Economists question lawmakers’ plans to address inflation

By: - July 18, 2022 7:17 am

Lawmakers have offered some bills they say would help consumers struggling with inflation, but economists question whether they would work. (Photo by Bruce Bennett/Getty Images)

As consumers nationwide grapple with increases in the cost of rent, gas, and groceries, New Jersey lawmakers have offered a slew of plans they say will address skyrocketing inflation.

Sales tax holidays on certain items, moratoriums on toll increases, and a revamp of income tax brackets are just some of the ideas floated to ease the pain of the largest jumps in consumer prices seen in 40 years.

But economists say there is little state officials can do to combat the cost of goods, a problem they said is really in the hands of the federal government. And while some tax holidays might help put a little more money back in the wallets of consumers, the state will have to find some way to pay for the projects and services that tax revenue is intended for, they said. 

“Everything should be under consideration, but each one should be carefully analyzed on really the cost and benefit of each because in many cases, it’s a trade-off,” said James Hughes, an economist at Rutgers University. 

The consumer price index rose 6.7% compared to a year ago in the Garden State, according to the Bureau of Labor Statistics. Nationwide we saw a 9.1% inflation increase year-over-year, the agency announced last week.

Nearly every family is seeing everyday costs become more expensive — gas, food, rent, and energy prices. Wayne Winegarden, a senior researcher at Pacific Research Institute, said he expects the high prices to continue at least throughout the year. 

‘What are you going to do about this?’

Two Republican legislators are calling for lawmakers to meet for a special session during their summer recess to discuss GOP-led bills that were previously shot down by Democratic leadership.

Assemblywoman Vicky Flynn (R-Monmouth) pointed to measures that would roll back the state sales tax to 6%, set a moratorium on future toll increases, freeze property taxes for anyone over 65, and offer tax credits to offset gas prices and inflation.  

“We have constituents asking, What are you going to do about this? I think people are just really dismayed and upset about, basically, this hidden tax — because that’s what inflation does, it increases the cost of everything,” she said. 

Sen. Tony Bucco (R-Morris) blasted Democrats for ignoring “an easy opportunity” to help residents facing inflation in a statement Friday. He has sponsored legislation that would adjust New Jersey’s gross income tax brackets annually for inflation, which 37 other states do. The bill was not among those approved before the Legislature began its recess in June.

Bucco calls the current system “tax bracket creep” for the way tax rates intended for a specific income do not rise as inflation erodes the power of a person’s take-home pay.

“I’m hoping my Democrat colleagues will see the light and be willing to work with us this fall. It’s not too late to help all of the struggling families who can’t afford an income tax increase on top of high gas prices and inflation,” he said.

Winegarden and Hughes agree that while a temporary tax reprieve might feel good in the short-term, in the long-term, those taxes need to be collected to fund important projects. But Flynn pointed to the roughly $1.3 billion in federal American Rescue Plan funds the state is still sitting on and an unprecedented surge in tax revenue that could be used to offset the tax holiday for residents, she said. 

“It’s intended to be a temporary fix to address the crushing impact of inflation. We have the ability, with the amount of money that’s been collected, to direct that towards tax relief and help New Jerseyans weather this economic downturn a bit better,” she said. 

Tom Bracken, president and CEO of the New Jersey Chamber of Commerce, said he doesn’t think a gas tax holiday is a good idea. Gov. Phil Murphy has said in the past that he’s reluctant to suspend the state gas tax because the revenue goes into a fund to pay for transportation projects. 

“Eventually, that’ll lead to our roads, bridges deteriorating, and that’s going to have a huge negative impact on the state. It’s very popular to talk about, but it’s kind of self-defeating,” Bracken said. “We need to address affordability in New Jersey and find relief in other forms.” 

A Murphy spokeswoman pointed to the $50.6 billion state budget signed last month that includes a $2 billion property tax relief fund, increased aid to municipalities, and a new child tax credit. Murphy also backed a plan to eliminate the sales tax on some items for 10 days starting in late August, a plan timed for back-to-school shopping that Senate President Nicholas Scutari has called the Legislature’s “direct attack on inflation.”

“Affordability continues to be a key focus of the Murphy administration,” said spokeswoman Christi Peace. “The governor will continue to work with his partners in the Legislature to address the impact of increased costs on New Jersey families.”

Concerns in the business community

Meanwhile, economists worry about the brunt businesses face, even as they’re still recovering from the fallout of the pandemic. About a third of New Jersey businesses shuttered after the pandemic hit in 2020. 

Bracken believes the biggest help the state could offer for small businesses is to relieve the burden of tax increases meant to replenish the state’s depleted unemployment insurance fund. The fund, which pays for jobless claims, is normally replenished with tax hikes on businesses. A plan to offer tax credits to businesses to offset the tax hikes was not approved by the Legislature before its recess.

The plan has some progressive critics, who say the money would be better spent helping communities that have gotten less financial aid from the state during the pandemic than businesses.

“The issue here is that businesses need to have the cash to survive. The state needs to pay down the unemployment insurance trust fund deficit, and that would be enormously beneficial to businesses because it would give them cash and prevent them from raising the price of goods in order to survive,” Bracken said.

Winegarden said he shares concerns about what this means for small businesses, and he urged the Legislature to review New Jersey’s tax structure so the state will be in better shape in case a recession hits. 

“They’re just getting squeezed over and over again, so with all these constraints, it’s going to get harder to get a business going and to stay open, and that’s why so many have been lost,” he said. “Right now, we really run the risk of more businesses joining the ranks.”

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Sophie Nieto-Munoz
Sophie Nieto-Munoz

Sophie Nieto-Muñoz, a New Jersey native and former Trenton statehouse reporter for NJ.com, shined a spotlight on the state’s crumbling unemployment system and won several awards for investigative reporting from the New Jersey Press Association. She was a finalist for the Livingston Award for Young Journalists for her report on PetSmart's grooming practices, which was also recognized by the New York Press Club. Sophie speaks Spanish and is proud to connect to the Latinx community through her reporting.

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