Assembly panel moves forward with tax credit plan to offset unemployment tax hikes

Bill wins plaudits from business groups, but progressives say aid is needed elsewhere

By: - May 19, 2022 3:45 pm

New Jersey businesses are set to receive tax hikes this and next July to replenish the unemployment trust fund, drained when the state shuttered businesses in the early months of the pandemic. (Photo by Eduardo Munoz Alvarez/Getty Images)

An Assembly panel unanimously advanced a bill Thursday that would award tax credits to offset rising unemployment taxes on businesses, with the move winning plaudits from business groups and boos from a progressive advocate who said the measure would lead to a lopsided economic recovery.

The bill would provide $375 million to pay off federal unemployment loans and about $170 million in corporate business and gross income tax credits whose value would be equal to the tax hikes set to take effect this and next July. It would also require new reporting from the Department of Labor about the state’s unemployment trust fund, which was drained when jobless claims skyrocketed in the early months of the pandemic. The money would come from the state’s booming surpluses.

“What we’re doing here is a positive for our business community. You’re saying to them, ‘Look, we realize the increases that are currently scheduled will have a negative effect,’ and with this bill we’d actually give them a tax credit for any of those increases that they might incur,” said Assemblyman Roy Freiman (D-Somerset), the bill’s prime sponsor. “This is a positive.”

Business groups — including the state Chamber of Commerce, the New Jersey Business and Industry Association, and the National Federation of Independent Businesses — urged lawmakers to approve the bill, saying employers need the aid to help recover from the pandemic’s impacts on the economy.

Business leaders did see room for improvement, notably with what the bill considers a small business.

“We’d love to see that definition of small business be broader because we heard, especially in the hospitality area, there could be some businesses that might be mid-sized, just above that threshold in terms of revenues or (employees),” said Chris Emigholz, vice president for government affairs at the New Jersey Business and Industry Association.

The bill advanced by the committee Thursday is a merger of two separate measures intended to tackle the state’s rising unemployment taxes. Like Freiman’s original bill, it uses small business definitions set by the U.S. Small Business Administration.

The definitions vary based on industry but can include businesses with as many as 1,000 employees or up to $41.5 million in income. Hotels are considered small if they have no more than $35 million in annual receipts.

The business tax hikes kicked in automatically when the unemployment trust fund drained, but lawmakers previously approved a measure spreading the increases over a period of three years starting last July.

Emigholz and others also urged the panel to prevent the last and largest of the three tax increases, set for July 2023. A bill sponsored by Assembly Majority Leader Lou Greenwald (D-Camden) that was merged into Freiman’s measure would have headed off that hike, but the provision was left out of the merged bill.

Progressive advocates are less than thrilled to see the bill moving and characterized it as the latest in a long line of handouts to businesses.

“With the state economy already on firmer footing, why are businesses asking for yet another tax cut when we know that there are immediate needs of others who experienced substantially more severe impact from the pandemic?” said Sheila Reynertson, a senior policy analyst at New Jersey Policy Perspective, a left-leaning think-tank.

“We’re talking about workers who put their lives at risk when COVID swept through the state, workers who are disproportionately people of color,” she said.

Reynertson said the unemployment trust fund and its attached taxes are working as designed.

“The finances of the trust fund are not in crisis. In fact, the system in place is to replenish and doesn’t need help at all. It’s working as designed,” Reynertson said. “As unemployment goes down, as you mentioned, business is tasked with replenishing it in preparation of tough weeks ahead.”

She also believes the credits could be more narrowly targeted and noted businesses already received substantial aid from the federal Paycheck Protection Program, which doled out forgivable loans to businesses, and from numerous smaller aid programs enacted at the state level.

Bipartisan — with a caveat

Though the Assembly’s commerce committee unanimously advanced the bill, there was some disharmony among the panel’s lawmakers Thursday.

Assemblywoman Aura Dunn (R-Morris) attempted to amend the merged bill to outright prevent the tax increases coming in the next two years and exempt the first $31,000 of a worker’s income from unemployment taxes and apply them to the income they make above that amount. Under current law, employers and employees only pay state unemployment taxes on the first $29,600 they earn each year.

“We’re not doing enough. I think we could actually go farther with a focus not just on the employer but, of course, on the employee,” Dunn said before her amendment was tabled in a party-line vote.

Assemblywoman Britnee Timberlake (D-Essex), the committee’s chair, said the bill would likely be amended again before it comes before the Assembly Appropriations Committee, which must approve it before it heads to the full Assembly for a vote.

Freiman said changes would likely be limited to whether the bill should use tax credits or grants as its award mechanism.

It’s not clear when the bill will come before the Senate Labor Committee, though it appears to have the support of leadership in the upper chamber.

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Nikita Biryukov
Nikita Biryukov

Nikita Biryukov most recently covered state government and politics for the New Jersey Globe. His tenure there included revelatory stories on marijuana legalization, voting reform and Rep. Jeff Van Drew's decamp to the Republican Party. Earlier, he worked as a freelancer for The Home News Tribune and The Press of Atlantic City.