Senate Republicans today unveiled some new proposed personal income tax (PIT) adjustments that would generate savings for middle-class families.* For a couple with income of $70,000 and two children under 17, the potential annual tax cut from the proposed Family Tax Relief Act would appear to come to roughly $700. The estimated revenue hit of $500 million from these changes would be relatively modest, especially if spread over a few years.
So far, so good. The dependent exemption, after all, hasn’t been touched in 25 years, and those credits were never indexed to inflation.
Unfortunately, the Senate GOP conference also wants to spend a whopping $1.3 billion to revive New York’s School Tax Relief (STAR) property tax rebates — a classic political check-in-the-mailbox waste of money that disappeared, widely unmourned, just three years after its 2006 election-year enactment. STAR rebates would be calculated as a percentage of savings already provided through the main STAR homestead exemption program, and would average $445 per homeowner, and $460 for seniors. The Senate passed a one-house STAR rebate bill last year, too. (Think of it as a $1.3 billion excuse for avoiding Triborough repeal and other school mandate relief.)
Other PIT cuts benefitting the middle class, enacted with Senate Republican support in December 2011 along with an extension of the temporary “millionaire tax,” are due to expire at the end of 2014. Compared to current state financial plan projections, allowing the top-bracket increase to expire on schedule while making permanent the cuts benefitting middle-class taxpayers would effectively cost another $690 million, which would be a much better use for a portion of the money the Senate wants to waste on STAR rebates. The rest of the STAR rebate could also be put to more economically beneficial uses — by, for example, further reducing the marginal PIT rate, or eliminating much of the state corporate tax in economically depressed upstate New York.
* The proposed PIT changes would include a doubling (from $1,000 to $2,020) of the dependent exemption, an increase in the dependent care credit (which can be claimed by people with paid child care expenses), and an expansion of the child credit, including creation of a new $500 per-family child credit on top of an increased $375 credit (up from the current $330) for each child under 17 for qualified families.