should go to law enforcement. By shifting from a punitive approach to a public health-focused strategy, New Jersey can break the cycle of overdose death and reduce the negative consequences associated with criminalization.

Invest in Data Collection, Analysis, and Education: In order to effectively address the overdose crisis, it is imperative that we have accurate and timely data on its prevalence, trends, and impact. Allocating a portion of the settlement funds towards enhancing data collection systems, conducting comprehensive research, and promoting data sharing among relevant stakeholders will enable evidence-based decision-making and popular education. Misinformation around drug use perpetuates stigma and hinders progress.

This investment will also support ongoing monitoring and evaluation of initiatives, ensuring that resources are directed where they can have the greatest impact. New Jersey is unique among states in that the harsh drug laws passed in 1987 are still in effect today, as well as being the last state in the nation with a legal pathway to syringe access.[1] In qualitative research, people seeking support from state-funded initiatives report that they are not able to receive support if they return to chaotic drug use — despite return to use being an expected symptom of a substance use disorder, and unconditional support being an evidence-based public health practice. All state initiatives should be thoroughly evaluated to ensure that they are guided by best practices and not replicating stigma and punishment for people who use drugs.

In conclusion, the allocation of opioid settlement funds presents New Jersey with an unprecedented opportunity to make a substantial difference in the lives and loved ones of people who use drugs. By prioritizing harm reduction approaches, supporting drug decriminalization efforts, and investing in data collection and analysis, the state can implement evidence-based policies that address the root causes and promote equitable outcomes.

Thank you for your time and attention to this critical matter.

End Note

[1] Bruce D. Stout and Bennett A. Barlyn, “The Human and Fiscal Toll of America’s Drug War: One State’s Experience,” Albany Law Review, 2015, 525-526. Jenna Mellor, “A War on Us: How Much New Jersey Spends Enforcing the War on Drugs,” New Jersey Policy Perspective.

Alternative Crisis Response Builds Trust and Enhances Public Safety

Posted on by Marleina Ubel

Good afternoon, Chairman Spearman and members of the committee. Thank you for the opportunity to testify today.

I’m Marleina Ubel, a policy analyst at New Jersey Policy Perspective (NJPP), a nonpartisan think tank focused on advancing economic, social, and racial justice for New Jersey residents.

NJPP is in full support of community-based alternatives to policing in New Jersey. We want to thank the Chairman for his sponsorship of this bill and for having it heard before the committee today.

The current model of policing has demonstrated numerous shortcomings, particularly in communities hit hardest by over-policing. People of color, individuals experiencing mental health crises, and socioeconomically disadvantaged neighborhoods bear the brunt of the harms and negative outcomes associated with current one-size-fits all approach to public safety. It is clear that our communities deserve better.

By investing in initiatives such as community mediation programs, violence interruption programs, restorative justice practices, and community-led crisis response teams, we can build trust, enhance public safety, and foster stronger connections between public systems and the communities they serve. These alternative approaches prioritize de-escalation, community engagement, and a holistic understanding of public safety that encompasses the social determinants of crime.

Moreover, these alternatives have proven to be effective in other jurisdictions across the country. Evidence shows that community-based initiatives can reduce violence and enhance public trust. By directing resources towards these programs, New Jersey has an opportunity to lead the way in establishing a model that centers the needs and voices of our communities.

In addition to promoting safety and community well-being, investing in community-based alternatives to policing can also yield substantial cost savings. Traditional law enforcement consumes a significant portion of local budgets, often at the expense of essential social services such as extracurricular programming, mental health, and housing. By allocating funds towards community-based programs, we can address the root causes of crime, reduce recidivism, and create a more balanced and equitable allocation of resources that benefits everyone in our state. For example, an evaluation of the CAHOOTS program in Oregon estimated that they have saved the taxpayers in their city an average of $8.5 million every year.

I urge the committee to vote yes in support of the exploration, development, and implementation of these alternatives, working collaboratively with community leaders, advocates, and experts to ensure that the voices and experiences of those most impacted are central to the process.

Thank you for your attention to this critical issue. I am available to provide further information or answer any questions you may have.

Corporate Tax Reform Bill Opens Loopholes, Makes it Easier to Hide Profits Overseas

Posted on by Peter Chen

The Corporation Business Tax changes being proposed in A-5323/S-3737 are extremely complicated. Many of them are positive, but the removal of key anti-abuse provisions leaves gaping holes in preventing corporate tax avoidance through offshore subsidiaries, specifically the decoupling of GILTI conformity from federal rules, and the reopening of the related-entity royalty/interest payment loophole.

Although NJPP supports many provisions in this bill, including the important switch to the Finnigan method of counting corporate profits, the organization cannot support the bill in its current form.

The bill opens and re-opens far too many tax loopholes, which allow corporations to supercharge their tax avoidance schemes and reward them for foreign offshoring of profits and phantom transactions to artificially reduce their corporate incomes.[i] With more than one trillion dollars in corporate profits now flowing offshore to tax havens, New Jersey must do all that it can to ensure that the corporations who earn profits off of in-state consumers and workers cannot shirk their duty to pay taxes through elaborate financial trickery.

Because this is a highly complex bill with many moving parts, I have attempted to organize the sections the legislature should remove, amend, or protect, as well as a few suggestions for provisions to add.

As an aside, I urge the legislature and Treasury Department to add section numbers and descriptive headings to help the public understand what is contained in the bill.

The Problem: Foreign Tax Avoidance 

  • Companies want to shift their profits overseas to avoid taxation
  • Mobile capital makes it easy for corporations to avoid paying their fair share of tax liability by artificially lowering their profits here
  • New Jersey tax law can’t “see” these corporate entities, because our CBT only looks at US-based subsidiaries
  • Foreign tax avoidance cost New Jersey roughly $714 million in lost tax revenue in 2018, with corporate profits (and tax avoidance in foreign subsidiaries) rising substantially since then.[ii] In 2018 that would have amounted to nearly 25 percent of all CBT revenue.
  • As a result, any tax code change that creates incentives to move profits abroad runs the risk of eroding profits stateside and eroding the revenues that should accompany them.

 

Two Key Loopholes for Abuse That Must Be Removed

Removing interest/royalty anti-abuse provisions (S-3737, p. 6, lines 6-48, p. 7, lines 1-5).

  • What it does: Currently the law only allows corporations to claim a deduction for royalty or interest payments to a related member if they can demonstrate that the purpose of the payments was not to avoid taxes.
  • The abuse potential: Corporations can create third-party foreign shell corporations, transfer intellectual property and license it back to their US subsidiaries and/or borrow money from these shells, then claim the interest or royalty payments as a loss, artificially lowering their US profits.
  • Why it must be removed: Because New Jersey can’t see foreign subsidiaries, the profits shifted abroad would avoid taxation, leaving Treasury to chase after the money after-the-fact through auditing, rather than preventing the offshoring abuse from happening in the first place.
  • Note: This provision is NOT included in the Treasury score sheet, but could have serious long-term potential for exploitation and revenue reduction.

 

Eliminating GILTI deduction and treating GILTI as dividend (S-3737, p.10, lines 18-22).

  • What it does: Currently the law treats foreign global intangible low-taxed income (GILTI) in conformity with the federal internal revenue code, roughly taxing it at 50 percent of the CBT rate. This provision would instead treat GILTI as dividend income, effectively taxing it at 5 percent.
  • The abuse potential: Despite the name, GILTI includes a wide range of profits earned by overseas corporations and slashing the amount of GILTI in state corporate taxation will further induce corporations to shift profit-generating assets to foreign subsidiaries.
  • Why it must be removed: Given that corporate taxpayers already need to report this income at the federal level, treating it in conformity with the federal government ensures that New Jersey revenue collection is protected against additional erosion through offshoring. Companies declared nearly $350 billion in GILTI in 2018. Conforming with federal law will ensure that New Jersey can keep its revenues robust in the face of additional profit offshoring.
  • Note: NJPP believes an estimate of ~$50M in revenue loss to be overly optimistic. Recent research has shown that foreign profit shifting behavior by corporations remained unchanged after the Trump Tax Cuts and Jobs Act (2017), with a stable 50 percent of US multinational profits claimed abroad.

 

Provisions to Protect

Reorganization discretion by the Director to force worldwide combined reporting (S-3737, pp.41-42, lines 20-48, 1-31).

  • What it does: Expands the power of the Director of the Division of Taxation to explicitly require a corporate filer to file a world-wide combined filing.
  • How it reduces abuse: Without the “stick” to force corporations to disclose their global holdings in order to unveil any tax avoidance schemes, there is nothing to stop corporations from testing the limits of tax law and hope to tie up disputes in litigation. Any weakening of the anti-abuse provisions as detailed above will require a backstop to ensure that companies cannot abuse tax law and the discretion in the Director is critical to deter companies from tax avoidance schemes. Note that worldwide combined reporting (see below) would help solve many of these problems of foreign offshoring by forcing companies to report all their profits and losses from all foreign subsidiaries as one combined return.
  • Note: The section uses “taxpayers” instead of “affiliates” or other terms. Yet this may limit the scope of this section only to organizations that have enough connection to New Jersey to trigger taxation, rather than affiliates who would not ordinarily be subject to New Jersey tax.

 

Close the captive Real Estate Investment Trust (REIT) loophole (S-3737, pp.25-27).

  • What it does: Includes REIT and Regulated Investment Companies (RICs) in the combined group and does not give them the deduction on dividends-paid. This (mostly) closes the loophole on the captive REIT tax avoidance strategy, which worked as follows:
    • Corporation owns lots of branches/locations, then transfers ownership to the REIT that it controls 90% of.
    • The REIT charges rent to the corporation, which the corporation can take as a deduction.
    • The REIT then pays out dividends to its shareholders (90% of whom are the corporation). The REIT then takes a deduction for dividends paid.
    • The corporation ALSO takes a dividends received deduction for the dividend payments from the REIT.
  • How it reduces abuse: By treating REITs and RICs as part of the corporate group, these payments cancel out, and the dividends-paid deduction is eliminated. In doing so, the tax code reduces the opportunity to abuse these schemes by eliminating much of the financial incentive for setting up these in the first place.
  • Caveat: The REITs and RICs can still be hidden through ownership by other types of corporate entities, such as life insurance company segregated asset accounts or Australian Property Trusts. The exclusion of these types of avoidance schemes (detailed on lines 40-42 on p. 25) suggests that this may simply move these schemes to more exotic foreign-controlled corporate entities. This loophole should be closed quickly and simply, so all REITs no matter how owned are included in the taxable group.

 

Formalize switch to Finnigan rule for taxable groups.

  • What it does: The Finnigan rule, named for a California court case, treats a corporation as taxable as long as any member of its unitary group is taxable. That means that corporate subsidiaries and related groups that do not claim nexus in New Jersey are taxable as part of one taxable group.
  • How it reduces abuse: Various tax schemes rely on related corporations that are outside the scope of New Jersey’s corporate tax system. New Jersey has moved towards combined reporting and has recognized that including all subsidiaries and related corporations is necessary to collapse some of these avoidance schemes.

 

Broader Solutions: Provisions to Add

Tax haven list (not currently included in the bill).

  • What it does: Requires that corporations report subsidiary and associated corporations as part of their combined reporting if they are incorporated in specific tax haven jurisdictions. For example, Montana requires that corporations in a unitary relationship with the taxpayer incorporated in countries like the British Virgin Islands, the Isle of Man, and Luxembourg must be included in a combined return. See Code 15-31-322(f).[iii]
  • How it reduces abuse: Nearly $1 trillion in global profits was collected in tax havens in 2019. Requiring corporations to report the profits generated by the worst-offender tax havens allows New Jersey to recoup some the income being lost to this tax avoidance, as well as protect legitimate offshore income generated by businesses abroad that do not have a connection with New Jersey.

 

Mandatory worldwide combined reporting (not currently included in the bill).

  • What it does: Requires that corporations report income on all their worldwide subsidiaries and controlled corporations as one unit. Subsequently, New Jersey can apply its apportionment formula to ensure only the profits attributable to the state are counted.
  • How it reduces abuse: Allowing corporations to simply elect whether to report their foreign subsidiaries allows corporations to hide their profits abroad and fail to report their income stateside. It also makes the tax avoidance schemes described above much easier to undertake (such as the royalty/interest deduction loophole or the REIT “rent” deduction) because the profit half of the ledger can be hidden in another country. Inevitably, the only way to stave off foreign profit offshoring to avoid taxation is to require true world-wide unitary combination. Although this will have additional administrative challenges, such as the fair allocation of foreign profits to New Jersey, shifting to mandatory world-wide reporting largely ends the game of whack-a-mole to chase down foreign profit-shifting tax avoidance schemes.

 

Final Note: More Auditors Needed

Treasury needs a ramp-up in the number of auditors to combat corporate tax flight.

  • What it does: Annual US corporate profits have more than tripled since 2003 (from $811 billion to $2.9 trillion), but the number of auditors projected for FY2023 is actually lower than the state had in 2003 (a decrease from 428 to 365). The increasing complexity of corporate tax structures and the sophistication of tax avoidance schemes requires sufficient staffing.
  • How it reduces abuse: With much of the enforcement power of the tax agency dependent on the audit power (and the reorganization discretion of the Director), the need for a strong auditor workforce is critical to ensure that the state can enforce its tax laws against the world’s largest and wealthiest corporations, who have substantial interest in lowering their tax liability. The federal IRS recently saw an increase in its workforce as part of the Inflation Reduction Act.

 

NJPP cannot support the bill in its current form, though with amendments, it could be a robust force against tax avoidance schemes.

End Notes

[i] Ludvig Wier and Gabriel Zucman, Global Profit Shifting, 1975-2019, United Nations University-WIDER Working Paper 2022:121, https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2022-121-global-profit-shifting-1975-2019.pdf

[ii] Ricahrd Philips, Institute on Taxation and Economic Policy, A Simple Fix for a $17 Billion Loophole: How States Can Reclaim Revenue Lost to Tax Havens (Jan. 17, 2019), https://itep.org/a-simple-fix-for-a-17-billion-loophole/.

[iii] See also Jane G. Gravelle, Congressional Research Service, Report R40623, Tax Havens: International Tax Avoidance and Evasion (Jan.  6, 2022) p. 4, https://sgp.fas.org/crs/misc/R40623.pdf.

New Jersey’s FY 2024 Budget Should Prioritize Working Families Over Corporate Interests

Posted on by Alex Ambrose

Good morning, Chairman Sarlo and members of the committee. My name is Alex Ambrose and I am a policy analyst at New Jersey Policy Perspective, a nonpartisan think tank focused on advancing economic, social, and racial justice. Our organization is also a member of the For The Many budget coalition.

Thank you for this opportunity to present testimony.

New Jersey’s state budget should prioritize the needs of working-class families who are struggling to make ends meet over corporate special interests – people over profits. That’s why we urge you: do not give corporations a one billion dollar tax cut by removing the corporate business tax surcharge. Not only would a tax cut be a gift to some of the biggest and most profitable corporations in the world like Amazon and Walmart, it will cost the state revenue sorely needed to continue funding education, infrastructure, health care, and so much more.

These funds are essential to balancing the state’s budget, building a healthy surplus, and reducing the racial and economic disparities that were not just exposed but worsened over the last few years. The pandemic taught us that government support helps ease the harm of economic downturns, while cutbacks and austerity only deepen the pain for hard-working families.

This budget needs to advance changes to make the tax code more equitable and make the state more affordable for low- and moderate-income households. A tax cut for wealthy corporations will do the exact opposite.

Revenue collections were strong in the last few budgets, but economists are forecasting an imminent drop in revenue collections, if not a recession. Last year, the Office of Legislative Services testified that the record-high revenues are only temporary and collections will begin dropping, as we have already seen in the latest revenue snapshot.

What we need is reliable growth and predictability through a fair tax code that prioritizes public services and programs that directly benefit everyday New Jerseyans.

Some of those programs are included in our recommendations for this year’s budget, including the Earned Income Tax Credit, the Child Tax Credit, Temporary Assistance for Needy Families, the Clean Energy Fund, NJ Transit, and Public Defender Fees.

First, we urge you to expand the Earned Income Tax Credit for ITIN holders. Despite being taxpayers themselves, ITIN holders are often excluded from accessing government programs. Expansion would help ensure all people in New Jersey have access to financial security.

Second, we urge you to expand the Child Tax Credit, a policy proven to reduce child poverty. This credit is critical for low-income families, and expanding it will give families additional necessary assistance. Specifically, we recommend doubling the existing credit, as the governor proposed in his budget, as well as expanding eligibility to children up to 11-years-old, as proposed by Assemblywoman Verlina Reynolds-Jackson.

Third, we ask for increased monthly grants for families participating in Temporary Assistance for Needy Families. TANF provides critical support to families experiencing economic hardship, and increasing grants to at least 50% of the federal poverty level and adjusting for inflation would better provide our state’s families with the means to get back on their feet.

Fourth, we urge you to end the diversions of the Clean Energy Fund, a fund that makes new, safer technologies more affordable for the state and for working class families. Should the diversions continue, New Jersey will have diverted over $2 billion dollars away from clean energy, and every dollar diverted undermines the clean energy laws we already have in place.

Fifth, we ask that you prioritize funding NJ Transit’s capital needs. NJ Transit has a backlog of projects necessary to keep service reliable and to improve infrastructure to avoid another year of record-high service breakdowns. The agency has many required capital improvements with no identified funding source.

Finally, we urge you to end public defender fees, which are a regressive tax on low-income defendants. The right to an attorney is a fundamental right in our justice system and should not be predicated on the ability to afford adequate legal representation. Eliminating these fees is a critical step in ensuring all residents have access to justice regardless of their financial circumstances.

The state has a robust set of achievements over the last few years including a full pension payment, pre-school expansion, working family tax credits, affordable housing, and more. To think the same economic benefits will come to our state if we give wealthy corporations a tax cut is trickle-down economics at its worst.

New Jersey Policy Perspective asks that while you are evaluating the budget, you keep everyday working New Jersey families in the front of your mind, not corporate CEOs.

The New Jersey state budget must help the grocery worker with no car trying to get to work on unreliable public transportation. It must help the parent working three jobs to pay for child care. It must help the front line worker who has to leave their job to attend to their child having an asthma attack.

Cutting corporate taxes will weaken our state’s fiscal health while doing nothing to strengthen our communities. State lawmakers should prioritize making New Jersey affordable for those who need the most help — not the wealthy and well-connected.

Thank you for your time.

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