Attacking Public Employees: Will New York Lead?

Friday 07 January 2011

by: Richard D. Wolff | MR Zine | Op-Ed

Attacking Public Employees: Will New York Lead?
New York Governor Andrew Cuomo. (Photo: Patja)

As in other states, New York's new governor has focused attention on the state's budget woes: revenues insufficient to cover expenditures. His major response has been to blame public employees and their unions as if their pay, benefits, and especially pensions were chief causes of the problem. He loudly demands they "share the burden" of fixing the state's budget crisis.

Many political leaders across the states and in both major parties have been pushing the same agenda. Yet before New York helps draw other states down this path, a quick examination of New York State's finances suggests a very different and far fairer way to fix New York's as well as other states' budgets. New York has three major kinds of taxes: the personal income tax hits nearly everyone's earnings, the sales and excise taxes hit everyone's expenditures, and the corporate and business profits tax hits them. In 2010 (fiscal year), personal income taxes raised $34.8 billion; sales and excise taxes raised $12.2 billion; and corporate and business profits taxes raised $6.6 billion. Not only do businesses pay a very small portion of the state's total tax take, but business taxes rose less than the other two kinds over the last decade. From 2000 to 2010, personal income taxes rose 50%, sales and excise taxes rose 24%, and corporate and business taxes rose the least, 20%.

One reality jumps out from these numbers. If taxes on corporations and businesses were raised by 50% over what they yielded in 2000 -- equaling what happened to New York's personal income taxes -- New York State's budget would get much healthier. Such a business tax would generate more new revenue for New York than would be saved by the new governor's proposed wage freezes and other public employee cutbacks.

Sales and excise taxes are the most regressive kinds of taxes. They do not tax persons according to ability to pay (as do both New York's and the federal income tax systems). A Rockefeller and you pay the same 4% state sales tax when purchasing a taxable good or service. There is little justice in having regressive taxes, but there is absolutely none in raising them more over the last 10 years than taxes on businesses.

Finally, consider the personal income tax. New York has 7 brackets: you pay a higher percentage of your net income (adjusted by allowable deductions from your gross income) the higher the net income you receive. Those in the bottom bracket (earning $8,000 or less annually) pay 4 % while those at the top (earning over $500,000 annually) pay 7.7%. Let's first ask why no more brackets exist for the very highest income earners who are most able to pay. For example, why not 8 or 9% for those earning over $1,000,000 annually and perhaps 15% for those earning over $2,000,000? Such additional brackets would only impact the top 1-2% of New Yorkers. Moreover they deduct taxes paid to New York from their federal taxable income, thereby recovering over a third of their tax payments to New York.

A genuinely progressive governor would begin work on the state budget by correcting unfairly low levels of taxation of business, reducing regressive taxes, and increasing the progressivity of personal income taxes. The new governor instead chooses not to raise taxes on those whose wealth insulated them from the worst effects of the economic crisis and who got most of Washington's "recovery" spending since 2007. Public workers were not a significant cause of the global economic crisis that plunged all state budgets into crisis. In contrast, the biggest businesses and the richest citizens of New York were precisely groups whose members included major players in the financial excesses and speculations that were major causes of the crisis.

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It is fashionable to worry that business and the rich might retaliate against raised taxes by moving to other states. If the new governor really cared about that, he might rally other governors and the mass of people to support federal laws or agreements among states preventing corporations from playing states against one another. But the new governor neither says nor does anything about that. When personal income and sales taxes are raised -- as they have been -- where are the worries about the economic consequences that result when squeezed family budgets cut short children's educations, reduce family members' visits to doctors, and shape a thousand other family decisions damaging to their, the state's, and the nation's futures? And where are the worries about similar consequences from freezing public workers' wages and cutting state payrolls?

Neither economic efficiency nor the people's welfare motivates the current attack on New York's public workers disguised as "responding to" the state budget crisis. Rather, the pressure is on state budget policies to serve the biggest businesses and the richest citizens (who own or manage those businesses). Using the profits their workers make possible, they press state government to meet their needs while taxing mostly others, especially the private and public employees paying the personal income, sales, and excise taxes.

Richard Wolff is Professor of Economics Emeritus at the University of Massachusetts in Amherst and currently a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York. He has a PhD in Economics from Yale University as well as degrees from Harvard University (history BA) and Stanford University (economics MA). Wolff has authored or co-authored 10 books and over 50 scholarly articles and 75 popular articles. His recent work has concentrated on analyzing the causes and alternative solutions to the current global economic crisis.

His documentary film on that crisis, Capitalism Hits the Fan, can be previewed at www.capitalismhitsthefan.com. He also published a book of essays on the current crisis in 2010 entitled Capitalism Hits the Fan: the Global Economic meltdown and What to Do About it. Detailed information on and copies of his many writings, audios and videos of his media interviews, lectures, and classes, and his speaking schedule are all available at his website: www.rdwolff.com.

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Comments

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Given what this country did

Sat, 01/08/2011 - 12:31 — Anonymous (not verified)

Given what this country did to Argentina and other Central and South American countries, with this sort of neoliberal-privatization scheme of dumping the public sector and putting corporations on the altar of worship and letting them have full domination, it's only right and just that we now have a taste of our own poisonous medicine. Do you believe in Karma? Now we reap what we have sown.

NO, Arizona; still.

Sat, 01/08/2011 - 14:04 — Vic Anderson (not verified)

"Many political leaders

Sat, 01/08/2011 - 14:27 — Anonymous (not verified)

"Many political leaders across the states and in both major parties have been pushing the same agenda."

This has been the agenda as soon as Obama took office, with the auto unions (their corporation reorgs) taking the first hits. If anyone didn't notice the accelerating trend line to "hit all unions" back then, they weren't paying attention!

So, we're seeing a massive, massive effort to derail the "professional left's" power, and so what is now appropriated to the "left" for our elected officials, like Cuomo, is something akin to center-right NeoLiberal Bush thumping!

Hey Professional Left--WAKE UP, FIGHT BACK, AND STOP COMMITTING SUICDE!

This misses the big picture.

Sat, 01/08/2011 - 14:34 — Dwight Bobson (not verified)

This misses the big picture. What is happening is the wealthy and the privileged picking on the those who cannot defend themselves. Same is happening at the national, state and local level all across the country with every expense that requires tax dollars, except those spent by those in power on themselves and their wealthy friends. That's what happens when 60 percent of eligible voters do not vote. Now ... what's anyone planning to do about it?

NY, most other states, and

Sat, 01/08/2011 - 14:38 — DRA (not verified)

NY, most other states, and the federal government in particular have built an unsustainable fiscal model that promises more services and benefits than their tax revenue streams can reliably deliver. Now the chickens are coming home to roost. Nobody likes higher taxes. Higher taxes for the right reasons make sense, but I, for one, am not sure that most of our government leaders have the right reasons.

Wolf advocates raising top NY state marginal rates to 8 or 9%. But he ignores local and federal income taxes. What really matters is the total marginal rate, and high earners in NYC already pay a >50% marginal rate on additional earnings. That sort of high rate significantly reduces earning incentive, and leads to economically distorting tax avoidance behavior. Plus, if you are only attacking the top 1-2% of earners, you don't raise much revenue anyway. You just punish people for earning too much.

While NY business taxes do seem low, the threat of corporations leaving a state and taking jobs with them is real. Over the past decades, numerous industries have migrated from higher tax, higher wage states in the northeast, to lower tax, lower wage states in the south. Therefore, any proposal to raise taxes must be carefully considered, as there are always unintended consequences.

"That sort of high rate

Sat, 01/08/2011 - 15:28 — Anonymous (not verified)

"That sort of high rate significantly reduces earning incentive, and leads to economically distorting tax avoidance behavior."

So, when the rates were 90% in the 50s, a lot of flocking out-of-the-country wealth must have been occurring. No wonder Switzerland, and every other tax haven in the world is doing just fine during The Great Recession! Nothing like tax avoidance schemes.

But let's say they did "go south" as you say, then all those depressed communities with newly received tax revenues should be doing just fine? Wow, holly toledo, they are in the same boat as rich-bitch NY is.

Cut the crap DRA because your schilling for the crybaby silver-spooners is nauseating!

Marxism cynically presumes

Sat, 01/08/2011 - 16:15 — Anonymous (not verified)

Marxism cynically presumes that, since we can't all be rich, everyone should be made poor. That was the thing that turned Eastern Europe against the premise that they lived in a "workers' paradise." Let's not forget that positive change began with the appropriately named Solidarity movement in Poland.
In the USA, our leaders oppose anything that might restore the rights of workers. Attempts at reform are labeled "socialism," which the average uneducated person equates with the worst abuses of the Soviet Union and its client states. The very wealthy are running the country into the ground by playing every faction against every other one, and Obama has made himself a tool of this. Where is our own "Solidarity" movement, which would bring together all economically persecuted groups? Where are the sensible people who could counter G.O.P. claims for "family values" by pointing out that the impoverishment of working people has destroyed the family unit as we knew it... when one paycheck could successfully feed, clothe, and give shelter to two parents and two or three children?
First Reagan crushed PATCO. Then came the "wage and benefit concessions," later extended to full looting of pensions, for auto workers and people in other manufacturing industries. Many career civil servants turned down opportunities for higher wages (as I did) and stayed in government service due to supposed guaranteed job security. Of course we are the new villains. Crush us, and you bring the entire labor market yet lower.
I lived in an area where nongovernment wages were kept artificially low by agreement between all major employers. I moved to a supposedly more enlightened area to advance my career, and now I find that I am demonized with other government workers as "lazy," "corrupt," and "greedy." America as a whole now seems headed in that direction.

Sat, 01/08/2011 - 16:24 — Anonymous (not verified)

It significantly INCREASES earning incentive. You see, when you're greedy, and you suddenly have less net income, you want more, and you will seek to earn more.

The middle class pays by far the highest rates, is there a clear trend of people flocking to work at mcdonalds because that would result in lower taxes? I rest my case.

As for tax avoidance behavior, that will happen regardless of tax rate. Taxes, just like labor or utilities, are an expense, and unless the rate is negative, steps will be taken to mitigate it like any other expense.

"That's what happens when 60

Sat, 01/08/2011 - 16:28 — Anonymous (not verified)

"That's what happens when 60 percent of eligible voters do not vote."

Gee, one party is the reagan party, the other is the authoritiarian/militaristic wingnut party, which side of the political spectrum is missing from this picture.

Gee, I wonder why 60% of america doesn't vote again.

The big lie is that Unions,

Sat, 01/08/2011 - 17:13 — hkaplan (not verified)

The big lie is that Unions, Black people who wanted more home than they could afford and big government caused our economic problems say the right-wing republicans and center-right Wall street democracts.

President Obama please step up to the plate and say you disagree. Put the blame where it lies-- Wall Street speculators, ponzi scheme artists and deregulation are the villains. Will Obama stand up for common decency and against Wall street

Griping About Employers Is

Sat, 01/08/2011 - 17:28 — Can You Do Simple Math? (not verified)

Griping About Employers Is Intrinsically Irresponsible - There was a time when a large sector of the population were free agents - were tradesmen and farmers - we made things directly. Now, the presumption is that someone who offers us a job is responsible for us not being able to get a better paying job - what utter bullshit!

What We Have Become Is a

Sat, 01/08/2011 - 17:31 — Can You Do Simple Math? (not verified)

What We Have Become Is a population of followers instead leaders - having created regulatory and tax barriers to direct participation, we are relegated to serfdom - whining all the while, but criticizing anyone who attempts to unlock the strngle-hold as being 'regressive'.

It actually takes some

Sat, 01/08/2011 - 17:32 — Can You Do Simple Math? (not verified)

It actually takes some effort to bring in top incomes (short of being a Quantitative Easing Recipient) and when the rewards are largely taxed away, the incentive to 'ring the bell' drain away - anybody here want to start a factory up in this environment?

Speculation Is No Sin -

Sat, 01/08/2011 - 17:50 — Anonymous (not verified)

Speculation Is No Sin - without speculators, we would have no one hedging against extremes in markets and they would be far more volatile - the speculators are the ones who say "sure it's sunny today, but I'm going to stock up, just in case" or "sure it's gloomy today, but my best information says that things might improve, so I'm going to invest" - these sentiments actually bring stability and sanity in otherwise ignorance driven mass behaviors. But derivatives are another matter, if they are unsupported - such as naked shorting.

Speculation did not create

Sat, 01/08/2011 - 17:52 — Can You Do Simple Math? (not verified)

Speculation did not create the problem we are in - but creating a system where there was no accountability for errors and incompetency has - we are broke from bailing out the senior bond holders of various known and unknown institutions worldwide under 'quantitative easing' - the sickest euphemism ever coined. To blame our bankruptcy on speculators when the problem occurred because they set up the game so that we covered their gambling debts is as stupid and misguided as blaming and punishing wealth just because crooks are wealthy, too. We will shoot ourselves in the food if we follow an indiscriminant 'soak the rich' path.

The comment about adopting a

Sun, 01/09/2011 - 01:50 — RealTimeHistory (not verified)

The comment about adopting a "fair tax" is completely idiotic and ridiculous!
1) what it does is place even more of a burden on the lower incomes, who MUST spend more of their total income, just to get by. For the well off & the super-rich, paying a larger sales tax is merely an embarrassment, but hardly even an inconvenience.
2) How would a "prebate for the poor work? Are you going to have stores require that customers provide their tax returns as proof? Unworkable AND ridiculous!

I'm all for reducing the expense of government, if it doesn't affect needed services and education. But all too often, the cuts are made where it hurts the citizens the most, as if the lawmakers are trying to punish the citizenry for making them cut the revenue stream. When will people understand that noone gets services for free: you get what you pay for, and if you don't pay for it, you don't get it. If you think your government is ripping you off, change the government until it stops ripping you off. We should be sure to be looking beyond the amount of our tax bills, and take into account the value of the services that our tax bills are providing. Are those services worth it? Are they being charged out at an unreasonable rate? Is there any incentives built into the payment structure for reducing expenses? We need to be a lot smarter about this taxing-spending thing, and look beyond just the big numbers.

I can think of some public

Sun, 01/09/2011 - 02:49 — Sayward (not verified)

I can think of some public employees who need to make a sacrifice: U.S. Senators and Congresspeople.

After serving the public (read: themselves) for 5 years and contributing NOTHING toward their retirement, they get a full pension---a MINIMUM of $86K per year for the rest of their life.

The much-maligned public school teacher, on the other hand, gets 2% of final salary times the number of years worked--- at least, in New York---after having contributed 2% of their salary towards it every year. So who's the real drain on the economy here, folks?

Putting politicians on a teacher's pension system would save taxpayers a bundle!

Accountability,

Sun, 01/09/2011 - 13:13 — WCH (not verified)

Accountability, sustainability.

Everyone wants more than their share. This goes for the Power Elite, who in fact have been successful at grabbing more than their share, as well as the less fortunate, who were not.

Until we get it through our heads (which seems very unlikely) that we all mus rise and fall on our collective merits, it won't work. The Power Elite cannot be allowed to succeed beyond their merits. The "working class", who are no more noble than anyone else and many of whom are not very eager to really work, cannot be allowed to run away with the system either.

"For every complex problem, there is an answer that is clear, simple....and wrong."

"Now, the presumption is

Sun, 01/09/2011 - 16:48 — Anonymous (not verified)

"Now, the presumption is that someone who offers us a job is responsible for us not being able to get a better paying job - what utter bullshit!"

corporate power is more and more centralized, to the point consumer electronics manufacturers are able to push anti-consumer technologies on us with little resistance.

We must now consult underground individuals to hack or own devices!

the point i'm making here is, if not even the customer can get what they want from centralized corporate power, what makes you think "wage competition" exists at all? If you do, you live in a starry-eyed dream world.

17:31 and 07:49 have the

Mon, 01/10/2011 - 19:12 — Anonarcmous (not verified)

17:31 and 07:49 have the gist of it: the mental motivation that brings us to this is the time-tested practice of predatory capitalism outside our borders--what would think to make us change--don't worry--a-la-Erik-Prince-Xe-Corporations these are moving far way from NY state and the US.You might consider a tax for them wanting to do business IN the USA. Each and every CONGRE$$ person should gladly give up 1/2 their salary and healthbenefits as starters in REDU$ING the government with $en-10-House-McCain taking the charge!!