Don’t expect to pay for a nice vacation with the tax cut you’ll be getting with the new state budget.
Unless, of course, you’re not going any farther than a single tank of gas will take you, and you aren’t planning to stop anywhere or eat anything.
That’s because the first year of the tax cut will amount to less than $1 a week for a single filer at the low end of the middle-class tax scale. For someone at the top, we’re talking about $5 a week.
In other words, the tax cut amounts to pocket change for most middle-class New Yorkers, not a windfall.
“It’s not going to have a big impact,” said Anthony J. Ogorek, who runs Ogorek Wealth Management in Amherst.
The devil is in the details of the tax cut, and those details greatly dilute the impact the reduction will have.
First, the tax cut doesn’t kick in for two years, not until 2018.
Second, the tax cut is being phased in over eight years. Not until 2025 will the tax cut be fully in effect. In between, the state’s tax rates will drop little by little, putting a few extra dollars into taxpayers’ pockets each year.
“When they’re pushing this off to 2018 and they’re phasing it in over eight years, it really reduces the impact,” Ogorek said.
In fact, the drop in gasoline prices is having a far more beneficial impact on consumers than the tax cut ever will, said David Barrett, a director in the tax practice of Buffalo accounting firm Freed Maxick CPAs.
“You’re not going to buy a house with that,” Barrett said.
“It’s better than nothing,” Barrett said. “Anything helps, but it pales in comparison with the impact of the drop in gasoline prices that we’ve seen.”
Those lower gas prices are saving consumers who fill their tanks each week around $30 each time they fill up. For a single filer earning $40,000 a year, the tax cut will amount to about $32 a year, according to Buffalo News estimates based on SmartAsset’s online tax calculator.
The tax savings grow as incomes rise. A single filer earning $100,000 would save about $100 – or $2 a week – in the first year and see their tax bill drop by $800 by the time 2025 comes around, according to News estimates.
By the time the eighth and final drop in the state’s income tax rates takes place in 2025, that taxpayer’s annual savings will have grown to more than $250, compared with their 2017 tax bill.
But that’s a long time to wait, and there’s no guarantee that the future tax cuts will actually happen.
A lot can happen between now and 2025. A recession could throw the state’s fiscal position out of whack. So could a weak stock market, which would cut into the big Wall Street bonuses that yield so much tax revenue.
That’s why Ogorek said consumers shouldn’t count on seeing the entire tax cut package. Too much can change over the next nine years, and scrapping or scaling back the planned tax cuts in future years would be an easy way to raise additional revenue if budgets get tight.
“I could see the Legislature delaying it if there’s a recession,” Ogorek said. “Beware of any politician who offers tax cuts without any commensurate spending cuts.”
The Cuomo administration is more confident. The Governor’s Office says the tax cuts will help 4.4 million filers when they kick in two years from now. Tax rates for taxpayers earning $40,000 to $150,000 a year will gradually fall from 6.45 percent in 2017 to 5.5 percent in 2025.
By the time 2025 arrives, the state says middle class taxpayers will be paying $4.2 billion less in annual taxes than they were in 2017, and the state’s middle-class tax rates will be at their lowest in more than 70 years.
Ogorek, however, said the tax cut takes too long and has too much uncertainty to pack a big economic punch.
“I would view it as more of a political document than a real economic development tool,” he said.
Even so, a small tax cut is better than a tax increase.