The MTA And Elsewhere: Who Should Pay for the Past?
In my previous posts on the MTA financial disaster, I identified several costs that have nothing to do with providing transportation today, or in the future. Absent these costs, with fair pricing by contractors, productivity gains by workers, somewhat higher fares (though probably no higher per unlinked trip than in 1995), and congestion pricing, the MTA should be able to pay for both its rail operating needs and its ongoing rail capital needs – on a sustainable operating basis. These costs from the past include excess pension costs to cover deficient funding, above and beyond the additional costs created by post-1994 pension enhancements (which are morally the responsibility of existing workers and retirees), retiree health insurance in excess of 25 percent of the current cost of retiree health insurance to be deposited in a trust fund, and debt service, not including debts incurred for entirely new facilities that increase revenues or reduce costs (ie. not including debts for “state of good repair” and “normal replacement” “capital spending”).
The first step in addressing these costs from the past, the step our politicians are almost certain to be unwilling to take, is to tell the truth about them. For two centuries, generations of Americans saved and sacrificed to leave behind a better, richer country than the one they inherited. In effect there was a voluntary transfer of well being from poorer older generations to richer younger generations, because the older generations were primarily concerned with their children and their legacies. But the generations now in charge, the richest in U.S. history, have done the reverse. Those coming after will be poorer, pay more, and get less. In the public sector, the result could be a revulsion against public agencies and employees, as more and more money goes to the past and not public services and benefits, and public services and benefits thus seem to be a worse and worse deal. In contrast I would let people know, right in their face, exactly what they are paying in exchange for what they are getting, and how much in addition they are paying due to the legacy of Generation Greed. And not just at the MTA. h
Rather than providing more aid for MTA operations or its capital plan, I believe the State of New York should absorb those costs from the past from the MTA. And, from the Transportation Trust fund that is supposed to pay for Upstate roads and bridges, and from the Thruway Authority, which should be abolished. But to the extent that any of these costs remain with the MTA, they should be collected in the form of a separate surcharge across all of the agency’s revenue sources, a surcharge that everyone could see.
Right now, for example, the subway fare is $2.25, but as a result of discounts almost no one pays that much. Just to take the pay per ride example, if you pay for 15 rides for a total of $33.75, you get a Metrocard worth $36.11, enough for 16 rides. This is described as “bonus,” a “discount,” or a “free ride.” And for those taking advantage over the past 16 years that may have been a fair description, although the discount is much less than it was and is going down – a sign that Generation Greed has taken all it could. There are similar discounts for EZ-Pass users at the tolls, monthly commuter rail riders etc. And the tax code is full of all kinds of tax breaks, deals and gifts. Former President Clinton, former Governor Pataki, and former Mayor Giuliani specialized in these little special deals, favors and gifts designed to appeal to those whose main attitude was gimme gimme gimme. Clinton managed to pay for his through higher taxes on the wealthy, later repealed by Bush setting the stage for the federal fiscal disaster. Pataki and Giuliani borrowed for theirs, shifting much of that debt to the MTA.
What these men knew is that most in their generation were too lazy to read reports, too lazy to read the newspaper, too needy to care about the future or the broader community. Even, as would later be revealed when the financial crisis revealed how many people ran their own finances, their own futures. So they never paid attention to the tut-tutting in the press about the big future costs of those little gifts. They only saw the gifts, right there in front of them.
I propose to show people the cost of the past the same way. Take the subway, pay per ride example, and imagine someone added that same $33.75 to their Metrocard. And assume that 20 percent of the money being paid to the MTA is being sucked into the past by Mssrs Pataki, Silver, Bruno, Giuliani, Vallone – and all those perpetual incumbents in the New York State Legislature. The fare would remain at $2.25. But instead of getting a “bonus” with $36.11 on the card, they would only get $27.00 on the card – enough for just 12 rides.
The receipt would also show a $6.75 “Generation Greed Surcharge.” Which could also be called the “Saints, Heroes and Geniuses Surcharge,” since that’s what the politicians doing the something for nothing handouts in the past (paid for by the future) pretended to be. Or, to be non-judgmental toward the past beneficiaries and their politicians, perhaps it could be a vaguer “Sins of the Past Surcharge,” similar to the political formulation “Mistakes Were Made.” Although in this case, they weren’t mistakes.
Similar surcharges could be added to the EZ-Pass bill, the commuter rail ticket – and every tax. There is a periodic push at the federal level to send taxpayers a “receipt,” showing how much of their tax bill went to each public service and benefit. How much for Social Security, how much for Defense, and how little for infrastructure, foreign aid, and other things the political class prefers to talk about rather than ignore. But a growing share of public spending doesn’t go to today’s public services or benefits at all, and the tax code should reflect that. Filling out your state or city income tax, the rate and tax payment calculation could include just what people pay with something in return. And then, at the end, a “Generation Greed Surcharge” could be added on to reflect the cost of the past. As in your state tax bill is $5,000. Plus a $500 “Generation Greed” surcharge. Local property taxes could be handled similarly.
Now not every debt is a victimization by the past that sells out the future. Debts are responsibly incurred if they are used for entirely new infrastructure that cuts costs or permits growth, with since the added revenues or savings would be used to pay the debt. There used to be lots of investments like that in the U.S., in both the public and private sectors. But today most of the bonded private sector “assets” are credit card receivables or second lien mortgages, promises to be poorer in the future in exchange for being richer in the past. At least those personal debts cannot be passed on to the children in this country – yet – unlike public debts. Which is why federal, state and local governments have been able to keep borrowing as our debt-driven consumer economy collapses.
New York State has two choices with regard to investing in the future. Our age 55-plus officials can admit we don’t have one, celebrating their success in “taking all there is to take,” and stop those investments. Or the state could float a bond issue the right way – with a referendum – to pay for the rest of the Second Avenue Subway up to 125th Street, East Side Access, MetroNorth to Penn, and high speed rail and rail freight improvements for upstate. Unlike most of the other debts run up over the past 20 years, politicians could argue that younger generations have a moral obligation to pay back those debts, given the referendum. Are holders of other state debts imposed without referenda feeling a little nervous? They should be. Because morally, those under age 55 owe them nothing.
So how should the past be paid for, at the MTA and elsewhere? Given that those over 55, particularly the rich and retired public employees, are so much better off than those coming after will be in retirement, do we really need to exempt pension and Social Security income from New York’s state and local income taxes no matter how high that income is? No one wants to tax poor seniors into poverty if they are poor – relative to those who work and will not have much retirement income when they themselves get old. If seniors are somehow thought to deserve more, perhaps some portion of Social Security and retirement income could be exempted, say $10,000. But all of it? And all public employee pension income, at any age, no matter how high total income is.
Just ten states do not tax public employee pensions according to the Associated Press – New York, Massachusetts, Illinois, Pennsylvania, Michigan, Mississippi, Alabama, Louisiana, Hawaii and Kansas. Does that list seem familiar to those who read my posts?
Recall that I used 2007 Census of Governments data to rank states based on how much their futures have been sold out by burdensome and underfunded public employee pensions, high debts, and low infrastructure investment for state and local governments combined. Combining these factors, I created a “sold out future ranking.” And lo and behold, many of the states where public employee pension income is exempt from state and local income taxes are the very same states where the future has been sold out to the greatest extent.
Massachusetts ranked 50th, deal last with the most sold out future, according to the ranking. New York State ranked 42nd overall, but New York City would have been 48th if a separate state, with the rest of the state 34th. Illinois ranked 47th, Michigan 44th, and Pennsylvania 41st. Alabama and Kansas were also worse than average at 31st and 29th. California is fretting about its future, its debts, and its public employee pension obligations, but it ranked just 26th in having a sold out future. Pension income is subject to state income taxes there, though Social Security is exempt. So in these sold out states Generation Greed borrowed away, and expected to be tax exempt when the bills came due! In the rest of New York State seniors face a high property tax burden, but in New York City – with a more sold out future – property taxes are lower and there is an additional local income tax instead, a local income tax the retired do not pay. Government of today’s seniors, by today’s seniors, for today’s seniors, at the expense of any sucker coming after. No wonder population growth has been so low in these states. And how absurd that one hears seniors whining that their children are moving away.
New York State could, and should, subject Social Security and private sector retirement income to its state income tax, and New York City’s income tax, right now. That wouldn’t mean the retired were being hit with an extra tax. It would mean that they were being asked to pay the same taxes as working people with the same income. How could they claim that it was unfair for them to pay the same amount on the same income, particularly given that younger generations of private sector workers will have much less retirement income when they get old? Higher health care expenses for seniors? They are deductable above a certain percentage of income already. Seniors have lower incomes? Well, if their incomes are so low, they won’t be paying much progressive income tax, will they? This wouldn’t be an extra tax. It would be the same tax.
The situation for public employee pension income is more questionable. There is a provision of the state constitution that states "THE INCOME OF PUBLIC EMPLOYEES SHALL BE TAXABLE, except pensions." Either this provision was phrased this way to fool people who read it quickly, or it was intended to allow but not require public employee pension income to be exempted. If the framers of this provision really wanted public employee pension income to be exempt, the provision would have been written: "Retired public employees are not required to pay income taxes on their retirement income no matter how much better off they are than everyone else, even if they have benefitted from back door deals to inflate their pensions, regardless of the consequences, no matter how unfair future New Yorkers believe this to be." But they didn’t.
So the right thing to do is to end the exemption of public employee retirement income from New York’s state and local income taxes. And if the State Court of Appeals, part of the political crowd and future pensioners themselves, were to overturn this, people could be reminded every year, week and day that they are paying extra because retired public employees have an unfair special deal, until no member of the state legislature dares to have a public meeting and face the outrage. And if the retired public employees are unwilling to settle for fairness on a going forward basis, then there is no reason for everyone else to settle for fairness on a going forward basis if and when the state constitution is changed. If equal taxation on the same income is imposed and struck down, talk should turn to John Bury’s solution for the cost of pensions, which would involve a much higher tax on pension income.
You know, I’ve heard all kinds of propaganda when this is brought up. The first time the did it on a blog I got a host of objections from those claiming public employees do pay taxes on their retirement income, and calling me a liar. So I had to post a link to the particular state income tax form that showed that wasn’t true. Retired public employees pay federal income taxes, and state income taxes in most states, but not New York. Another canard was that it is unfair to tax public employee pensions, because public employee contributions to those pensions while they are working are taxed. What contributions? New York’s public employees contribute far less to their own pensions than those in nearly any other state. In some cases, such as the NYPD, the employer is making the “employee” contribution. And the public employees certainly aren’t paying state income taxes on the taxpayer contributions to their pensions. Otherwise, a police officer earning $75,000 would be paying state income taxes on $150,000. So perhaps it is fair to exempt some small amount of pension income from taxation, say $5,000, for those who did pay a small amount toward their own pensions Not all of it.
Might the seniors move away if they are taxed? Perhaps, but that’s fine if they don’t come back when their money is gone and they need custodial nursing home or home care. Let them take what low tax states have to offer, and stay where they are. But the state should also impose a huge “exit tax” on real estate transfers, a massive tax that is refundable if other property of equal or greater value is purchased in the state. You want to run up debts, enrich your own pensions, and leave the state in ruins the way a prior generation left New York City in ruins? Fine. Leave some money behind to repair the damage.
New York State has the highest overall state and local tax burden, as a share of its residents’ personal income, in the country. Although the amount can be debated, that costs working age people jobs and income. And the added services we get in exchange are not proportional, thanks to Generation Greed. Making the retired pay the same taxes as the working on the same incomes would not cost jobs. But that is not what the state legislature has chosen to do. The latest massive tax increase was the MTA payroll tax. That tax is on employers, but passed on private sector employees in competitive labor markets in the form of lower wage gains and lost jobs. Who doesn’t pay it? The retired, since it is only on work income. The rich, who take their income in the form of capital gains. And public employees, since their wages and benefits are set by contract and cannot be reduced to offset the cost of the tax. It is a tax on the powerless by the powerful and selfish. Perfect. Lew Fidler, you have perfected the art of serving the interests of the better off while masquerading as a populist, but in this state there are so many role models.
Should all the additional New York State and New York City income tax revenues obtained by equal taxation of retirement income be used for the MTA? No, but there are plenty of other Generation Greed legacies available to be funded – including those of the Transportation Trust Fund, the Thruway Authority, the New York State and New York City pension systems, etc. What is needed is three steps. Tell people the truth about the legacy of Generation Greed, right there in their face. Stop adding to the damage. And make today’s retirees shoulder an equal, not greater, burden of paying it back before they flee to Florida or “win” by “dying with the most toys.”
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