It’s tax time, and it has been six years since I last compared the federal, state and local tax burden on two prototypical Brooklyn couples using Turbo Tax and other information: the Senior Voters, home-owning former NYC public employees who got to retire at age 56, and the Young Hopefuls, a couple trying to get by while renting and working. Now that the Senior Voters are age 69 and receiving Social Security, and the Young Hopefuls are age 41 (with Baby Hopeful reaching age 15), it’s time to find out what has changed.
In the past I showed that the Young Hopefuls, despite much being poorer, would pay a much higher percent of their income in taxes. A large share of those taxes would go to pay for the pensions and senior benefits of senior voters. When the cost of health care, child care and housing were included, the Senior Voters would have enough money left for a very affluent, high consumption lifestyle. The Young Hopefuls would have barely enough money to get by, despite matching the median income of NYC households. Worse, given soaring public and private debts, the Young Hopefuls will not be getting the same benefits when they are old themselves. Poorer than the Senior Voters had been in young adulthood, and also now in middle age, they will be even worse off at the end of their lives, due to deals a generation of senior voters cut with themselves to put in less and take more out.
As a new twist I have added a third couple: Chad the Private Equity Guy and his new wife Trixie, originally from metro Chicago and the Chicago Merc, but now working in private equity in NYC while living in a luxury condo in Dumbo. While the difference in the tax burden on the Young Hopefuls and Senior Voters shows how harshly work income is taxed compared with retirement income, especially public employee retirement income in New York, Chad and Trixie’s tax bill shows how much investment income is favored at the federal level. And the deals for seniors and the rich have just kept getting richer, even as later born generations of ordinary Americans, on average, keep getting poorer and deeper in debt. Both political parties have contributed to the trend, a reality that belies their alleged increasing partisan warfare.
So what percent of income would these three couples pay in taxes?Continue reading