TRENTON--New Jersey is one of only 19 states where some people who make less than the federal poverty level owe state income tax, according to a report released today.

This is not because of any changes in New Jersey's tax policy-but because of the lack of change. Each year, the amount of money a household can make and still be considered in poverty is adjusted for inflation. In 2006, it rose to $20,615 for a family of four. That's not a lot of money-but under current policy in New Jersey, a family making over $20,000 owes state income tax and is disqualified from the state Earned Income Tax Credit.

The Impact of State Income Taxes on Low-Income Families in 2006 was issued by the Center on Budget and Policy Priorities in Washington DC. The full report is available at http://www.cbpp.org/3-27-07sfp.htm. As the report points out, "Taxing the incomes of working-poor families runs counter to the efforts of policymakers across the political spectrum to help families work their way out of poverty. The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well."

Its failure to adjust the EITC eligibility level or the state income tax threshold means New Jersey now is:

• One of 14 states where the state income tax burden on a family of four at the federal poverty line was higher in 2006 than in 2005. Because the federal poverty line in 2005 was below $20,000 a two-parent family of four at that level received $728 from the state EITC. In 2006, the same family at the poverty line would owe $219 in New Jersey income tax.
• One of 10 states-and is the only one in the northeast-where a family of four at the federal poverty line owes at least $200 in state income tax. The others are Alabama, Arkansas, Hawaii, Indiana, Iowa, Michigan, Montana, Oregon and West Virginia.

"In a high-cost state like New Jersey, even people making well above $20,000 still can't afford basic necessities," said NJPP President Jon Shure. "So, taxing anyone who is below the poverty line is especially burdensome. It blocks their climb up the economic ladder."

The good news, though, is that New Jersey can remove itself from this tax "hall of shame" by adopting changes to the state Earned Income Tax Credit proposed by NJPP and included by Governor Corzine in the state budget plan he released in February.

These changes, effective July 1 if they are adopted, would make it so that New Jersey's state EITC has the same eligibility standards as the federal EITC. This would wipe out New Jersey state income tax liability for households below the federal poverty line. A family of four could make up to $38,222 this year and still get federal EITC benefits. But New Jersey's state EITC cuts households off when they make $20,000. New Jersey is the only state whose EITC income eligibility level is below that of the federal program.

The proposals also would strengthen the state EITC by increasing the dollar amount for current and new recipients. Today, New Jersey's state EITC provides a benefit equal to 20% of a recipient's federal EITC. Corzine's budget calls for increasing this to 22.5% in 2008 and 25% in 2009.

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

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