3 Stories to Start Your Week: January 25, 2022

New York Governor Kathy Hochul recently announced a record-setting $216 billion budget plan for her state which is approximately $4.3 billion more than last year’s plan. This announcement comes as state officials are projecting balanced budgets for New York through 2027, due to a boost in federal aid and an increase in tax dollars. Hochul and her team see this as a big opportunity to propose significant one-time infusions of spending in certain areas.

This Budget Plan is well spread out into various sectors, with the largest investments going towards infrastructure, totaling $32.8 Billion to be spent over the next five years. This will go towards highways, bridges, and other transit projects. Additionally, $25 billion is also being spent to help build and preserve approximately 100,000 housing units within New York over the next five years.  Another large piece of this proposal is a $10 billion health care initiative, which includes hiring bonuses for frontline workers, and money to increase Medicaid funding. These are the three largest proposed investments, with some smaller initiatives also in play such as the $2.2 billion Covid-19 recovery plan, and an additional $2.2 billion in Property tax rebates for New York homeowners. Hochul also plans to set aside $1.4 billion in child care, and an additional $1.6 billion to upgrade hospital infrastructure.

This fiscal plan will have to be negotiated, but many see this as a large opportunity as New York has an unusual surplus. New York’s budget is typically planned around a deficit, but with this year being a special case State officials are attempting to take advantage by infusing money in certain areas. It is important to mention that these are one-time infusions only, and will not be cyclical spending.

Global inflation is as high as it has been since the recession of 2008, and as the cost of living continues to rise, consumers are being burdened by higher prices. The average person’s cost of living has been steadily on the rise since Covid-19 swept the nation. This is shown by the consumer price index climbing 7% in 2021, the largest 12-month gain since June 1982. Several things are contributing to this increase in the cost of living:

There have been many highs and lows for oil prices as we have progressed through the pandemic, with recent trends hitting a seven-year high. This can be seen by crude oil spot prices averaging $71/b for the year compared with $42/b in 2020.Gas prices have also skyrocketed, seen in their jump of 29.3 percent in 2021.

The surging demand for certain products as well as some other factors stemming from the pandemic has caused shipping companies to become overwhelmed.  As a result of the surging demand, retailers have had to spend a lot more money to get certain products on their shelves, the US reported record congestion in its ports earlier this year. Overall, domestic shipping rates have increased 23%, showing that these increased costs have been pushed down to the consumer level.  Another example is a shipping route that links North America to Asia, where the price for one 40 foot container has increased 50% this year.

In April of 2020, four million Americans quit their jobs, accounting for the largest spike in unemployment on record. This record spike has caused companies to have serious problems acquiring and retaining employees. Companies are also having trouble filling certain positions with some of the most affected roles being truck drivers, food servers, and food processors. The American Trucking Association estimates that in 2021 the truck driver shortage will hit a historic high of just over 80,000 drivers. Furthermore, a recent US survey found that 94% of the major US retailers are having trouble filling positions. This is causing companies to raise their wages and offer more hiring incentives. Workers’ hourly pay has gone up 4.8% this year, but when the cost of living is factored in it shows that wages are actually down 1.9%, according to the Bureau of Labor Statistics.

The Central Bank predicts inflation rates to drop back down sometime this year to 2.2%. This can be seen as good news for Americans but the 2.2% is .04 of a percentage point higher than it previously was in earlier 2021.  Many economists expect inflation to remain near this level for a few more months but to then moderate.

This year’s tax deadline is April 18, 2022, but the IRS is encouraging people to file early to avoid processing delays. As the tax deadline is steadily approaching, here are a few changes that are to be expected for the 2021 filing season.

Families that received Child Tax Credit payments during 2021 should expect Letter 6419 coming from the IRS. The IRS states it has already been sending these letters out, which include the total amount of advanced child tax credit payments the taxpayer received in 2021.

According to the IRS, eligible families who did not receive monthly payments in 2021, may still be able to get a lump sum payment. This payment will be received by claiming the child tax credit when filing the 2021 return, however, by submitting Letter 6419 you can be sure to receive the correct amount.

Those who did not receive their third stimulus payment may be entitled to the Recovery Rebate Credit this year. The IRS will begin sending out Letter 6475 very soon, which contains the total amount of the third stimulus payment claimed, to claim the credit, a 2021 return must be filed, and Letter 6475 should be submitted to your accountant to help in these calculations. This credit will be utilized by Millions of Americans who were unable to take advantage of last year’s third payment.

Although unemployment was down significantly compared to 2020, 25 million Americans still filed for unemployment in 2021. During the 2020 season, the American Rescue Plan Act waived federal tax on up to $10,200 of benefits per person, as long as their income minus benefits were under $150,000. Congress has not passed any laws offering that break or any similar breaks for the 2021 tax year, meaning taxpayers who claimed unemployment may be looking at a steep tax bill this season

This ultimately means that people who collected unemployment in 2021 and did not withhold federal tax from benefit payments or maybe didn’t withhold enough, may owe tax money from that this season.