The data show that from 1990 to 2009, New York City’s private sector employment fell by 26,900 (1.0%) when the Health and Social Services sector is excluded, while private employment in the rest of the state fell by 110,300 (3.3%). Much of the difference between the two parts of the state has been since 2000; before that the rest of the state had fared better over the long term than the city. This data, moreover, does not include the soaring number of self-employed workers (freelancers, independent contractors, etc.) in the city.

Meanwhile, employment in the Health Care and Social Assistance sector has surged by about 50 percent in both areas, by 192,800 in New York City and 235,400 in the rest of the state. That is a burden that a flat number of private workers in other sectors in New York City, and a falling number of such workers in the rest of the state, have to carry. This problem is a national problem, though it is worse in New York than elsewhere. The fact that New York’s Medicaid program is extremely expensive is now much discussed in the media and understood by the public (though they don’t understand that most of the difference is richer benefits for senior citizens). Another difference between New York and the rest of the country, and New York City and the rest of the state, is less understood.

New York City’s local government employment has fallen by 12,400 (2.6%) over the 20 years, with an increase of 10,700 (7.7%) in the schools offset by a decrease of 23,100 (6.9%) in everything else, including New York City Transit. In the rest of the state, local government employment has surged by 130,300 (23.8%), including 79,900 (27.6%) in the schools and 50,400 (19.6%) in everything else.

In New York City, at the stare of this period, the public schools were underfunded and inadequate, while public services were good in the rest of the state. The city’s population has grown, while that of the rest of the state has been stagnant. So why did local governments in the rest of the state need an extra 130,300 workers?

The answer is, local government in the rest of the state has become a high-class welfare program, over and above a means of providing public services.

When New York City’s industrial base collapsed in the 1960s and 1970s, those who might have been employed by it ended up on welfare and the subject of scorn, particularly from those in the rest of the state. Much of the cost of those recipients, which was never as high as people believed, was shifted to the city through a virtually unique local government contribution to the program, but every dollar the rest of the state contributed to the city provided to the city’s poor two were taken away for other things.

For example, see the attached chart of New York City’s share of public school children, state education aid, and state income tax payments over the years (the data really lags, particularly the tax data). Not until the Campaign for Fiscal Equity lawsuit was settled did the city’s share of state aid finally exceed its share of public school children, even though its children were more needy than average. Except it didn’t – that year the “Middle Class Star” program, not in the chart, was added, meaning the city’s share of school aid was actually cut. Moreover, it will probably be cut further, as it was in every recession, particularly in FY 1996 – the state budget that permanently and irrevocably stuck it to my children’s generation and those many years before and after. (But of course, thanks to the 25/55 pension deal for teachers, the schools are now doomed no matter what, so this doesn’t matter anymore.)

Eventually even welfare was taken away, fortunately offset by a boom in low wage jobs with no health or retirement benefits, and self employment options in which the employee doesn’t even get unemployment insurance or have the employer contribute to Social Security.

So what happened when the rest of the state faced a similar economic decline? Basically everyone got government jobs, with pensions and retiree health care, while continuing to castigate New York City residents as being a bunch of lazy freeloaders. It’s as if Bella Abzug had gotten her way in the early 1970s, and all those New York City residents living in poverty on welfare had been given middle-class government jobs instead, whether needed or not.

Public schools employment in the rest of the state was already high, and teachers already highly paid, in the early 1990s. The real surge to absurd levels, however, began when Governor Pataki decided to shift school aid away from the city via the STAR program, which gave more money to the school districts that spent more and had richer people. The result was a predictable surge, and when aid for and spending on New York City was increased, the rest of the state insisted on spending even more, to maintain that gap. Outside New York City, most of the excess local government employment is in the schools, other more detailed data show.

The growth of local government, added onto the growth of Medicaid, has been a tremendous burden on those residents in the rest of the state, particularly Upstate, who haven’t been in on it. But not on them alone.

For further insight into state trends, look at the attached spreadsheet of Local Area Personal Income data from the Bureau of Economic Analysis from 1969, the first year readily available, to 2007, the most recent available (other columns there but most are hidden). The data shows per capita income as a percent of the U.S. average, and in both years New York State as a whole was 120 percent of the average (or 20 percent above average). Pretty stable, it would appear, particularly given that both years were peak years of the economic cycle. But look at the data by county.

In 2007, just a handful of New York counties were above the national average in per capita income: New York County (Manhattan), the richest in the country, at more than triple the average, Westchester at nearly double the U.S. average, Nassau and Suffolk, 63 and 23 percent above average, Rockland, Putnam and Dutchess, 39, 32 and eight percent above average. Just one New York City outer borough, Richmond County (Staten Island) at 10 percent above average, and just three counties upstate of Dutchess, Monroe (Rochester) at two percent above average, Saratoga at five percent above average, and of course Albany at nine percent. Most of these counties are above the national average by more, sometimes far more, than in 1969, with Monroe County and Richmond as the main exceptions.

It is fair to say that all of the state’s wealth is concentrated in Manhattan among those who live there, and those who commute there from the most affluent suburbs. Meanwhile, in 2007 the other boroughs of New York City, home to some six million people, and the other major urban counties of Upstate New York were much poorer than average. But that wasn’t true in 1969. Then Broome (Binghamton), Erie Buffalo), Onondaga (Syracuse) and Schenectady County were well above the national average in per capita income, and Monroe County (Rochester) was to a far greater extent. Orange County was average, with Niagara County just one percent below.

Back in 1969, moreover, per capita income in Queens was 32 percent above average rather than seven percent below in 2007; it was average compared with 18 percent below average in Kings County (Brooklyn) and just six percent below average rather than 33 percent below in the Bronx. Those worried about New York City gentrification perhaps shouldn’t worry too much. Per capita income in these boroughs was lower, or unchanged, relative to the national average in 2007 than in the previous economic peaks of 2000 and 1987 as well as 1969. Though not getting any worse relative to the national average since 1987, these boroughs, while improving in other ways, have not recovered in income from the 1970s.

In a sense, the upstate and suburban local government employment boom has been financed in part by wealthy people working in Manhattan, while austerity has been imposed on New York City. But it has also been financed by borrowing and deferred and enriched pension expenditures, inside and outside the city. And now, it has become clear to the entire country, that a portion of the concentrated wealth in Manhattan and the Downstate Suburbs was not really earned, it was seized. Not all of it. These places have concentrations of extremely talented and hard working people. But a lot of it. What happens if the wealth of Manhattan and the suburbs merely shrinks back to what it was in 1969, relative to the national average?

One of two things. Either those excess public employees in the rest of New York State, and Health Care and Social Assistance employees statewide, public employee pensioners and tax free seniors will truly sacrifice and face the conditions most New Yorkers have faced, despite their control of state government. Or everyone else in the entire state will face the kind of economic and institutional collapse that hit New York City in the 1970s. Including New York City for a second time, and perhaps hit harder than everyone else as in past. The decision will be made by the New York State legislature. I’m betting on an institutional collapse. But one thing is clear.

The state legislature will eventually not be able to cover up the damage they have done to rest of us to favor powerful interests at the expense of the equally rapacious rich or the future any more. Because the rest of the country has had enough of the rapacious rich, and the future has arrived. The legislature is now refusing to face reality, because it is unwilling to tell the winners they have take too much, or to actually vote to destroy millions of lives of people it doesn’t care about, people who are already struggling. It is seeking a solution. Having millions of people’s lives ruined so those who matter can get all they are entitled to, while not having to vote for it. Just having it sort of happen.

Call it what you will, but it isn’t dysfunction when it functions so well for those with power.

As pension systems collapse all over the country, just remember this: public employees just about everywhere else have contributed far more to their pensions than New York's public employees have.

Public employees in most states pay taxes on their retirement income at the same rate that workers pay, but they pay nothing in New York.

New York has the highest state and local taxes in the country as a share of its residents income, excluding (sometimes) oil taxes in Alaska and Wyoming.

Despite those high taxes, most NYC school children over the past three decades have not received a decent education (education is the biggest state and local government expense). No significant improvements have been made to the infrastructure. And parks and other amenities have remained viable only because people have donated to them ,over and above the taxes they pay.

Most of the tax increases and service cuts that are coming are the result of soaring pensions, debt and health care costs for prior to generations, not the recession. And unlike the recession, these are permanent.

What will politics be like a decade from now? After a decade in which taxes on those without special exemptions rise each year, but public services are cut, as more and more money is diverted to the debts and retiree benefits older generations have promised themselves? A decade during which younger generations see their standard of living fall below what their parents’ received, and they struggle to pay those higher taxes, even as top executives continue to receive massive pay and bonuses and public employees continue to retire in their 40s or 50s to a life of leisure? A decade in which those born after 1956 approach old age with no pensions and little savings, and are told that public safety net benefits for seniors will no longer be there for them? And who do we have as possible leaders as we head into this abyss? Paterson, Lazio and Cuomo, three creatures of the system supported by those who benefit from it. As Generation Greed, from the public employee unions to the lobbyists to the advertisers to Fox News, seeks to continue to avoid the uncomfortable truths and deflect the outrage through deception, as millions of people refuse to acknowledge the reality of a society that, collectively, has felt the right to take out more than has been put in, it is quite possible that U.S. politics five or ten years from now will end up something like this.

Just consider what we are witnessing. The huge bonuses being paid out in finance even though this years financial profits are entirely the result of massive government subsidies, from having the federal government take on massive contingent liabilities in the mortgage market to having the Federal Reserve artificially depress the interest savers receive. The public employee unions, even as taxes have been raised and services are being cut, even as the pay and benefits of future public workers has been cut, are pushing for even earlier retirements for existing members with seniority. Evidently age 55 isn’t good enough for the UFT. They want an "incentive" so more can retire at age 50 or 45, so more can get out before the collapse. After all, they’ve gotten similar unannounced deals from the politicians in other elections years. For all we know, it has already happened.

Think of what has happened in the past five years, just in elections for Governor. When Tom Suozzi, who had dared to challenge the conspiracy of ever rising self dealing and unearned privilege in the State of New York, ran for Governor, the powers that be – the unions, the rich, the politicians – all rallied around Eliot Spitzer, who they felt would be one of them. They threatened Suozzi with the end of his career if he did not leave the race for Governor.

Then, when Spitzer was elected, he briefly turned on the powers that be and said some (but by no means all) things that had been unsayable. Only to roll over in his first budget, and then sign a law allowing NYC existing teachers to retire at 55 instead of 62. Then he resigned in a prostitution scandal.

The state legislature, unions, lobbyists etc. rejoiced when Governor Paterson took over, but pretty soon he started recanting his future-selling special dealing career. And so he too was rolled over, and started going after the losers – future public employees, future residents, most residents of New York City – and protecting most of the winners. But because he too told some truths, the insiders want a another insider to succeed him: Andrew Cuomo.

What does Andrew Cuomo stand for? Who, in his view, didn’t put enough in or took too much out? He won’t say, but we can assume. Those who have made the rules are vested; the rest will have to be sacrificed due to “circumstances beyond our control.”

Lazio? What does he stand for? He comes from a political tradition that has seen local government employment outside New York City soar by more than 100,000 in 20 years with no objection, while all the sacrifices have been focused on a city where local government employment has been going down. Another phony conservative. A Pataki & W. Bush future-selling fraud.

I’ll say something the likes of which I’ve never said before. I would be a better choice for Governor than any of these men, simply by virtue of knowing what the truth is, being willing to say what it is, and not having emerged from the swamp these creatures have. And as I say so, I don’t beat my chest. I shake my head.

Our situation is not unique in the U.S., although we face if from a starting point of having the highest state and local tax burden. And the U.S. situation is not unique in the world. If the groups that have grabbed a larger and large share of what is now a shrinking pie, as a result of their power and sense of entitlement, not their contribution, were confronted, defeated and forced to accept some kind of fairness, and the rest could then accept a decade of sacrifice to offset 30 years of irresponsibility, the situation could be turned around. But that’s now the way to bet. Not when our future is in the hands of Silver, Skelos, Sampson, Smith and Paterson, Cuomo or Lazio.

Elections, government, every institution is losing legitimacy. No one can run, even get on the ballot, without one or more of the existing winners behind them, and no one believes votes make a difference. Where is the proof? So what will the consequences be?

Warren Buffet has had a public dare for years -- for any CEO to prove that he had a higher marginal tax rate (the rate paid on the last dollar of income) than his secretary. No one has taken him up on the offer. The reason is that wage and self employment income, from the first dollar, is subject to a 15 percent payroll tax (15.3% in downstate New York going up to 15.5% in New York City, as a result of the MTA bailout). Investment and retirement income is exempt. While some of this is in theory paid by employers, in practice the burden is shifted to employees in the form of lower wages. As proof, wages for those earning up the level on which the payroll tax is levied -- only on the first $100,000 or so of income -- have been slipping relative to inflation for 30 years, while wages for those over the limit -- where the employer can pay more wages without paying more tax -- have been soaring.

For wage earners, federal, state and local income taxes are on top of that 15 percent. For the worst off, no income tax is charged and the Earned Income Tax Credit offsets part of the burden of the payroll tax. But for moderate, middle and upper-middle income workers, the federal rate starts at 10 percent and soars as high as 39.6 percent. Meaning the combined marginal tax rate on work income rises from 25 percent to 54.6 percent. State and (in New York City) local income taxes, which retired public employees don't have to pay, are currently around 10 percent but will probably rise to 15 percent for the middle class in the next few years, even as the public services the middle class relies on -- such as schools and mass transit -- collapse to as money is diverted to pensions and debts. As Reagan and Weingarten taught us, deficits and enriched unfunded pensions don’t matter to the rich and powerful who matter, because they take theirs off the top.

At the federal level, however, the wealthy don’t even pay the regular federal income tax rates on their work income. Because they vote as corporate board members to give each other the majority of their compensation in the form of capital gains instead, which is subject to a lower 15 percent federal income tax rate. So moderate to upper-middle income households have a marginal tax rate of 25 to 55 percent, while billionaire’s pay just 15 percent. Can there be a rational explanation as to why having a lower tax rate on capital gains is fair?

Well, actually there is, and (courtesy of an article by John Steele Gordon I read in American Heritage magazine some years back, it goes something like this. Capital gains are not like other income. Take a capital gain I might receive, for example. First I work, and pay significant taxes on my work earnings. I can selfishly and shortsightedly spend all that money on myself, and owe no further taxes. Or I can invest the money in some socially useful investment such as a stock or a bond, providing capital so that business and infrastructure can expand. If I’m lucky, I might get a capital gain, but would be a gain on capital upon which I had already paid taxes, meaning I would be taxed a second time. If I’m not lucky, I might have a capital loss, which plenty of people have had in the past decade. In that case, I would have deferred my gratification and been punished for it. Wage earnings cannot be negative, and are only taxed once. Therefore, capital gains should be taxed less or not at all, to encourage “savings and investment.”

I also heard Larry Ellison, founder and CEO of Oracle, make this argument in response to a question as to what the federal government could do to encourage high tech job growth. Well, he said, his employees already pay lots of taxes, so the government should cut his capital gains taxes to encourage him to keep getting richer instead of spending the money.

Yes, there are people who agree with this point of view. But then, what would you call it when people pay income taxes at the lower capital gains rate on income that hasn’t already been taxed as work earnings, and cannot also take a loss? I’d call it tax fraud, and if it is legal under a tax regime – which it is in the United States – then the government imposing that regime is illegitimate. Basically, a high and rising share of income earned by the wealthy has been subject to tax fraud.

Let’s take the example of a CEO, and his cronies on the board. If they pay him $10 million in wages to work for a year, that $10 million would be taxed at the regular rate. If they pay $100,000 in wages and grant $9.9 million in stock options, on the other hand, only the $100,000 would be taxed at the regular rate. The rest would be subject to the lower capital gains tax. Note that the CEO doesn’t have to come up with money he has already earned to buy stock – the options are part of his pay, but not for tax purposes. So much for having already paid taxes on the earnings.

Generally, stock options pay off big time even if the value of a company’s stock just rises at the average rate for stocks over the long term, or even less. But if it doesn’t, the CEO merely declines to exercise the option, and loses nothing. So much for the possibility of taking a loss. In fact, the cronies on the board often change the terms of the options after the fact to turn a loss into a gain so the CEO gets their money anyway. And there is little to prevent the CEO from using questionable accounting and dangerous debt to temporarily inflate earnings, to push up the stock price and cash out at the right time, before the consequences arrive and the company goes down the tubes. As has happened over and over for more than a decade.

In a stock option, in theory, the CEO has to have money to exercise the option and buy the stock at less than its current price, right? Well the boards of cronies often loan the CEO company money to exercise the options. Well, what if the CEO doesn’t sell before the stock goes down and still owes all that money? Well, corporate boards have repeatedly forgiven loans in just those circumstances, so the other shareholders take the loss.

Yes, not every stock option has been pre-priced, and not every stock option has involved a forgiven loan. But that is only because the stock options usually pay off. The CEOs know they won’t take losses. It’s heads I win, tails I either win or break even, and no money invested. And somehow they still call it a capital gain, which is a return on invested capital. Without an investment.

One should not be surprised that the Republicans propose to eliminate capital gains taxes. The proposal is part of a plan that would eliminate Social Security and Medicare for those under 55, replacing them with vouchers payable only to extent that federal spending is less than 19 percent of GDP, including interest on the exploding national debt. There would be no limit on Medicare spending for those now 55 and over (no death panels), so that debt would soar in the years before those now under 55 would theoretically become eligible for the vouchers. And federal investment in infrastructure and education, which those 55 and over don’t need, would be slashed.

One may be surprised, however, to find that it was Democratic President Clinton who first made the tax rate on capital gains lower than it had been on ordinary income. Clinton re-politicized the tax code, adding all kinds of breaks and deals, undoing the tax reform of 1986, the most just thing that has happened in public policy since 1980, which cut rates and got rid of breaks and deals. And it is Democratic Senator Schumer who has defended the “heads I win and call it a capital gain, tails I don’t lose” compensation of hedge fund managers. All the income of hedge fund managers, it seems, is somehow classified as “capital gains.”

To understand why this is, just remember that the Democrats and Republicans are not two parties with two different ideologies, they are two mafias, each controlled by Generation Greed, each seeking favors for its own set of special interests. And the entertainment, financial and high tech industries are as much as part of the Democratic mafia as the oil, defense and pharmaceutical industries are part of the Republican mafia. Both have their own set of rich people to cater to at the expense of the taxpaying serfs. Both end up selling out the future so the serfs won’t realize what has happened to them until later (it’s getting close to later).

Is new legislation required to correct this injustice? I don’t think so. I think the IRS should go back over every stock option and grant, and examine every instance of “carried interest” over the past 15 years and ask two questions – did he person receiving the capital gain buy the asset with money on which he already paid taxes on ordinary income? And was there a risk of loss? If not, make them pay back taxes on their ordinary income with interest. Let’s call this mass tax fraud what it is.

Things got worse for the Young Hopefuls in 2008, as the recession caused Ms. Hopeful to be laid off from her moderate income job and Mr. Hopeful’s self employment income to drop, while the Senior Voters, who are “living on fixed incomes” benefitted from automatic inflation adjustments for their Social Security and pension. The Senior Voters paid $13,453 in federal, state and local income and property taxes on their income of $102,593, or 13.1% of it. The Young Hopefuls paid more taxes -- $16,070, on their far lower income of just $57,000, or 32.1% of it. So what happened to these couples in 2009?

Like many of their generation, Mr. Hopeful has been forced to work as a freelancer or independent contractor, so his non-employer could avoid providing him with health insurance and pensions while continuing to provide these to other employees hired earlier. With business down in the recession, his self-employment income was cut again from $50,000 in 2008 to $44,100. When Mr. Hopeful does not work, he is not paid – and does not get unemployment insurance. While this sort of income loss is more common among the self-employed, the current recession has seen wage cuts and furloughs become common for wage and salary employees as well, with both wage rates and hours falling. According to press reports and data, moreover, self employment is soaring as those laid off are not rehired to regular jobs, particularly if they are older and could have a substantial effect on a firm’s health insurance premiums. The Young Hopefuls are uninsured.

Mrs. Hopeful held a part-time retail job without benefits in 2007, at which she earned $25,000 while paying $5,000 in child care. She lost that job after Christmas 2007, and was unable to get another one. Unemployment insurance payments in New York are set by the following formula -- “your original benefit rate is calculated on your actual high calendar quarter wages. Your weekly benefit rate is one twenty-sixth (1/26) of the high quarter wages paid to you in your base period.” Mrs. Hopeful’s high quarter was $7,000; her weekly benefit is $269, which she received for six months in 2008 before exhausting eligibility, for a total of $7,000 in taxable unemployment insurance income. Thanks to the extension of unemployment insurance due to the federal stimulus plan, she was able to collect for 48 weeks of unemployment payments in 2009, for a total of $12,912, but was unable to find another job, even at Christmas. It should be noted that as the recession drags on fewer workers are losing their jobs, but those without jobs are still unable to find them, with long term unemployment accounting for a rising share of the unemployed.

Since the inflation of the early 1970s, before the automatic inflation adjustment for Social Security was enacted in 1975, no elected official has been able to say the words “senior citizens” without also saying the words “on fixed incomes,” the fixity of those incomes being part of the presumed need and entitlement of the retired, regardless of how high those fixed incomes are. As a result of the New York State pension enhancement passed in 2000, however, the first $18,000 of the Senior Voters’ New York City pension income is automatically increased by an amount equal to one-half the inflation rate, which was 2.7% for 2009. That pushed their pension income up by $243, from $35,691 in 2008 to $35,934 in 2009.

In a quirk based on the timing of the measurement, the Social Security inflation adjustment was 5.8% for 2009, adding $1,840 to the Senior Voters’ 2008 total of $31,702, raising it to $33,542. When prices subsequently dropped, Social Security wasn’t cut back as a result. And since there was no additional upward inflation adjustment to Social Security with negative inflation, Congress voted to send the seniors a $250 check instead. With falling incomes pushing down the money coming in, and the big inflation adjustment increasing the money going out, Social Security is running a deficit after decades of surpluses. And since those surpluses were spent on other things, and the rest of the federal government is too broke to pay it back, politicians and pundits are sounding the alarm that drastic benefit cuts are required – for future beneficiaries – along with tax increases – for today’s and tomorrow’s workers.

The tendency for three decades, in fact, has been to cut income taxes, which burden a wide range of income, and raise payroll taxes, which only hit workers. This benefits retirees and the rich, who receive retirement and investment income rather than wage and self-employment income. The greatest example is the Reagan and Bush income tax cuts, and the 1983 payroll tax increase to “save Social Security.” Today’s retirees (particularly retired public employees) and the rich are just about the only people who have become better off in recent decades in terms of their income as well. This year, the state enacted yet another tax on work income (but not retirement and wealth income) to “save the MTA.” With the MTA not saved, the Governor has proposed to raise that tax for those living in New York City.

The Senior Voters also cashed in $35,000 from their 401K-equivalent 457 plan in 2009, bringing their total income for the year to $104,485, up 1.8% from 2008. The Young Hopefuls’ income, meanwhile, was unchanged at about $57,000, but only due to the federal stimulus program’s extension of unemployment insurance benefits.

So what about taxes? Let’s crank up the Turbo Tax and find out.

The $104,485 in income the Senior Voters received translates into $77,554 in federal taxable income once the partial exclusion of Social Security income, personal exemptions, and the standard deduction are factored in. Their federal income tax bill was $11,769 for the year. In 2008 the Senior Voters received a check for $1,200 in May as part of the first federal “stimulus” giveaway, but this time their check was just $250, reducing the net tax bill to $11,519, or 11.0% of income.

The $57,000 the Young Hopefuls received, including $12,900 in unemployment assistance and $44,100 in independent contractor income, falls to just $29,146 in federal taxable income after personal exemptions, the standard deduction, a child tax credit and the newly added $800 “making work pay” credit. They also lost the 2008 stimulus rebate, but did not gain an inflation adjustment check. Mr. Hopeful, however, has to pay both the employer and employee share of the payroll tax as part of the “self employment tax,” which comes to $6,231 according to Turbo Tax. The total federal tax bill for the Young Hopefuls, therefore, is $7,955 or 14.0% of income, compared with the Senior Voter’s 11.0%. Because the double payroll tax on the self-employed hardly makes work pay, however, the Young Hopefuls actually paid less in tax in 2009 with lower self employment income but more unemployment benefits. In that sense, they became better off relative to the retired Senior Voters by doing less work. The Young Hopefuls’ state and local income taxes amounted to $1,679 and $1,118, respectively, for 2009.

Had they been making a lot of money they might have regretted living in New York City, which unlike all but a few localities has a progressive local income tax that hits the better off harder. As it is, however, they are lucky to live in a place where property taxes are low, and local income taxes go down when incomes do. The landlord of their 500-square-foot one-bedroom apartment had to give in and cut rents 4.0% in 2009 or risk losing a tenant, but building’s tax assessment also fell, leaving the property taxes passed on to the Young Hopefuls as part of their rent up just slightly at $3,921. In 2007, when he had $75,000 in self-employment income, Mr. Hopeful owed $1,029 in additional Unincorporated Business Taxes; in 2008, with just $44,100, he owes nothing. The cutoff for the UBT was increased to $100,000, which may benefit Mr. Hopeful if his independent contractor income increases in the future. But the new MTA Mobility Tax socked him for $150. Adding it up, the Young Hopefuls owed $6,868 in state and local income and property taxes, or 12.0% of their income.

And the Senior Voters? Public sector retirement income at any age, and a share of private sector retirement income at age 65 and after, is exempt from state and local income taxes in New York, so New York taxable income is zero, just like last year. Turbo Tax claims they are entitled to a $125 refund as part of the STAR local income tax break, even though they paid no local income taxes. On the other hand, the Senior Voters were hit with higher home costs in 2009. With the removal of the $400 Bloomberg Check and the $132 Spitzer Check, a higher tax rate and the gradual phase in of their higher house value, they paid $3,957 in local property taxes on their 1,500-square-foot (plus semi-finished basement) rowhouse, or a few dollars more than the Young Hopefuls paid on their 500-square-foot apartment. Factoring in the income tax refund, the Senior Voters paid $3,832 in state and local taxes, or 3.7% of their income.

Adding it up, the Senior Voters paid $15,351 in income and property taxes on their income of $104,485, or 14.7% of it. The Young Hopefuls paid $14,823 on their far lower income of just $57,000, or 26.0% of it. That is a much higher percent than the Senior Voters, but is less than last year. After taxes and housing costs the Senior Voters had $85,665 to spend in 2009, while the Young Hopefuls had $23,508.

Let me repeat again: there is nothing inherently immoral about a set of public policies that makes it hard on young people, particularly those without the burden of caring for young children, while making it easy on old people. The young, after all, have many other advantages. But such a system is only moral if it is sustainable. Can the Young Hopefuls expect similar benefits when they are senior citizens in 40 years? May I call your attention to the national, state and local debts, and the sudden interest -- while the federal government is borrowing $trillions -- in “reform” for Social Security and Medicare, with presumably no impact on those who were “age 55 and over” when former President Bush said the words? The Young Hopefuls had better plan on working until their health fails, and then living on less. (I certainly do on general principles, and I’m much better off than they are).

Nothing that has happened in the past year has led me to change my thinking. A health care reform that might have allowed the Young Hopefuls to afford health insurance has apparently stalled, as a result in part of Republican objections to any restraint on the increase in Medicare costs for today’s seniors, and riled up angry Senior Voters. Meanwhile, those same Republicans – and some Democrats – now asset that in the long run “entitlements reform” will be needed to keep the country from going broke, reforms that will presumably exempt today’s Senior Voters from any sacrifices. And the federal deficit the Young Hopefuls will be paying to taxes to fund? It has soared to one-third of the budget, as Social Security has gone into the red.

The article is behind a pay wall, but here is what it says. “President Obama will ask Congress to make permanent a temporary bond program to help state and local governments finance projects…State and local governments have issued more than $64 billion in so-called Build American Bonds in 2009.”

Typical municipal bonds are exempt from federal taxes. For at least 30 years policy wonks have pointed out that the federal tax subsidy to rich households who buy them vastly exceeds the interest rate savings for state and local governments, making the exemption a subsidy by everyone else to the rich. The Build America bonds, in contrast, are federally taxable, but the federal government pays 35 percent of the interest. Without the tax subsidy, the interest rates are higher, making the bonds a better option for low and moderate-income households in lower income tax brackets, and tax exempt pension funds and insurance companies. The Obama Administration proposes cutting the federal share of the interest to 28 percent, and says that it will not cost the federal government anything, because it would have lost that much or more in taxes if tax-exempt bonds had been issued instead. So far so good.

But according to an official cited by the WSJ, the administration will also propose to allow the bond proceeds be used for today’s operating expenses, such as payroll (and presumably pensions), not just capital investments for tomorrow. Thus, in the future younger generations would be paying for the bonds, would would have nothing to so show for it.

This seems to be a response to the coming state and local government pension and debt disaster. Today’s taxpayers and service recipients are facing disaster because for more than a decade the politicians they funded gave members of public employee unions enhanced pensions, without objections from past taxpayers because they didn’t pay for them. Now the Obama Administration proposes more borrowing to push the disaster off a few years more, while increasing it even more. Combined with the likely buyers of these bonds, this will also ensured that if and when state and local governments default on their debts, low, moderate and middle-income households are hurt in addition to wealthy households. This follows the Administration’s decision to allow some of the (borrowed) money from federal stimulus package to be used for operating costs (such as transit pensions and retiree health care) rather than the transit system renewal that is required to stave off collapse.

The article cites Treasury Secretary Geithner: “By making Build America Bonds a permanent and expanded financing tool for state and local governments, we’re investing in our country’s long term economic growth in a cost-effective way.” So how does refinancing existing bonds, rather than paying them back on schedule, and using borrowed money for operating costs, “invest in our country’s long-term growth?” It doesn’t. It’s a con.

While most of those in Congress (and the state legislature) are members of Generation Greed, the richest generations in American history, Obama and Geithner are my contemporaries. Generation Apathy, the first to have (with the exception of those on top) lower inflation-adjusted pay than the generations preceding, the first to be on the wrong end of multi-tier contracts and the 1983 deal to “save Social Security.” The response, for the majority of us, has been to just worry about ourselves and not try to change public policy in a more responsible direction. Which really means that younger generations will be even worse off. So much for “change” and “facing problems that have been ignored too long.”

Speaking of Social Security and Generation Greed, according to Bloomberg News “Senate Republican Leader Mitch McConnell endorsed a deficit-cutting commission that would focus only on reducing spending, including for the Medicare and Social Security programs, and take any tax increases off the table. ‘Looking at the entitlements, all of them, is important,’” he said. Isn’t he the Republican leader who led a filibuster objecting to any health care reform that would offer any help of any kind to anyone who was not over 65? Aren’t those the same Republicans who sold that blanket opposition as necessary to prevent any reduction of Medicare benefits to those now over 65, and those approaching Medicare eligibility? Aren’t these the Republicans who just a few years ago passed the biggest increase in spending in decades, the prescription drug benefit for today’s seniors, and called any attempt to even question any spending on Medicare “death panels.” What is ideologically inconsistent is generationally consistent, and has been for 30 years.

And now we see that sure, Social Security and Medicare benefits must be reduced – reduced far more than anyone would say publicly. But only for younger generations, who are paying for something they will never get. Their taxes will go to pay off the debts that the “Reagan told us deficits don’t matter” party has been running up for 30 years.

I wonder what the birth year cutoff will be between the beneficiaries and victims in a plan McConnell would support? Would it be 1955? 1958? McConnell was born in 1942, and so might be happy to cut off the baby boomers in their entirety, but the first half of the baby boom, the 1960s generation, has done little other than look out for itself and charge the cost to the future ever since that decade, so I’d put the cutoff date some time after. Either way, you can better believe that older generations would not be asked to pay or give up anything, no matter how well off they were.

The Democratic alternative? Vastly higher taxes on younger generations once their generation has retired, rather than vastly lower benefits, mostly likely. The bi-partisan compromise? A big tax increase on non-rich wage earners, taking away from their ability to save for their own retirement, and lower benefits for them when they get old, perhaps with a much later retirement age. As in the 1983 deal, which allowed the federal government to take in lots of excess money ever since, all long-since spent and not available for those who paid. But no one speaks of the past now. That’s what they count on.

Younger generations will face old age in poverty and ill health before dying younger, you have my “master of the obvious” prediction. Because few in power objected to kicking the can down the road, and no one will object when those who have benefitted exempt themselves from all required sacrifice. In a just world, any member of Congress who proposed reductions in benefits for future generations without also reducing benefits or increasing taxes on the currently retired – and giving up their own federal pensions and retiree health benefits – would be condemned as evil. But the mainstream media is read and written by Generation Greed, and younger generations continue to be clueless.

Speaking of old age benefits, you may have read about Governor Paterson’s new plan for the coming local pension crisis in the rest of New York State. That crisis could cause taxes to soar to the level of New York City, and/or public services to degrade to the level of New York City, and/or starting pay for new public employees to fall to the level of New York City. Paterson’s solution? Allow local governments to simply not make the required pension contributions in excess of 8 percent of payroll for most workers, and 17 percent for police and fire workers. More than that is apparently too much to bear. In exchange for not making the payments required to keep the pension funds solvent, local governments in the rest of the state would end up owing much, much more later. But what if they refuse to pay, and get the majority of the state legislature to back them? Then the entire state, including New York City, would have to pay instead. So this is a clever way of forcing future New York City residents and businesses to pay for past pension promises in the rest of the state, even as they are burdened by their own separate pension system.

How burdened? What share of payroll does New York City divert to the pension funds, rather than using it for current workers providing services? The city's recently released budget for FY 2011 tells us.  For police and fire, not the 17 percent that Governor Paterson believes to be the maximum the rest of the state should pay: 57 percent for policy and 68 percent for fire. For other employees, not the 8 percent that Governor Paterson says belies is the maximum the rest of the state should pay: 16 percent for most NYC workers, 36 percent for sanitation, 31 percent for correction, and 28 percent for teachers. You’d think residents and businesses in the rest of the state could at least match this level of sacrifice before mortgaging their future, and ours. Unless you understood the difference between those who matter and have representatives in Congress and the New York State Legislature, and those who don’t.

By the way, I read the United Federation of Teachers has a plan to save the city money. Allow New York City teachers, who just got a deal to allow them to retire at 55 instead of 62, to allow even earlier? So how would that save the city money? Well, the city could just cut the quality of education instead of replacing them, allowing remaining teachers to claim they were overworked and justify doing a less good job. Or, it could not pay the cost of all those existing retirees, assuming it to be zero – until later, when the cost would be a multiple of what was saved. This, by the way, has been done before, over and over.

Public employees in the rest of the country pay a large share of their own pay into the pension funds; those in New York pay almost nothing. Ex public employees in most of the rest of the country pay state income tax on their retirement income at the same rate as working serfs in the private sector pay on their own wages. Public employees in New York are exempt from state and local income taxes. Public employees openly talk of their dream of having the city over a barrel and getting to walk out the door early and move away. And who is going to stop them? Who in Albany would even object? Eliot Spitzer, who signed the deal to allow teachers to retire at 62 rather than 55? Andrew Cuomo, the next candidate of all the existing interests? Rich Lazio, for whom there is no such thing as excess government spending outside New York City and no legitimate public services or citizens deserving of a fair deal in it? After all, Generation Greed will be moving on soon itself, and they don’t want to leave anything worth having behind.

If they can't be stopped, because they are all in on it, will people finally wake up and at least make them fess up to the past decisions that led to our current circumstances, and the future effect of decisions today? Shouldn't they be forced to say yes, future generations will be worse off that we are, because we partied at their expense?
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