A Value Added Tax Would Be Far More Fair Than the Payroll Tax

As I showed in my prior post…

https://larrylittlefield.wordpress.com/2019/07/31/dont-increase-the-federal-payroll-tax-replace-it-with-a-value-added-tax/

The federal payroll tax on the first $132,900 in wage and salary or self- employment income, a tax that has been increased over the decades, is both unjust and economically damaging.  All the groups of people who have become richer over the past four decades, at the expense of making everyone else poorer, have either all or much of their income exempt from it.  Today’s seniors, the richest generations in U.S. history, because their retirement income is exempt from the payroll tax (they also get special exemptions from the federal and state income taxes).  The very wealthy, because investment income is exempt from the payroll tax (divided and interest are also taxed at a lower rate under the federal income tax).  And those who get very rich non-wage benefits, generally unionized public employees – all that income is exempt from both the payroll tax and income taxes.

These groups have used their political power to capture a greater and greater share of total U.S. income, while the work income of ordinary private sector workers has been going down, generation by generation. With Millennials paid 25 percent less than Baby Boomers had been at the same point in their careers.

https://larrylittlefield.wordpress.com/2019/05/25/retirement-benefits-are-to-white-collar-crime-and-generational-inequity-what-handguns-are-to-street-crime/

And yet it is these less well off workers who are forced to carry the burden of Social Security and Medicare for the richer and more entitled generations that preceded them, the soaring cost of public employee pensions and health care, and the huge national debt run up by the multiple rounds for tax cuts for the rich.

So what would I propose to make federal taxes more equitable on a generational basis, and more progressive (with the better off paying more) as well? Replace the regressive, worker-only federal payroll tax with less regressive, everyone pays as they spend their money Value Added Tax (VAT).

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Don’t Increase the Federal Payroll Tax –Replace It With A Value Added Tax

If there is one tax that both Republicans and Democrats love to increase, it is the federal payroll tax, now at 15.3% of your paycheck, theoretically split between employers and employees with the “self-employed” paying both halves.  The biggest tax change in my lifetime took place in the early 1980s, at the start of my career.  With the biggest cut in the progressive income tax in history, followed by the biggest increase in the regressive payroll tax in history, during the Reagan Administration.  The income tax cut has been repeated twice since, to benefit the richest members of the richest generations in history at the expense of loading debt on the less well off generations to follow.  That has been a Republican policy.  But increasing the payroll tax – the base, the rate, or both — is a Democratic go-to as well, to increase or at least maintain Social Security benefits under various Democratic proposals, as noted here…

https://larrylittlefield.wordpress.com/2019/02/17/social-security-the-democrats-join-generation-greeds-theft-of-the-future-from-less-well-off-later-born-generations/

Or to pay for things like family leave, as in the state program in New York or the federal program proposed by New York Senator Gillibrand.

Why increase the payroll tax?  Because the types of people who have gotten richer and richer over the past 40 years, at the expense of those who have gotten poorer and poorer (to the point where their life expectancy is falling), don’t have to pay it, or as much of it.  Only regular workers do.  We are now in the special interest pandering, campaign contribution collecting portion of the 2020 Presidential campaign.  No wonder everyone wants higher payroll taxes – or, as alternative, even more in cuts in federal old age benefits for already-disadvantaged later-born generations only.

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New York City’s Workers: Moving to the Suburbs?

I took a quick look at the latest labor force estimates from the Bureau of Labor Statistics.  With unemployment low, but businesses still not willing to raise wages significantly, jobs are going where the workers are, not the other way around.  And for much of the post recession period, that has been New York City.   From June 2011 to May 2017, the New York City resident labor force was higher than it had been a year earlier by an average of 31,192.  With lots of suburban homeowners becoming empty nesters and then retiring, and relatively few new housing units built in the suburbs, the labor force of the rest of the New York-New Jersey metropolitan area was lower by an average of 5,345 per year.  Even this understates the suburban labor force decline, as the rest of the metro area includes a number of smaller, older cities such as Yonkers, Hoboken and Jersey City, and that is where young adult workers have been moving and new housing has been built.

Lately, however, there has been a modest reversal.  From June 2017 to May 2018 the New York City labor force was lower than it had been a year earlier by an average of 2,624, while the labor force of the rest of the NY metro was down by an average of 3,401.  And from June 2018 to May 2019, the New York City labor force was down by an average of 13,238 while the rest of the metro area was higher by an average of 15,979.  If New York City’s resident labor force did decrease by 16,000 over two years, that isn’t much compared with the massive increases of the past two decades.  But one wonders if this is the start of a trend.

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It Would Seem That Somebody Doesn’t Like NYC Public Finance Charts

About a month ago, I went to post a comment on an article on the NYC blog Gothamist, which is owned by WNYC (to which we have contributed for decades), and found that I had been banned from commenting.

At about the same time, I sought to comment on an article on the NYC education blog Chalkbeat, and found that the same thing had happened.

Some other funky things started happening to some other comments I made elsewhere at about the same time.  I wrote to each of these sites to ask why I was banned, no so much out of disappointment, but out of curiosity.  Neither responded.  So I am left to look at my last comments on each site, which they deleted from their sites but cannot be deleted from my disqus account, to try to figure out the actual reason.

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Public School Finance Over Two Decades, in NYC And Elsewhere, Based on Census Bureau Data: Anyone Remember “School Reform”?

Remember school reform?  The idea that funding for public schools, in New York City and across the country, would be increased, and in return the kind of education those schools were expected to provide would rise as well, even for poor and disadvantaged students.  “No child left behind.”  Republicans such as George W. Bush were in favor, but so were Democrats such as Teddy Kennedy and Barack Obama.  But nobody talks about it anymore, and for good reason.  In New York City, and some places like it, the schools – and the teachers union — grabbed vastly more money, but once that was locked in they rejected any increased expectations, or any expectations at all, and have since demanded still more money.  In some other states anti-tax politicians reversed higher school funding, though not completely, and left the quality of education lower than it had been decades ago.

Nationwide the reversal was driven by three trends.  Since FY 2007, with the children of the Baby Boomers (aka the Millennials) exiting school, public school enrollment has been falling in many places, and barely increasing nationwide.  So the only generation that matters, the Baby Boomers, wants money and attention shifted to other things — even as the schools and the politicians they support, in places like Upstate NY, want more money funneled through the increasing empty schools as a jobs and retirement program.  Throughout their adulthood, this generation either failed to fund the pensions teachers had been promised, or retroactively increased those pensions to benefit the generations cashing in and moving out – themselves.  As a result much of the increase in school funding per student that did occur actually went to retired school employees, rather than to the classroom. All this came to a head with the Great Recession, followed by a perpetual fiscal crisis across the country.  One associated with falling tax burdens in some places, but rising tax burdens in New York. School reform is over across the country, but in New York City it was probably a fraud to start with.

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Census of Governments FY 2017: Public Education Finance Data for New York, New Jersey, the U.S. and Selected Other States & Areas

The U.S. Census Bureau released its FY 2017 public education finance data for school districts across the country on May 21st.

https://www.census.gov/newsroom/press-releases/2019/school-spending.html

Of the 50 states, New York ($23,091), the District of Columbia ($21,974), Connecticut ($19,322), New Jersey ($18,920) and Vermont ($18,290) spent the most per pupil in 2017.  Of the 100 largest school systems based on enrollment in the United States, the five school systems with the highest spending per pupil in 2017 were New York City School District in New York ($25,199), Boston City Schools in Massachusetts ($22,292), Baltimore City Schools in Maryland ($16,184), Montgomery County School District in Maryland ($16,109), and Howard County School District in Maryland ($15,921).

As is the case most years, I’ve downloaded this data and compiled it into tables showing per student revenues and expenditures by category for New York, New Jersey, and nearby states, four sections of New York State (New York City, the Downstate Suburbs, Upstate Urban Counties and the Rest of NY State), the U.S. average and other places that interest me.  And every individual school district in New York and New Jersey.   And since this is a Census of Governments year, when the Bureau will later be compiling data on every function of every state and local government in the country, I’ve done exactly the same compilation for FY 2007 and FY 1997, to make comparisons over time possible.

As is my custom, I’ve going to provide an explanation of where the data comes from and how it was compiled, and make the spreadsheets with the data, tables and charts available for download, in this post.  Before providing my take on it later, after I’ve thought about it for a while.   So open-minded and curious people (all three or four of you, apparently) are able to download the spreadsheets, look at the numbers and charts, and make up your own mind, rather than having me tell you what it means.  Moreover, I certainly won’t be writing about every individual school district in New York and New Jersey.  But the data is provided in such a way that anyone else can write about their own.

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Retirement Benefits Are to White Collar Crime and Generational Inequity What Handguns Are to Street Crime

Red State, Blue State, Democrats, Republicans, anti-tax advocates, public unions, public sector, private sector, federal, state and local and even in Europe.  Retirement and old age benefits are promises about the far off future, allowing any and all to use them as a tool to rip people off and make a getaway before the heist is discovered.  At the state and local government level, all over the U.S., one finds the generations now retired or about to retire promised themselves far more than they had been willing to pay for, leading to crises of various kinds. But always there is the assumption that the older generations that created the problem and benefitted from it can’t participate in sacrifices needed to prevent disaster.

The first response is always the union-friendly choice to drastically cut the pay and benefits of new hires, in order to offset the soaring cost of benefits for those cashing in and moving out.  Screwing the millennials as part of the “screw the newbie, flee to Florida” cycle that goes on and on.  “If you don’t like it, don’t take the job; take some other job that also pays 25 percent less than the Baby Boomers were paid for the same work,” as Federal Reserve Bank of New York research has shown.

https://www.wsj.com/articles/playing-catch-up-in-the-game-of-life-millennials-approach-middle-age-in-crisis-11558290908

But when that isn’t enough, the next proposal is a “pension freeze.” Middle-aged workers, now mostly the last of the Boomers in those in Generation X, get to keep the pension benefits they have earned so far, but are not allowed to accrue any new benefits at the rate they were promised.  They are allowed to contribute to a 401K instead.  “If you don’t like it, quit and take another job for 15 or 20 percent less than most Boomers and members of the Silent Generation were paid, if someone will hire you.”

That’s fair, isn’t it?  No it is not!

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