Author: Larry Littlefield

Taxing the rich is a fine idea, given the way the distribution of income has evolved in recent decades. Unfortunately New York has already thought of it, and we not only have the highest state and local taxes as a share of personal income in the country (excluding Alaska and, sometimes, Wyoming where mineral taxes account for large share) but also among the most progressive. That is particularly the case in New York City, where a local income tax, over and above the state and federal income taxes, carries part of the burden that is carried by property taxes elsewhere. The rich, to an ever greater extent than most, already pay more here than they would anywhere else in the country. It is at the federal level where the tax burden has shifted in favor of the rich in recent decades, with the regressive payroll tax increased to “save Social Security” (but the money diverted elsewhere), the progressive income tax reduced, investment income taxed at favorable rates, and loopholes created to allow the wealthy to claim their work income as investment income. The favorable treatment of investment income was supposed to increase savings and investment, but instead the savings rate fell to zero. If suburban and upstate counties want to enact local income taxes to replace part of their property tax burden, that’s fine with me. Otherwise, leave taxing the rich to President-elect Obama, who I’m sure will get around to it sooner or later.

Even before that report was released, politicians started arguing about bridge tolls. And predictably the press has treated bridge tolls as the main story. It isn’t. The main story is the other aspects of the proposal which have united all our politicians against our future, once again. Why has no one questioned putting a permanent tax, on wage income only (not retirement income or investment income), to pay for just five years of ongoing normal replacement of MTA facilities and equipment? Why have there been no articles in the Times, News, Post, Newsday, etc. etc. asking what would happen in 2014, when the bonds issued against that future revenues would have been spent, and the MTA would be right back in the same position despite permanently higher taxes? Doesn’t anyone care that the MTA is in this position today precisely because no one bothered to care about today back when today was tomorrow? Has no one pointed out that New Yorkers will be paying a higher sales tax, forever, just to pay the interest on money that has already been spent, to which they want to add this additional tax? How much deeper into indentured servitude are the generations in charge willing to send younger and future residents of New York City, the Metropolitan Transportation District, New York State and the United States by deferring costs and advancing revenues? Does everyone comfort themselves by telling themselves there is no choice?

I’m going to write one more post using data from the 2007 Census of Governments employment phase, then give it a rest for five years until the next Census of Governments. In a prior post I compared New York City with several other older central cities that were co-terminus with county boundaries, counties being the smallest unit of geography for which comparable local government data can be compiled. These places, however, tend to be much smaller than New York City, and much richer (San Francisco, Boston, Washington) or poorer (Baltimore, Philadelphia, St. Louis) than the New York City as a whole. San Francisco and Boston, for example, are in many ways the equivalent of Manhattan rather than NYC. In the attached spreadsheet, therefore, I compare New York City with the national average and three of the counties with the largest population in the country, Los Angeles, Cook (Chicago) and Harris (Houston), and three counties that have been booming lately, Mecklenberg (Charlotte), possible future headquarters of Merrill Lynch, Wake (Raleigh-Durham), “America’s Boomtown,” and Travis (Austin), the place Barry Popik fled to. In general, all of these places have average local government employment relative to their populations. New York City does not.

You might have heard that “U.S. companies slashed payrolls last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II. Employers cut 533,000 jobs, bringing losses so far this year to 1.91 million,” as reported by Bloomberg News.  (I can’t believe I keep promoting that man’s business after term limits repeal). You may have also heard that the number of people collecting unemployment insurance is at a 26-year high, because those laid off can’t find new jobs. But what you may not have realized is that these figures only include wage and salary employees who are eligible for unemployment benefits, given that unemployment tax revenues is what the Current Employment Survey, the source of the payroll employment number, is benchmarked to. Increasingly, especially in New York City and a few other places, immigrants and younger people, even college graduates, are not allowed to be employees. They are hired as “independent contractors,” “freelancers,” and “permalancers” even if their work arrangements are not different than those of older generations classified as employees. But they don’t get health insurance, and don’t get whatever retirement benefits that still exist. And when they are laid off and have their hours cut, it doesn’t show up in the statistics, they don’t get unemployment insurance, and if they don’t have savings or family nearby and able to help, they face immediate economic disaster. When they had money the City of New York taxed them twice, through the local income tax and the unincorporated business tax. What will happen to them now?

“The ways in which responsibility may have been shirked, or ignored, in the past, to live for another day — that day has come, and we're going to have to make those tough choices,” news sources say that Governor Paterson remarked in response to the Ravitch Commission plan to save the MTA. But in reality, the Ravitch Commission plan is a replica of the previous two — borrow massively for just a few years of ongoing needs, and live another day, maybe. Everyone in the region is paying a ¼ percent sales tax to the MTA, and will be forever, but the money isn’t used to either operate or rebuild the system, it goes to past debts. The same may be said of the MTA corporate income tax. Other bonds were floated against future fare revenues, something the Ravitch plan criticizes obliquely. It instead plans to create an off-balance sheet entity to borrow $35 billion for the 2010 to 2014 capital plan, and operating costs in 2009. But this isn’t a new idea — there is already such an entity collecting the 1/8 percent additional sales tax to pay bonds for the 2005 to 2009 capital plan. In 2010 and forever after we’ll by paying that extra sales tax, but receive nothing for it. The same will be true of the permanent 1/3 percent wage tax the Ravitch plan proposes to fund the 2010 to 2014 plan. In 2015 we’ll still be paying it, but getting nothing. The “tough choice” is to delay the day of reckoning five years by making things even worse for the future. Again.

As I’ve written in a variety of posts on a variety of subjects, the generations now in charge, in the public sector, private sector and their own lives, have endeavored to “live richly” by securitizing any future anyone might have in this country, and cashing it in. A future they thought would be far off, and that they would not be around to see. But with the recession, credit crisis and collapse in asset values, the future is coming sooner than they expected, and one can almost sense the panic. Today I read a fantastic quote, in a blog post about New Jersey’s public employee pension system, that completely captures the moment. It could have been about NY's pensions, the MTA and the Ravitch Commission, the state and local government budget crises in New York and throughout the nation, Wall Street, private equity, hedge funds, many other businesses, many people's personal finances, etc. “There is a scene in Mel Brooks' The Producers where Gene Wilder realizes the jig is up and starts intoning 'no way out' while clutching his blankie since, being a reasonably learned accountant, he grasps the situation. Zero Mostel however, whose schemes got them into their mess, still thinks there are outs. That's how an unbiased pension actuary would feel looking at the state of the New Jersey pension plan. It's effectively dead but we still have the Zeroes who got us into this mess running around selling more hopes and dreams.”

I’ve been reading about the negotiations between the current State Senate majority leader, Dean Skelos, and the “Gang of Three,” Sen. Carl Kruger, Sen. Ruben Diaz Sr., and Senator-elect Pedro Espada Jr., over control of the State Senate. I have a question for those who consider themselves Republicans,Democrats, “conservatives,” “proggressives,” the Manhattan Institute, the Fiscal Policy Institute, the New York Times, the New York Post, etc. Anyone want to take ownership of these guys, and say that the four of them are working for their values?

The future of New York, City and State, has been severely diminished by the self dealing of the past, including the recent past. But we can at least be thankful that Bloomberg, Paterson, Silver, Skelos and Quinn are not proposing a stunt like this.  New Jersey's pension funds have only half the money needed to pay benefits, even given an assumed rate of return they'll never get, and unlike in New York it was taxpayers unwilling to pay taxes rather than public employees seeking pension sweeteners that get the lion's share of the blame.  So what is being proposed in the Garden State?  Keeping taxes down by taking (another) "holiday" from required pension contributions! 

There is no question that Upstate metropolitan areas have their problems. Once among the most dynamic and forward-thinking areas of the United States, the region has been living off the former prosperity generated by older companies, a prosperity that is passing away with those companies due to economic change. Employment has been kept steady by the growth of government and government-dependent sectors such as health care, and low-paid retail and services. The average private sector worker in the Upstate metro counties (Albany, Broome, Dutchess, Erie, Monroe, Niagara, Oneida, Onondaga, Orange, Rensselaer, Saratoga, and Schenectady) earned 11.4% less than the average for the United States in 2007. In the post-air conditioning “Sunbelt” era, an era ironically abated by Syracuse-based air conditioner maker Carrier (who even needs air conditioning up there?), the beautiful lakes and trees and abundance water of our northern interior states have been thought by millions of Americans to be less desirable than warmer, southern states that get more sunshine and less snow. So to be fair, I’ve compared the local government employment and payroll of the Upstate Metro counties with several other older, urbanized, cold-weather manufacturing-based counties across the country — Allegheny (Pittsburgh), Cuyahoga (Cleveland), Franklin (Columbus OH), Wayne (Detroit), Milwaukee and Hennepin (Minneapolis). In 2007, all had far fewer local government employees per 100,000 residents than the Upstate NY metro counties, with the exception of…

In my previous post, I used employment and payroll data from the 2007 Census of Governments, described in my first post on the subject, to compare New York City with other older central cities. In this post I compare full time equivalent local government employment per 100,000 residents and March 2007 pay per employee for New York’s Downstate Suburban counties — Nassau, Suffolk, Westchester, Rockland, Putnam — with other suburban counties with large job bases in the Northeast Corridor. To Fairfield County in Connecticut, also presented in the initial table, I add Middlesex County outside Boston, Montgomery County outside Philadelphia, Baltimore County outside the City of Baltimore, and Montgomery County MD and Fairfax County VA outside Washington DC. With the exception of one of these counties, local government is clearly more expensive in the Downstate Suburbs than in other northeastern suburban counties, due to higher employment levels, particularly for schools, roads and police, higher pay, or both. Even in that county, moreover, the total cost of government may be lower due to lower debts, less rich pensions, and a less expensive Medicaid program that is not shifted to the local level. But looking just at those on the local government payroll, the suburban county where there are even more local government workers earning more money than in the New York Suburbs is…