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Should N.J. change income tax brackets to save you money?

Monday, March 28, 2016   (0 Comments)
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NJ.com 03/28/16

Tired of your money not keeping up with your expenses? A Republican state lawmaker has borrowed an idea from the feds he says can help you with that, by annually adjusting New Jersey's personal income tax brackets for inflation to prevent the taxes people pay from growing faster than their real wages. Assemblyman Anthony Bucco's bill (A3536) would recognize that while a person's income may have increased slightly, their buying power hasn't. Taxpayers whose income was unchanged or increased less than the rate of inflation would actually pay a bit less, which reflects that the value of their income has decreased in real terms. Inflation indexing is meant to avoid something called "bracket creep" caused by inflation in a state like New Jersey, where income taxes are graduated and higher income is taxed at a higher rate. New Jersey's income tax brackets are fixed, unlike the federal government, which adjusts brackets, exemptions and deductions to take into account that as inflation rises, taxpayers don't have the spending power they used to.

"Anything we can do to try to help promote fairness and keep a couple extra dollars in people's pockets, while it may not be a lot, it's a step in the right direction," said Bucco (R-Morris). The bill would require the state to annually factor the cost-of-living adjustment, based on the urban consumer price index, into the income tax brackets. Bucco didn't have estimates yet on how much revenue the state could lose, but he said he doesn't expect significant losses. Drenkard said the revenue costs would be pronounced over time. That could be a hangup in New Jersey, where tax collections struggled to bounce back from the Great Recession and the budget habitually underfunds education, transportation and retirement benefits. "I would hope any time you put something up that's designed to create fairness that you get broad support," Bucco said. "But you never know."

Ralph Albert Thomas, executive director of the New Jersey Society of Certified Public Accountants, said the organization favors efforts like this to mirror the federal income tax code. Both he and Jon Whiten, deputy director of New Jersey Policy Perspective, a progressive Trenton think tank, said the change isn't radical but would bring fairness to New Jersey's tax code, provided all the brackets shift equally. "Certainly one of the big issues here with New Jersey has been the conversation about the tax structure and how we're not competitive nationally or with the region," said Thomas, calling the legislation a step in the right direction.


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