For the past three years I’ve tried to call attention to the inequities in the tax code at the expense of younger generations. But it seems no one who matters really cares about younger generations. There are, however, also tax inequities among older generations. And to see what those inequities are, one merely needs to fire up the Turbo Tax and compare the New York state and local income tax liability for two fictional couples, the Goldrakers and the Schlubs.
The Goldrakers are former New York City school teachers who happened to turn 55 right when the pension plan was changed by state legislation, allowing them to retire with a full pension at that age, rather than age 62, without contributing an extra dime. With an average salary of $110,000, if overtime/summer school/after school are included, they are now entitled to $110,000 in combined pension income per year, and health insurance without charge. They took the deal (along with how many others and at what cost no one has said). The less affluent Schlubs, an administrative office worker and a store clerk, were pushed into retirement at age 60 in 2007, in the early phase of the recession. Though not entitled to pensions, the Schlubs had diligently saved $500,000 for retirement on their modest salaries, subsequently reduced to just $360,000 by investment losses. Forced to pay $15,000 to continue their modest health insurance in 2008, they withdrew $60,000 to live on that year.
If you read this post or any of its antecedents, you know how much the Goldrakers owed in New York state and local income taxes on their government pensions. Nothing. Also free from taxation — the income received in the form of health insurance paid for by the City of New York on their behalf. That is a massive federal, state and local tax subsidy that those not fortunate enough to have health insurance do not get, as I discussed here.
Now lets imagine that the Goldrakers managed to get themselves a Mitchell Lama apartment or limited equity co-op back in the day. The rumor is that those sweet deals were available on a first-come-first serve basis, but members of certain public employee unions and political clubs were tipped off as to when to apply, which is (among other things) why such projects are full of judges. Those developments received property tax abatements in exchange for keeping the rent or sales price for those fortunate residents low. So our fictional Goldrakers don’t pay much in property taxes either. I imagine this set of special deals describes the circumstances of quite a few politically savvy New Yorkers.
In this scenario, the Goldrakers would be entitled to that pension and that health care indefinitely, both with inflation increases. At 65 they would become even better off, when they began to receive Social Security. All of this is guaranteed. And they’d never work again.
And the Schlubs? They are both looking for jobs, but now is not the time to be looking. With their limited nest egg ebbing away, they hope to live on $60,000 per year until Social Security kicks in, which at that point would be all they would get. But at least they would probably get both Social Security and Medicare, something the Schlub Jrs shouldn’t count on. With a cash income a little more than half that of the Goldrakers, and far less non-cash income, the Schlubs would owe $1,528 in New York state and local income taxes. If their income had equaled that of the Goldrakers, they would have owed much more. That is because private sector retirement income in excess of $20,000 is taxed. And prior to age 59 ½ all private sector retirement income is taxed, while public employee retirement income is still tax free.
This projection assumes the Schlubs wouldn’t get any tax break for all the money they had to pay for health insurance. Perhaps they would, but I didn’t find it. Those who know better can set me straight.
Moving quickly around Turbo Tax I found two breaks. One is for former public safety workers such as police and firefighters. The other is for those who are certified as having lost jobs due to trade, mostly manufacturing workers represented by politically influential unions, and those receiving pension income from the Pension Benefit Guarantee Corp. The latter is people who were fortunate enough to have had pensions and retiree health care, and lost them due to company bankruptcy. The Pension Benefit Guarantee Corp. is covering their pension, and this Health Coverage Tax Credit is covering their health care.
The government, in other words, has prioritized helping those who have had a better than average situation keep it, relative to providing those with a worse than average situation from getting anything anything at all. Tough luck for the Schlubs, after all they are used to having less — an attitude across the political spectrum. You see the same priorities in the proposed housing bailout. The mortgage as a share of income, for those receiving federal subsidies, will be 31 percent. How many renters pay more than 31 percent of their income for housing? Just another way they are Schlubs, relative to the Goldrakers who cashed in at their expense when the opportunity presented itself.
Moreover, what kind of insurance would be available for two people age 60 for $15,000? In 2006, New York’s Medicaid program spent more than $14,000 per person for those aged 45 to 64, although that average includes many severely ill and disabled people.
As layoffs spread throughout the economy, there are more and more Schlubs. And in the near future, after the gold has been raked, nearly everyone will be a Schlub when they get old.