Michigan is a state much like our own. For years it has been run by and for those who have, let’s say, a very good deal as a result of their political and market power, to the detriment of the future and everyone else. Enough was taken out, and little enough put in, that younger generations of Michigan residents, if they choose to stay, are much less well off than older generations. The recession has accelerated the process. And like New York, Michigan has charged the retired, and particularly retired public employees, much lower taxes than those who are working are forced to pay, and handed tax breaks to large and oligopolistic corporations concentrated in a single industry while nailing new entrepreneurs with taxes. Governor Paterson even sent a chill up my spine by saying New York politicians should continue to back the power and privileges of the dwindling number of financial companies the way Michigan politicians backed the Big Three, to save jobs. Michigan has lost 18.0% of its jobs since 2000, along with hundreds of thousands of people. It’s seasonally adjusted unemployment rate is over 15.0%.
Suddenly, however, the Detroit Free Press has run a series of articles on a subject that no New York mainstream media outlet, let alone New York politician, is willing to talk about: should the state income tax system begin to charge the retired the same rate as workers pay on the same income? Before there are no workers left in the state to pay for and provide services to the retired.
Like New York State but unlike most states, Michigan exempts the retirement income of public employees from state and local income taxes, no matter how high that retirement income is, and no matter how young those public employees retire. “Also exempt are private pensions, and withdrawals from IRAs and similar retirement plans up to $90,240 for joint filers,” perhaps due to the power of the United Auto Workers in Michigan. In New York private retirement income is only exempt from tax after age 65, and only up to $20,000. Social Security income is exempt from tax in both states.
“In fact, among the 43 states with income taxes, Michigan exempts more retiree income than any other. About 95% of Michiganders 65 and older don't pay any state income tax, including many of the relatively few who earn $100,000 a year or more from pensions, Social Security and IRA and 401(k) withdrawals. But if you're 65 and working as a WalMart greeter, you don't get the same tax breaks as your pension-collecting pals.” I’ll bet New York is second, if the study was property done, particularly if New York City were the focus.
According to the Free Press, many seniors move to Michigan from elsewhere in the Midwest to take advantage of low taxes (just as many seniors move to New York to take advantage of its rich Medicaid benefits for seniors when they require care, having lived in lower tax states before their money ran out and their health failed so they wouldn’t have to pay). But young workers and businesses are going the other way, as their taxes soar and public services including education collapse.
“Reliance on a shrinking automotive industry, the loss of 1 million jobs, outmoded taxes and lack of government reforms will make Michigan one of the nation's 10 poorest states for the foreseeable future…Michigan is adjusting to a new normal, where the state may just have to deal with a permanent set of pared-back services.” “Michigan suffers because of chronic deficits fed in part by generous tax exemptions to businesses and retirees and no tax on services,” according to a Pew Center report. They mean exemptions for large and powerful but declining existing businesses, not new businesses. “People 65 and older are the only segment of Michigan's population that's growing. ‘In 20 years, we're going to look like Florida if the demographic trends continue, and no one's going to be paying taxes except those … working.’” The state’s unemployment rate is soaring to Great Depression levels, but services for the poor are being gutted because the state is broke.
It isn’t just retirement income exemptions that favor seniors according to another Free Press article. “If you're lucky enough to have a government pension — or, as in the case of many elected officials, a collection of them — all your pension income is tax-free. Senior citizens also enjoy special state tax exemptions on income from dividends, interest and capital gains, and credits of up to $1,200 on their homestead property and renters' taxes.”
The Free Press is even willing to point out that generous public policies favoring seniors date from a time when they were worse off than the young, not better off. “Most of the tax breaks Michigan senior citizens enjoy today date to an era when nearly a fourth of those older than 65 were living below the federal poverty level. In 2009, only 1 in 10 senior citizens is similarly challenged. Today's impoverished Michigander is typically young, educationally disadvantaged and dependent on the sort of government aid that is being reduced or eliminated to protect senior tax exemptions.” Of course when today’s young (and middle aged) are old, they are also likely to be much worse off than today’s seniors, as the kind of fiscal devastation now bearing down on Michigan hits the federal government, and given the lower wages and benefits (for all but those on top) they will have been paid throughout their careers.
Incredibly, the Free Press is willing to acknowledge a difference between tax policies that disadvantage seniors and policies that merely remove unearned advantages. “No one — not the League of Human Services; not the collegians who've just been cheated out of their promised tuition aid, and certainly not this humble, rapidly aging correspondent — wants to see senior citizens taxed at a higher rate just because they've turned 65. Those who are elderly and struggling deserve at least the same compassion as their younger, similarly challenged neighbors.”
On the other hand the current situation is “grotesquely unfair. Nobody should qualify for preferential tax treatment simply by turning the page of a calendar. In an economic crisis that has humbled residents of all ages, Michigan can no longer afford to send every newly minted senior citizen a welcome basket of exemptions and tax credits, regardless of their economic status.”
Now it is certainly not the case that Michigan politicians have suddenly awakened to a “grotesquely unfair” situation. “Gov. Jennifer Granholm called again this week for tax reform, but when the Free Press asked her about taxing pension income, she replied: ‘It would be very difficult to do because legislators don't want to vote on increasing taxes on seniors.’” It has evidently been less difficult to raise taxes on workers and businesses, slash funding for public schools and infrastructure, leave the poor facing deprivation and so cut funds for the University of Michigan that it is considering either eliminating preferential tuition for Michigan residents or accepting very few of them. “State budget director Bob Emerson, a former lawmaker, said, ‘Politicians are fearful of senior voters.’”
He knows that the right thing to do is. “My son, who works his butt off as a chef in Oakland County, he makes in the mid-$30,000s…He pays 4.35% in state income tax. I get a public pension that's greater than his salary, and I'm not taxed on that. Someone explain the fairness of that.” His pension from years as a legislator is $80,000, and “he voted in the mid-1990s to give private pensions nearly the same exemption as public pensions. The exemption is tied to inflation, so retirees with private company pensions, IRAs and the like have gotten a bigger exemption every year.” A vote he now regrets. But he cares about his son, and his son lives in the same state he does. In the era of Generation Greed, most of today’s seniors lack one or the other of those characteristics, in Michigan and New York.
For a more typical attitude, look to an amazing quote in The Hill magazine. For decades, senior citizens have felt entitled to special treatment because they were “on fixed incomes” and unable to share in the rising prosperity that younger people would enjoy. Well that rising prosperity started going away in the mid-1970s, about the time that Social Security payments started to be indexed for inflation, meaning seniors weren’t “on fixed incomes” anymore. And yet no politician seems to be able to say “senior citizens” without also saying “on fixed incomes,” even in a recession in which those whose incomes have been “fixed” rather than declining have been damn lucky.
With no inflation to justify an automatic inflation increase, Congress proposed giving seniors a higher Social Security payment anyway, and Senator Sanders of Vermont was quoted as making this amazing statement: “It would simply be unacceptable for seniors on fixed incomes to not receive additional income in the coming year, something that hasn’t happened in over three decades.” I actually wrote to the publication and asked if he had actually said that, or if they were trying to make him look like an idiot. In any event, the bill passed and the income of seniors on fixed incomes went up again.
What, therefore, has suddenly gotten into the Free Press? If any New York newspaper reporters are reading this, it’s time for them to close their ears and yell “la-la-la I’m not listening!” The shrinking customer base of mainstream media outlets consists of the very generation of senior citizens favored by policies like the senior tax deals. And those media outlets have a financial stake in not offending those customers, by pricking their sense of entitlement by telling them the truth.
For the Free Press, however, that customer base has shrunk so far that it had to make a clean break and try to appeal to someone else. It limited home delivery of physical papers to Thursday, Friday and Sunday, and put its emphasis on e-Editions available to subscribers. And suddenly, it was willing to talk about the generational equity issues that in New York no one wants to talk about. Perhaps on Monday, Tuesday and Saturday. And guess what, its editor Paul Anger (I’m not kidding) is Editor of the Year.
There is sure going to be a lot of anger in New York over the next few years as public services and benefits are gutted, taxes on workers and new businesses soar, and jobs and young people flee. But the shared sacrifice will not really be shared, will it? Not until enough people leave that those who benefit from things as they are realize their will be no one left for them to exploit. As in Michigan.