On December 31, 2012, the payroll tax went up from 4.2% to 6.2% for all workers. Senator Shirley K. Turner (D-Mercer/Hunterdon) stated that “The fiscal cliff drama was nothing but a political shell game..." She expressed grave concerns that the payroll tax increase would hurt the working poor the most and delay New Jersey's recovery from the economic downturn. She stated, “Using political wrangling over the income tax as a distraction, fiscal cliff dealmakers blindsided low and middle income workers by not renewing the payroll tax holiday.” She also added, “This is a real hardship on most workers, but New Jersey’s working poor, who are already struggling to make ends meet, will be hit hardest; the two percent payroll tax increase means a significant loss of income from every paycheck..."
Senator Turner, a prime sponsor of bills that would increase the minimum wage and restore the Earned Income Tax Credit (EITC) to full funding said that the payroll tax increase, “only underscores and reinforces the need to provide families earning poverty level wages with the income increases that they need to offset the 2 percent loss of income and the cost of living increase.”
The payroll tax holiday expired on December 31, 2012, and was not renewed as part of the federal “fiscal cliff” deal. The FICA tax, which is deducted from workers’ paychecks, will cause take home pay to decrease by $600 per year for workers with an annual income of $30,000. Workers with an annual income of $50,000 will bring home $1,000 less per year, while workers with an annual income of $100,000 will bring home $2,000 less per year. The New Jersey EITC was cut from 25 percent of the federal level to 20 percent in 2010.
“The payroll tax increase is a one-two punch for New Jersey’s lowest wage earners who have already seen their taxes increase when funding for the EITC program was cut more than two years ago,” said Senator Turner. “Many of New Jersey’s working poor families, whose budgets are already stretched to the limit, will have to make more difficult choices about which of their basic necessities are to be cut even further. No one wants to choose whether to cut back on food, heat, shelter, or medicine, but these are the critical decisions that New Jersey’s working poor families must make.”
“Working poor families who are making minimum wage don’t have money to invest, nor do they have savings accounts or rainy day funds. They spend their paychecks, pumping the money back into the economy, which helps to create more jobs,” said Senator Turner. “The payroll tax increase and EITC cut mean that these workers have less money to pay their bills and no discretionary income to help stimulate our economy.