Author: Larry Littlefield

Social Security: What Will They Do To Us Next?

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The extra Social Security money that was collected in the past was spent in the past and used to offset lower income taxes, and in a decade or less there will be no extra Social Security money. After that point, if currently promised benefits are to be paid, taxes will have to rise and/or federal services and benefits will have to be cut. Or should I say, cut by even more than will have to be the case in any event, as we have been living beyond our means, and running federal deficits, over and above the additional payroll taxes theoretically owed to Social Security. Given that, what are our elected officials likely to do? I see four likely scenarios, each of which involves offsetting the benefit older generations have gotten by spending the extra payroll tax collections over the past 24 years with pain for future generations down the line. The only difference is in the details, and they way that pain would be disguised as an “everybody wins” solution.

Social Security: Where Did All The Money Go?

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As the previous essay shows, despite collecting far more in payroll taxes than was required to pay Social Security benefits over the past 24 years, the federal government was deeper in debt in 2005 than it had been in 1980. All the additional Social Security taxes, and then some, were spent, meaning that despite the $1.86 trillion in the Social Security Trust Fund, the retirement of the Baby Boomers, and those after, will either have to be cut back or paid for a second time. To determine where the money went, the subject of this post, the entire federal budget in 1980, before the Social Security Amendments of 1983 and the Reagan Administration that authored them, and in 2005, the most recent year, must be compared. I have tabulated federal revenues and expenditures, by category, per $100,000 of GDP to show how large a part of the economy each category was then, and is now. Some of the results are not a surprise. Higher payroll taxes, which fall hardest on the middle class and poor, have been used to offset lower income taxes, which fall hardest on the affluent, and soaring health care spending has also soaked up a larger and larger share of federal funds, as is has for the State of New York. And some of the results are a surprise, at least to me, at least in their extent if not their direction. Federal spending has fallen as a share of GDP in virtually every other category aside from health care – and overall.

Social Security: The Generational Betrayal

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Nearly 25 years ago those running the federal government made my generation, and those after, a promise: pay a vastly higher payroll tax throughout your lives and accept a later retirement age, and Social Security will be there to keep you out of poverty in your later years. That promise was made by the eight Republicans and seven Democrats, appointed by President Reagan, who made up the 1982 National Commission on Social Security Reform, by the Congress that adopted its recommendations, and by the President who signed them into law in 1983. That Commission, now long forgotten, was headed by Alan Greenspan. The payroll tax increase has been especially burdensome, since this is a tax that hits you harder the less you earn, and the higher rate has coincided with an era in which the distribution of income has become more unequal in any event. Those my age know they will not be allowed to collect Social Security until age 67, rather than age 65. Yet despite all the additional money that has been paid, and the benefit reductions imposed, to “save Social Security,” the truth is that Social Security was not saved. What has happened is a generational betrayal.

Are High Commercial Property Taxes Hurting the NYC Economy?

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New York City is known as a place with low property taxes, thanks to its virtually unique sky-high local income taxes. Yet there is one class of property for which the city’s property taxes are not low – commercial buildings without special tax breaks. While it has many liabilities, the property tax has one key advantage – it is hard to hide the asset being taxed, and difficult for it to move to a lower-taxed jurisdiction. But like trees, commercial buildings do move slowly over decades as new ones are built in some places and not built in others, while old ones are torn down or converted when they become obsolete. Does this have a negative effect on the New York City economy? We may be about to find out the answer.

Do We Get More By Paying More?

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In response to yet another demonstration that New York City residents pay above average state and local taxes, Mayor Bloomberg told the New York Post that “New Yorkers pay more taxes because they get more services.” But if you tabulate how much New York City spends on different type of services, as share of its personal income, you see that isn’t really so. The Independent Budget Office shows that the local share of Medicaid and welfare, which most places don’t have to pay, jacks up New York City’s taxes, in part because our Medicaid program is so expensive, in part because having a local share shifts the burden of the poor to those who live and work near them. That’s us.

School Choice and Stress

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The New York Times had an interesting article today on school choice within the public schools. “Under Mr. Klein, choice has increased exponentially,” the Times said. “Giving people choices is always empowering and almost always will lead to better outcomes for kids,” the Chancellor is quoted as saying. “Choices could indicate when an undesirable school should close.” Yet far from feeling empowered, parents are feeling frantic according to the newspaper. And less affluent, low income parents and their children will be left behind. Why? One sentence captures the problem. “While some parents say they are thrilled to have such a rich menu of options, others complain that it is the schools — not families — who do the choosing.” That’s the reality. The limited, though hopefully growing (some who post here say no) number of schools were a decent education is on offer are deciding which children they will deign to educate. Or it is being decided by chance, or other procedures. The other schools aren’t going to close. They are going to get the kids who aren’t accepted or who lose the lottery.

Inflation Adjustment and Political Power

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Among the Medicaid budget cuts Governor Spitzer has proposed, and the hospital and nursing home industries are gearing up to fight, is a rate freeze for 2007 in place of the automatic inflation adjustment these industries would otherwise be entitled to. In the past, whenever the state budget has been tight, these industries have received more money automatically, while other needs and concerns, whose increases (or even avoidance of decreases) must be approved each year, have been forced to fight over whatever money is left. Medicaid also has gotten the first bite of the apple at the local government level, as payments to the state are mandatory. By taking away the automatic increase, Governor Spitzer would not disadvantage hospitals and nursing homes in the future, when the state might be facing fiscal problems. He would merely put them in the same position that public schools, transportation, and other public services have always been in — with no guarantees, and thus forced to compete equally in surplus or shortage.

The PBA and Bloomberg’s Folly: The Other Shoe Drops

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Just before his re-election, Mayor Bloomberg and the Patrolmen's Benevolent Association reached a contract in arbitration that offset, in part, the soaring cost of police pensions by reducing the pay of new officers by 40%, to just $25,100. Similar contracts were reached with other unions, which then did not oppose the Mayor’s re-election. Those unaware of the history of such things might have assumed that the Mayor had imposed harsh terms. In fact, however, public employee unions always try to get better pensions, and to increase the pay of those about to retire upon which the pensions are based. And they always, time after time, eagerly agree to lower pay and benefits for future employees — the very employees the government will need to hire in the future to continue to provide services — so the new hires can be held hostage later. One might have thought that the 40% cut in starting pay for police and fire, and 15% cut in pay for most other titles, was a union proposal in exchange for higher benefits for those with seniority. But in fact it was the Mayor’s idea and the unions — “please don’t throw me in that briar patch” — gladly accepted.

Taxes & Generational Equity: A Whole Life View

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One more post on my analysis that shows that a hypothetical young couple in New York City would owe nearly three times the federal, state and local taxes as a senior citizen couple with the exact same income, and would have just half the money left over after taxes and housing expenses. How can this be justified, other than as a matter of political power? The accumulating list of special breaks for seniors is often justified on the grounds that seniors are worse off than the young. They may also be justified on the grounds that the seniors had to pay more when they were young, and the young will get the same breaks when they are old, so it all evens out if one takes a “whole life view.” Considering these points for what they are worth, I find myself agreeing with the Concord Coalition whose analysis (for Northern Virginia) I have essentially duplicated here (with the same results): “Such vast discrepancies are impossible to defend.”

Every Parent’s Worst Nightmare

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The Daily News reported today that a child walking home from school with his aunt was hit and killed by a vehicle making a right hand turn on Third Avenue in Brooklyn. That is the second time in recent memory that a child has been killed by a vehicle making a right turn on that very street. Such a tragedy is every parent’s worst nightmare, and when my children were younger, it was one of my greatest fears. Not child abduction. Not sexual predators. Not terror attacks. Right turns, and left turns from narrow one-way streets.

People need to realize that it is turning cars that are most likely to run over pedestrians and cyclists. The streetscape of New York City makes it difficult for drivers to see pedestrians coming out from the corners — especially if an SUV or other large vehicle is parked there. The risk of running over a child is something I often think about when getting behind the wheel. And many drivers are more concerned about being hit themselves by other vehicles — a threat to them — than running over children. Particularly if they are driving a sedan and could be hit by an SUV — with a bumper designed to crash through the driver-side window. They are looking left — for another vehicle — not right — for a pedestrian as they move around the corner. And if they do it too slowly, they might get the horn from a vehicle behind them.