By Bob Katzen
The April 15 deadline for filing a 2017 state tax return is approaching. Some filers are asking why there is not a state income tax rate reduction for 2017 like the reduction for 2016 when the income tax and long-term capital gains tax rates were cut from 5.15 to 5.10 percent.
The answer is that there was insufficient economic growth in 2017 under the terms of a 2002 law to result in a 2017 cut from 5.10 percent to 5.05 percent — a reduction that would have saved taxpayers millions of dollars.
These automatic cuts do not need the approval of the Legislature. They are part of a system devised by the Legislature when it approved a $1 billion-plus tax hike package in 2002. The package set the long-term capital gains tax at 5.3 percent and froze the income tax rate at 5.3 percent instead of allowing it to drop to 5 percent in January 2003 — a reduction that was approved by voters in 2000. The 2002 law also includes an automatic trigger that reduces both taxes by one-half of 1 percent each year that the state’s economic growth is at least 2.5 percent until each tax is reduced to 5 percent. The growth in 2017 was only 0.059 percent, far below the 2.5 percent required for the cut.
The rate reduction was previously triggered for 2012 from 5.3 to 5.25 percent; 2014 from 5.25 to 5.20 percent; 2015 from 5.20 to 5.15 percent; and 2016 from 5.15 to 5.10 percent.