The Buffalo News

Effect of tax refund on economy debated
July 17, 2001

By Joel Stashenko

ALBANY - New Yorkers will be getting about $2.5 billion in "advance payments" from Washington under the federal income tax cut plan, according to an analysis by a New York City-based think tank.

While the Manhattan Institute for Policy Research pinpointed where the tax payments will be going in New York State, institute analyst E.J. McMahon said it was less certain whether the money will spur the economy, as proponents contend.

"Any positive effect from the advance payments will be temporary, the economic equivalent of a sugar high," McMahon predicted.

More lasting benefits to the economy will be seen as the tax cut is phased in between 2002 and 2006, McMahon said, reducing marginal rates for federal income taxpayers. That will build incentives to work, save and invest money, he said.

New Yorkers should start seeing refund checks late this month. Maximum payments will be $300 for single taxpayers and $600 for married couples.

Geographically, New York City taxpayers will get just over $1 billion from the federal government.

Taxpayers in Erie County will receive an estimated $131 million. Estimates for other Western New York counties are: Allegany, $6.5 million; Cattaraugus, $10.9 million; Chautauqua, $18 million; Genesee, $9 million; Niagara, $30.9 million; Orleans, $5.6 million; and Wyoming, $5 million.

Those projections were based on a geographical breakdown of federal income tax filers in New York State. Given the timing of the transmission of the checks, McMahon said it is logical to assume that a portion of the money will be spent on clothes and other back-to-school items for children. That, in turn, would help state and local sales-tax collections.

In addition to a phased-in reduction in tax brackets accompanying the tax-cut plan, the child credit will be doubled from $500 to $1,000, and the "marriage penalty" will be eliminated by increasing standard deductions and broadening the 15 percent tax bracket for joint filers.

The cuts will save taxpayers an estimated $1.2 trillion by the fiscal year 2011. New Yorkers will save more than $89 billion, or about 7.4 percent, according to the Manhattan Institute.

McMahon said that starting in 2005, the tax cut's effect will be undermined by the federal alternative minimum tax. He predicted that pressure will mount on the president and Congress to address that issue and other problems with the tax plan.

©2001 The Buffalo News