Generational equity (not!)

| NY Torch

Over at Room Eight, Larry Littlefield has posted a provocative analysis of “the issue no one wants to talk about” — i.e., the extent to which state and federal tax policies favor the old over the young.

Updating an annual analysis he began two years ago, Littlefield walks us through the tax returns and financial situations of two hypothetical New York City couples, “the Young Hopefuls, now both age 29 with a three-year-old child, and the Senior Voters, now both age 69.”  The Senior Voters aren’t just your average seniors, though:  Littlefield assumes they are retired city employees, which means they are better off than most.

In 2007, when Littlefield said both couples had incomes of $100,000, the Young Hopefuls paid more than twice as much in federal, state and local taxes as the senior citizens.  As a result, “After paying for taxes and housing the Senior Voters had $83,405 left to spend, the Young Hopefuls $46,980.”  And remember—they began with the same income.

Moving to 2008, Littlefield further assumes — not unreasonably — that the Young Hopefuls were hit hard by the downturn last year:

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 from $75,000 in 2007 to $50,000 in 2008. 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, particularly in recent months, with both wage rates and hours falling.

Mrs. Hopeful was laid off from her part-time retail job and is now collecting unemployment, so the younger couple’s income dropped in 2008 to $57,000.  The Senior Voters, meanwhile, are still better off.  Sure, the savings in their employer-sponsored retirement savings account has been hit hard by the market  meltdown, but their municipal pensions — and their Social Security — are both indexed to inflation.  Result: their income has risen slightly, to over $102,000.

Then comes the eye opener.  Using Turbo Tax, Littlefield calculates the 29-year-olds, struggling to raise a child in the city on income of just $57,000, will pay almost the same total tax bill as the retired seniors with income of $102,000.

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. [Emphasis added.]

There’s much more where that came from — all worth pondering.   As is Littlefield’s conclusion:

No wonder that when listening to Bloomberg Radio while riding my bike to work, I’m treated to a parade of guest experts saying the Obama Administration needs to borrow as much money as necessary to stop housing and stock prices from falling, in order to turn the economy around. How? By passing a law requiring everyone under age 40 to pay 50% of their income for housing, whether in rent or mortgage, in addition to one-third in tax? The idea that younger generations could be paid less (real wages have been falling for most since 1973), taxed more (particularly since the increases in the regressive payroll tax to “save Social Security in 1983), and still buy houses (or for that matter stocks) at inflated prices is laughable. Only Congress can make it possible, by taking away people’s choices. Because what I tell young hopefuls who are thinking of buying a house is don’t do it. Not until the price is so low that they could claw back, in the form of lower housing costs, all the public debts and obligations this generation of senior voters is leaving to them

P.S. — Littlefield also makes this pitch-perfect observation:  “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.”  Yes.  Exactly.