Retirement is Killing Our Infrastructure
Pensions and health care costs for the elderly are crowding out other vital spending.
Nicole Gelinas, a senior fellow at the right-leaning Manhattan Institute, has a column in Governing headlined, “Infrastructure Investments Won’t Matter Until We Lower Retiree Costs.”
[M]ore federal investment is only part of what our urban centers need to fix up their aged and strained transit systems, bridges and roads. States and cities also need to rein in the employee costs that restrict their ability to maintain their physical assets.
[…]
These states have little flexibility to ask their taxpayers for more money. They are taxed to the max. But more federal money alone won’t solve the problem. Consider the Metropolitan Transportation Authority, New York City’s state-run subway and bus entity. The MTA already expects $7.6 billion in federal funds for its current five-year, $32.5 billion capital assets program, a number that is expected to balloon to at least $60 billion for the next five-year plan, which starts in 2020. Even doubling the federal contribution to $15 billion or so would leave the MTA with a massive funding gap, one traditionally filled with borrowing. But with its debt already at $41 billion — 16 percent of its annual costs — the MTA will have a hard time returning to the borrowing well.
And no matter where its funding comes from, the MTA will remain overwhelmed by its mushrooming operating costs. Its pension and retiree health-care expenses, for example, have more than doubled in just over a decade, now constituting a full 21 percent of its budget.
Connecticut and New Jersey are worse off. While New York largely funds its pension plans, Connecticut owes nearly 19 percent of its residents’ annual income in pension liabilities, totaling $48.5 billion. New Jersey owes nearly 20 percent, or $115 billion. Each state also owes roughly $36 billion for retiree health care. Without cost reform, any tax, toll or fare hikes will largely go toward these costs, not better infrastructure.
As the debate over infrastructure unfolds in Congress, both parties should focus on using new money to prod states and cities to pare back these costs.
How? As a start, states and cities should receive bonuses in any infrastructure plan for requiring current workers to take responsibility for their own health care if they retire before the Medicare age of 65. After 65, public-sector retirees, like those in the private sector, should pay their own Medicare premiums. Pension costs are harder to reform, but newer public-sector workers should expect to stay on the job until at least 65 rather than being allowed to retire and begin drawing benefits earlier.
Dave Schuler, who tipped me to the article, observes:
The federal government has infrastructure responsibilities of its own to address. A sound currency, a military in a sufficient state of readiness, and confidence in the government are all important components of our civic infrastructure which have been sadly neglected and I don’t think that public pensions are the main culprits there.
All I can add to this piece is that here in Illinois the pensions being paid to workers (especially high-ranking workers) for the state’s Tollway Authority were eating up most of the revenue being derived from Illinois’s toll roads, leaving little for maintenance or improvement. Open road tolling which allowed the state to reduce the number of human toll-takers and, presumably, their management was one of the smartest things we’ve done in recent years.
Congress greatly diminished the drain of the civil service pension system back in the 1980s by neutering it. A once-generous defined benefit plan was gutted, with most of the plan for workers hired since 1987 based on a 401(k)-type plan.
As I’ve written about quite a bit before, though, the same is not true of the military retirement system, which allows people to retire at half their base pay after a mere 20 years service (thus, 38ish for enlisted members and 42ish for officers) and immediately draw benefits for the remainder of their lives. We’ve recently changed that for new members, replacing it with a plan that’s less generous to those who stay in for decades but eliminates the “cliff” for those who leave early; going forward, those who serve as little as four years will have some retirement benefits via a 401(k)-type system. And Tricare for Life, the supplemental health insurance program for military retirees and their families, is also massively expensive.
And, of course, Social Security is a massive Federal liability for retirees and the disabled. It’s difficult to get official data because our elected leaders have abrogated their Constitutional duty to pass budgets but we spend something like $1.046 trillion for Social Security and another $625 billion for Medicare.
My political instincts on the healthcare aspect of this run exactly opposite Gelinas’. It seems that the obvious answer is some sort of single-payer system, which is demonstrably cheaper and more efficient than the patchwork system now in place. But I also agree with Dave’s stated view that it is imperative to limit outlays for healthcare, which is easier said than done.
The pension issue is trickier still. The obvious solution is to keep pushing retirement further to the right. Eligibility for full Social Security benefits, which for decades was static at 65 years of age, is already pushed to 67 and change for my cohort. My dad only made it to 66. But, while that may be workable for information sector workers like Dave and me, it’s completely unreasonable for those who do physically-demanding labor.
It’s also theoretically possible to rethink our notions of what constitutes being “taxed to the max.” Certainly, Americans pay a much smaller chunk of their earnings to support government than do most of our OECD counterparts. But opposition to taxation is part of our founding DNA.
I just saw a few days ago on an economics blog that over the last 20 years, the demographic of people 65 and up have increased their wealth by 60%, and every other demographic has lost ground. Boomers have enjoyed more economic privileges and benefits than anybody else, and the rest of us are now suffering for it.
Shifting the comp structure into deferred expenses like pensions are already short-term efforts to deal with shrinking budgets. Demanding that those efforts to cut short-term costs be curtailed as a precondition to additional funding is not viable. We might as well demand that all those agencies start buying higher quality equipment and materials: sure, that would probably lower long-term maintenance costs, but it’s not possible to do that within the short-term budget without additional funding.
Besides the ACA have there been other major pieces of social legislation over the period of the last 60 years which would have resulted in the intergenerational transfer referred to above? I don’t recall any but I’m eager to learn. I suspect that most of the effect was baked in by policies put into places before Baby Boomers were old enough to vote.
That, if anything, is the larger lesson. That the Baby Boomers was a large cohort and that it would age and retire is not a surprise. We have known that would happen for 70 years. The failure to address these issues falls at least partially on the “Greatest Generation” and Silent Generation. Note that the present Congressional leadership is mostly composed of members of the Silent Generation.
BTW, to expand on something that James mentioned in the body of the post:
For decades I supported a single-payer system in the U. S. and donated and voted for candidates (the few that there were) who supported one. But conditions have changed and changing how health care is paid for is no longer sufficient to cure what ails our health care system. Health care has become such a large component of the economy that all that is necessary now for health care to be unaffordable is for wages in the sector to grow at the general rate of inflation. When Medicare/Medicaid were enacted it was 6% of the economy. Now it’s more than 17% of the economy, increasing fast. We need a commitment to cost control and that will be painful.
For years I have advocated changing the Social Security system to add a new category between disability income and SSRI specifically for people who do physical work to match the changes in the economy. It’s impossible for such a thing to gain any traction with the entrenched political positions in Washington. It not only closes the door to creativity but to realism.
A large part of the problem is that for decades politicians of both parties viewed paying into the reserves for future pensions as an easy place to cut expenses during tough times, without replacing the lost payments during good times. As a result, pensions have historically been massively underfunded, and now that the Boomer cohorts are retiring, the bills are coming due.
@alkali:
What budgets are shrinking? In Illinois the state’s spending shrank 12% between 2015 and 2016, largely a product of the legislature’s failure to enact a budget. In 2017 and 2018 the state’s spending increased sharply. Federal government spending has expanded every year.
I don’t think that budgets are shrinking. I think that the desire to spend is increasing.
THIS IS JUST UNMITIGATED RIGHT-WING DOGMA BULLSHIT.
We can’t have nice things like retirement and infrastructure because we give tax cuts to the rich. Period. End of story.
Look…when we built the Interstate System…what was the top marginal tax rate? What is it today? That kind of investment drives growth that in turn becomes amplified. Instead we give corporations massive tax cuts that cause a sugar high in the stock market, but absolutely nothing else.
For 35 years we have suffered under the myth of Republican economic theory. Trickle-down voodoo nonsense. The Republicans use the deficits they’ve caused to want to cut everything else. That shit is way past it’s “best-by” date.
Dyam, you did it to me again, James. Three quarters through your post composing a comment that the Manhattan Institute was making a great argument for single payer, and there you were ahead of me.
@Daryl and his brother Darryl: There are certainly different ways to structure our tax system to generate more revenue for infrastructure and the like. While my preference is something along the lines of a VAT or other consumption taxes (which we could structure to hit luxury goods to mitigate regressivity) I’m amenable to a significantly higher top marginal rate.
Still, it’s undeniable that taking care of the elderly is taking up a larger and larger share of GDP. People are living longer—a good thing!—and there are constant advances in medicine—also good!—that make end-of-life care more expensive. And, while many people are working longer for a variety of reasons, people enjoy a much longer retirement than was the case even 20-30 years ago. Those are actual problems we need to figure out how to address, not right-wing talking points.
I’m with @Daryl. Gigantic piles of money are disappearing into tax havens, tax avoidance is epidemic throughout the upper economic strata, and we absolutely have the power to put a stop to it. We’re not talking billions, we’re talking trillions. The top tenth of one percent enrich themselves by impoverishing their workers, and further enrich themselves by stealing from the taxpayers.
I am done with bullsht Republican talking points on this, we are in trouble because of Republicans and their economic ideology and we need to put an end to it. I am not big on revolution (they tend to have a rather poor record historically) but if the greed pigs don’t knock it off we’re going to have to break out the guillotines. These people are destroying lives and destroying the planet itself in their reckless pursuit of self-aggrandizement.
@James Joyner:
Yes…but you cannot begin to figure them out if you allow right wing talking points anywhere near the conversation.
That’s a right wing talking point. The issue at our founding was not opposition to taxation, but opposition to taxation without representation. Fairly extreme marginal tax rates in the 50’s were not an all-consuming issue until Laffer and Reagan made it so in the 80’s. And we’ve been trying to fuq the elderly ever since.
As Will Roger’s said about money:
I know it won’t fix the problem on its own, but at some point someone needs to hold the states accountable for the fact public pensions are still paying millions of dollars for “financial advisors” and hedge funds that consistently underperform simple index funds.
@Daryl and his brother Darryl:
yep, and what are the Republicans trying to do next? What new bill are they suggesting right now? A permanent end to the estate tax. Even bigger deficits. If you vote Republican, you’re either an asshole or a fool.
@Daryl and his brother Darryl: there’s actually a lot of wisdom in that Will Rogers quote. People have been programmed to object to “redistribution”, without understanding that capitalism is an enormous redistribution machine, redistributing money from the bottom and middle up to the top. Without government and unions etc cycling money back downwards, you get a third world country where a tiny handful of people own everything. We’ve been heading in that direction for 40 years. if we’re fortunate, these recent two generations of new Americans will reverse that direction, and we’ll get to a point of broader prosperity again.
@Daryl and his brother Darryl:
This statement collapses a little too much history. The high marginal tax rates of the 1950s had already been gone for 20 years by the time Reagan or Laffer came along—during the Kennedy Administration.
There was actually need for a income tax reform in the 1980s. The very high inflation of the late 1970s and early 1980s had pushed people into higher tax brackets for whom those brackets had never been intended. Ordinary middle class people were paying taxes that had originally been intended for “the rich”. That’s not a right wing talking point. I never voted for Reagan. But the income tax was in need of reform. Joe Biden, Al Gore, and John Kerry all voted for the reform of 1986 along with most Senate Democrats.
@Stormy Dragon: there was a period like a decade ago where hedge funds were outperforming the market, that ended several years ago, and I think investment managers are just really slow on the uptake.
@Teve:
They’re not slow on the uptake. They just know there’s just more money for them in high-fee managed investment so they put their personal interests ahead of the client’s.
Here’s my take on infrastructure: We should have been selling 20 year T-bills with half a percent interest (or less!) in 2010 like mad and using that money to rebuild infrastructure. Half a percent interest!!!??!! For 20 years!!!??!! Good lord, we should have jumped on that. What a gigantic missed opportunity.
But no, we had to wail and gnash our teeth about austerity and tightening our belt at the federal level, which is pro-cyclical, rather than expand the government, which would have been counter-cyclical. It would have injected a bunch of money into the economy, a lot of it at the bottom, and it would have trickled up.
Sometimes I think the rich people in this country are idiots. But no, they obsess over every dollar of tax paid, instead of thinking of how to make 5 dollars. Weighting losses more than gains is a general human bias, but if you’re going to sell yourself as the geniuses who know how the economy works, you probably should have moved beyond that.
If you look at the times in the last hundred years where the top marginal rate is high, you will find that they are, by and large, times of prosperity.
Meanwhile, cutting taxes in Kansas has utterly failed to produce any sort of growth. There is a point where the Laffer thing will work, where the marginal tax rate is so high that cutting it will produce growth, but we aren’t anywhere near it.
The empirical data is on my side.
@Dave Schuler:
In 63 it was 91%
From 71-80 it was 70%.
81 it was 69.13%.
82 it was 50%.
Bush 41 pushed it as low as 28% before it was raised back to 39.6 ultimately.
50% is healthier for the economy than today’s 37%. AOC is arguing to go back to pre-Reagan rates of 70%.
“Infrastructure Investments Won’t Matter Until We Lower Retiree Costs (or Stop Cutting Taxes).”
Fixed it.
ETA: Can’t speak for other states and municipalities, but in Washington State, the pension funds were well situated to address their retired constituencies until the State decided to impound surplus monies in those funds and replace them with IOUs. I suspect that other states did this or other similar bargains such as keeping wages down with promises of higher pension benefits at retirement.
@Dave Schuler:
“But the income tax was in need of reform. Joe Biden, Al Gore, and John Kerry all voted for the reform of 1986 along with most Senate Democrats.”
In the words on wikipedia:
“The Tax Reform Act of 1986 was given impetus by a detailed tax-simplification proposal from President Reagan’s Treasury Department, and was designed to be tax-revenue neutral because Reagan stated that he would veto any bill that was not. Revenue neutrality was achieved by offsetting tax cuts for individuals by eliminating $60 billion annually in tax loopholes and shifting $24 billion of the tax burden from individuals to corporations by eliminating the investment tax credit, slowing depreciation of assets, and enacting a stiff alternative minimum tax on corporations.”
It also taxed capital gains at the same rate as ordinary income and removed many tax shelters.
I think pretty much all Democrats would go for that in a heartbeat.
One of the reasons I was so infuriated with the “death panels” nonsense during the debate over the affordable care act was that it was about a really, really important factor of health care costs.
To refresh, doctors would have been reimbursed for time spent discussing end-of-life planning with patients. Lifetime health costs are weighted towards the end of life, and can skyrocket considerably when nursing home care is required.
My parents have very clear directives, in writing, as to how much care and treatment they want as they age. Both have made it crystal-clear that while they are healthy there’s one level of care they want, but if they become chronically ill, they do not want anything over care & comfort. It’s a horrible, awful thing to discuss, but they wanted to talk about it when they are healthy and in full control of their faculties because emotion can take over.
We also need to come to terms, as a nation, with the abysmal retirement savings rate. Everyone says they’ll just keep working, but of those who say that’s what they want to do, only roughly 1/3 are able to do so. An individual’s health or the health of a spouse quite frequently requires people to semi-retire even if they do not want to–and cannot afford to. We’re heading into unknown territory, and large portions of Generation X and beyond are going to be pretty close to poverty numbers when they retire, putting additional strain on public programs right when they will start paying out at less than 100%.
I remember reading that at least part of the reason the US had high marginal tax rates was there was a belief that people making over a certain amount were only doing so because they were rent taking (non-productive economic activity) above a certain income.
Does anybody know if that hypothesis held up under scrutiny, and/or our that’s a still good assumption given how our economy has changed?
@Jay L Gischer:
Easy to explain: ways of making 5 dollars involve working; many of the people in obsess category stopped working many years ago if they ever worked at all. Look at our current occupant. The last actual work that he did was probably 25 or 30 years ago and even then a lot of it was involved in selling his name as a brand.
@Daryl and his brother Darryl: @Moosebreath:
Thank you. That’s much clearer. The reference to the 1950s was a rhetorical flourish then. Could you please expand on this a bit?
The big change in income inequality came as the result of the treatment of income in the 1993 tax law, little to do with marginal rates.
Just for the record I opposed the GWB and more recent Trump reductions in the personal income tax rates. The figures were pretty clear. Our economic problem then and now was less with inadequate personal consumption than with inadequate business investment which reductions in the personal income tax rate would do nothing to resolve.
@Jen: You bring up a good point. I would add that many doctors may not be very amenable to talking to patients about end of life issues and reluctant to encourage decisions that are end of life related.
Case in point: A few weeks ago, a routine chest x-ray revealed “spots” on my lungs that could not be identified. For background, I was just diagnosed as having had my asthma re-present as a health issue after 5 years of being asymptomatic, and the x-ray was to establish a new baseline. In the follow up, the doctor assured me that this was no big deal (I agree) and that a CAT scan would tell us what we needed to know (or not, as the case might be) and we could discuss surgical, chemo, and radiation options if the news was bad.
At this point, I noted that I was not concerned particularly but would question the arguments in favor of treatment options for a 67 year old man with chronic asthma, and COPD (as well as heart related issues and Type 2 diabetes).
At which point my doctor replied “the arguments for treatment are better than you realize.”
This may be. I remain skeptical. But it shows that we still live in a setting where everything is considered “treatable.” We may have outstripped our ability to use our medical technology wisely. That was my argument against Francis Schaeffer’s argument in What Ever Happened to the Human Race and that was back in the ’79.
@Daryl and his brother Darryl:
The first big cutter of the marginal tax rate was Kennedy, not Reagan. He took it from 90 to 70. Reagan certainly cut it drastically (although it went up and down several times during his presidency.)
I don’t claim to be an economic historian but the conventional wisdom, at least, is that few were actually paying anything like the 90- or even 70-percent rates. They figured out loopholes. I’m amenable to an argument that we should have something higher than the mid-30s for extremely high incomes although, again, I’d prefer to go after luxury spending moreso than income per se. I’d also be in favor of eliminating or at least greatly increasing the payroll tax ceiling, which even peons like me come close to hitting.
@James Joyner:
That touches on a problem I’ve mentioned from time to time over at my place. The problem with the Social Security system is that its assumptions have not been fulfilled. Its structure did not recognize that so large a proportion of income would go to so few people. It would not have solvency problems if 90% of income were being realized by 90% of the people as was the case in 1970. There are two solutions to that: ensure that incomes rise for more people or ensure that more income is subject to the tax, i.e. greatly increase FICA max. Increasing FICA max is a lot easier to do.
@Just nutha ignint cracker: First, I hope the spots turn out to be nothing. X-Rays turn up spots all the time that are just scar tissue, or other basically fine abnormalities.
Second, cancer treatment has gotten dramatically better than it was 20 years ago — effectiveness and how unpleasant the treatment is. You have lots of other problems, sure, but that also means they would just have to slow any cancer growth so, well, something else kills you first.
My father is in roughly single-digit-years-left, as is his wife, and they have both had similar talks with their doctors at one point or another in the past few years. They’ve both been surprised and are puttering about happily after some pretty major problems, and likely have a few good years left. Both of them are also very clear that they don’t want to be dragging things out if quality of life isn’t there.
(My father was annoyed that they didn’t have a checkbox for “try to resuscitate me, but don’t try too hard” on hospital forms)
@James Joyner: If we treated capital gains like regular income, that would fix a lot of problems. And likely create some new ones.
We pretend to value work in this society, but the tax code values investment a lot more.
@Just nutha ignint cracker:
First of all, 67 is a bit early to go gentle into that good night. Hang around, we like you.
That said, my father-in-law is 87 with advanced COPD. He’s alone (insert backstory), and . . . I don’t need to detail all he’s dealing with, you obviously have researched it. We genuinely don’t want anything to make him feel rushed. It’s his life, his ordeal, and that is one of the more legitimate uses of money, easing a family member’s pain. But it inevitably makes the two of us think in more acute detail about own turn, presumably not too many years (or hours) away. We didn’t bring our kids into the world and from China respectively to destroy them financially on the way out of the door. I suppose I recoil at the idea of leaving bills behind like a bad taste in everyone’s mouth.
I’ve long seen my life as my book, the story of me. I’m hoping I get the chance to write the last bit. I’ve been telling this in first person, so to speak, I don’t want a third person ending. Someone else can add an afterword, but I want to type, ‘the end.’ Now, will I actually have the courage to do that? I don’t know.
@James Joyner: “And, while many people are working longer for a variety of reasons, people enjoy a much longer retirement than was the case even 20-30 years ago. Those are actual problems we need to figure out how to address, not right-wing talking points.”
You know when I’ll believe these are actual problems we need to figure out rather than a matter of readjusting tax rates? When they are brought up as reasons for not slashing taxes on the rich instead of brought up as something we can’t afford after we slash taxes on the rich.
No, the obvious solution is to fulfill our obligations to the public servants who accepted lower salaries in exchange for pension benefits.
This may require raising taxes. This may require low interest loans from the federal government to spread this obligation out for another N years, which states would have to repay.
And, to be sustainable, we may have to change the system for new hires.
The states underfunded their pension systems, and missed out on compounded growth. But, they still have obligations.
I reject the notion that the obvious solution, from which we will measure all other solutions, is to screw the workers.
@James Joyner:
Well yeah…but how many people do you think pay the current 37%? Romneys effective rate was around 15%. I’m betting Dennison pays Zero, which is one of the reasons he won’t release his taxes.
@Dave Schuler:
My overall point is that we need higher taxation, especially if we are going to insist on spending about a third of the budget on the military; reasonable people can discuss how we get there. Right wing talking points are not reasonable. I don’t have a dog in the fight as long as we get there. I design buildings, I’m not an economist.
If you look at the graphs, real income inequality started in the Reagan era. Yes, it accelerated in 93, but the trend was already firmly established. It’s the economy so, yes, it’s dangerous to over-simplify but lower and middle class incomes have been stagnant since Reagan while the wealthy have done much, much better. I find it hard to believe that tax rates, and thus decreased revenue for infrastructure investment and the like, don’t have an important role.
We currently lack the political will to adjust medicare and social security to ensure that thoise programs remain viable for the next 30-40 years.
Reagan did it back in 1985, but this group of Republicans want to preside of rolling it back and or privatizing both. Raise the income limit subject to taxation for this and some other minor patches and it could easily be done.
P-fricken-S: One of my brothers, for years, said that Social Security will be gone by the time he retires, and besides, why shouldn’t people invest that money, they will do better than the Social Security system as far as return. Well .. now he’s retired and basically, Social Security is his retirement income source. He was a hard working guy however he was unable to save and supplement his retirement income. Of course he supports Trump.
@Michael Reynolds: I’m pretty sure you will leave more assets than bills. It might be nice to have an accountant or lawyer on retainer to clean up the mess, though.
@Daryl and his brother Darryl:
This. +1infinity.
Don’t say that social policies are unaffordable. The GOP has decided to buy votes from Nixon on via voodoo economics. Warren’s 2% and 3% wealth tax will help take back some of that upward flow.
Harris’ Medicare-for-all will increase health care coverage and lower costs.
Time for a democratic socialist landslide.
@Liberal Capitalist:
I bet one fun-token it will not in fact lower costs. Supporting more spending on healthcare will be how politicians demonstrate they “care” about health, same way supporting more spending on education is how politicians demonstrate they “care” about education.
@al Ameda: Thanks for referring to one of Joyner’s right-wing talking points, the conflation of “Social Security” (actually the Social Security Retirement System) and Medicare. Each is a fundamentally different program from the other. The first is based mostly on what the worker paid into the system, for how long and at what age that worker elects to start to receive benefits. Any actuarily determined shortfall between what is available and what is to be paid can be fixed very simply: eliminate the cap on income regarding the payment of F.I.C.A. Everybody continues to pay regardless of how much they have earned during the year. Medicare is a program that provides a certain level of medical insurance benefits to those who qualify. Financial contributions must be made in order to receive coverage under all but Part A. Potential solutions: Adjust the financial contributions, eliminate Part D which was George W’s gift to the pharmaceutical industry and allow Medicare to negotiate drug prices. None have anything to do with infrastructure spending or cross-generational conflict.
Life expectancy for 65 year olds has increased only about 4 years over the past few decades. The overwhelming majority of the increase in life expectancy is that people are more likely to reach 65. This still changes the calculations for retirement, of course, but the size of the problem isn’t as large as people think when they look at raw life expectancy increases.
@Stormy Dragon:
Yes, it would.
The amount of money that the government (that’s you and me) would spend would go up, but the money spent overall by Americans would go down.
The Koch bros did the study and found out it would save trillions.
Source: https://thinkprogress.org/mercatis-medicare-for-all-study-0a8681353316/
@Liberal Capitalist:
Let me be clear what I’m saying here: I agree that a properly designed and implemented medicare-for-all system COULD cut costs.
What I’m saying is that any medicare-for-all system that actually gets implemented WON’T cut costs, because once it’s in the realm of politics, all the incentives are to spend more.
@Gustopher:
you’d make a terrible Republican.
@Jen: regarding health care directives, when my husband became ill last year, we picked up forms for power of attorney and health care directives. The former was easy; it just required our signatures.
The latter was much harder. You have to be able to decide what kind of interventions you want, if any, individually for a long list of different medical conditions, each of which might have a different outcome, life expectancy, and quality of life depending on which interventions you want, if any. Very few non-medical professionals can fill out that form without expert medical advice.
We had hoped to find someone who could help us with it. It became moot when my husband died suddenly.
And now my teenage daughter will receive my husband’s SS benefits from a lifetime of working, for only the next four years.
The boomer generation is the big elephant in the room, the rainy day is here. As mentioned, Illinois is in big trouble, people are moving out of there like it’s a down pour at Wrigley field. Some other states are also looking at mass migrations of people fleeing high taxes. Many boomers are not bad off, but not in great shape either. A lot are still working; the image of retiring to a golf course or sailboat is a thing of the past. Many are helping to raise grandchildren.
If they are the elephant, the health care is the shark. I have given some of my ideas here about some possible solutions.
The other factor is that the career/job landscape has gone through a sea change since the late 1990’s. Gone are the good paying, great benefits career jobs with the utility companies, heavy industry, and local governments. I knew many who went into those kind of jobs straight out of high school. The Gen – X’s and Milleniels are seeing much different times when it comes to jobs. The whole job search process is not what many of us experienced. These kids now have never seen want ads, or a telephone directory.
These are issues that defy easy answers – a real Whack a Mole. Trickle down won’t do it. Raising taxes won’t do it – people will just move where they are cheaper. And those “marginal” income rates – I have been wondering how I am paying thirty something percent on an annual gross income of around $39,000.
You people in Chicago need to get out of there for a few days – temperatures are going to be – 15 degrees or more. Get on a plane, bus, or train and head down here south of the Mason Dixon line. Low here will be in the upper 20’s – and that is real cold to most people around here. They should have the Super Bowl in Chicago. Or Green Bay.
See “Employers Could Slash Their Health Costs Overnight. So, Why Don’t They?” (Goodman, Forbes 10 -2 -18)
@Gustopher: @Michael Reynolds: Thank you for your concern and good wishes. I should have included this in the original story; they still don’t know what they are but are confident that they know what they are not, which is they are not tumors–which are now sometimes being called “nodules” for some reason. Had they been tumors, I would certainly have listened to whatever my doctor would say about options but will reserve the right to be skeptical. I still remember that until I was in my 30s, dying in your sixties or seventies was still not uncommon.
@James Joyner: I think I would be more in favor or VATs or other spending based schemes if I wasn’t so jaded about the likelihood that Rolls Royces, Lamborghinis, and Learjets would be considered “staples essential to life” while bread would be ruled a luxury. And when I did the “solve the Social Security problem” exercise at some group’s website years ago, my choice–“tax the whole nut” on the earner’s side (I’m not in favor of this on the employer side unless someone can show me that it will cap wages on the top end of scales without creating a disincentive to hiring altogether) was noted as solving the problem into perpetuity.
@Gustopher: You’re not in favor of screwing the workers? What kind of Marxist shill are you? Even Adam Smith said “if someone has to be screwed, it might as well be the workers.”
Wait… he didn’t say that?
Sorry, this is just unmitigated left-wing dogma bullshit. This is a myth the Left loves to believe — that we could solve all our problems if we just raised taxes on “the rich”. It is profoundly wrong. If you look at other countries with more generous welfare systems, they’re tax systems are LESS progressive than ours. Their high marginal rates kick in WAY earlier in the income spectrum. You have to tax the middle class heavily if you want a welfare state. There’s simply no other way. Anything else is a shell game. And note that many of THOSE countries are ALSO cutting back on their retirement system because you simply can’t keep the scheme going when the birth rate is too low to sustain it.
Or … look around at this country. Look at Democratically-controlled states like California, which are facing hundreds of billions in retirement liabilities. Cities that will no longer be able to hire employees because their retirement system is too big (blah blah blah Prop 13 yeah yeah look at their other sources of revenue). Look at our education system, which is rapidly mutating into a retirement system with a sideline in education. Here in PA, our *Democratic* governor spearhead the effort to convert our retirement to a 401k because the current system was going to bankrupt the state. And we’re a high-tax state. Can you even consider for one second that someone working for 30 years and retiring at 90% of their peak salary forever, with COLA adjustment, might be a problem?
The idea that the rich are getting it easy is nonsense. No matter how we’ve twisted the tax system, the amount paid by the rich has been generally steady. The main changes have been reducing that tax burden on the upper middle class. And one of the Democratic front-runners — Harris — wants a tax cut for people who don’t pay taxes.
The chart in that link is very interesting. Among other things, it upstages the shibboleth that Reagan took it easy on the rich. Their tax burden as a percent of pre-tax income went UP over the 15 years following his tax cuts/hikes/reform. The main drops seems to be more connected to recessions than tax policy.
@dmichael:
You explained it far more artfully than I did – I didn’t want to go into the weeds.
I am very tired of trying to explain this stuff to my conservative siblings. I keep telling them that the ongoing financial viability of either program is a matter of political will, and right now only one party, the Democratic Party, want to ensure that both programs are there for all of us. The response I get is the standard tea party brand Republican Talking Point, which to me is prelude to moving toward privatization.
@Hal_10000:
I find that hard to believe, given that (as I just posted in a different thread) ours is actually regressive at the highest brackets. People in the $10M+ bracket pay a substantially lower effective rate than people in lower brackets.
Unless you have some data to indicate otherwise, I’ll assume that this is because they don’t privilege capital gains and ordinary dividends at ultra-low rates, while applying the progressive rates only to wages and self-employment income.
In the most recent data I have to hand (2011), the bulk of revenue from personal income tax was generated by returns showing household incomes between $100,000 and $500,000. Those returns accounted for about 42% of revenues. I have a hard time thinking of those as “middle class”, though, given that 84% of returns fall short of those brackets. (Referring to people in the 90th percentile of income as “middle class” is a standard rhetorical trick of the right.) Progressive increases in the marginal rates for all brackets above $200,000 would result in large increases in tax revenue without really inconveniencing anyone, or changing spending habits, or reducing investment.
@Mike in Arlington:
There’s the trillion dollar question. What do the very wealthy do with a marginal dollar? They can’t spend it all, and they don’t give it all away, so they ‘save’ it. For the very wealthy, that means investing it. So, the important question for society is whether the societal benefits of that investment are larger than the benefits of collecting that excess and using it to pay for social goods.
I’ve been trying to track this down for a while, but I’m not a macroeconomist and I have a day job and a life, so I haven’t gotten very far. I have not yet found any academic work on exactly this question — if anyone can point me at some, I’d be grateful. I am convinced, though, that liquidity is not a problem — the amount of investment required to make the markets sufficiently liquid is a tiny fraction of the current levels. Also, institutional investors (pension funds, mutual funds, etc.) are now a sufficiently large force that the markets don’t actually need individual investors. These lead me to suspect that there is little or no social benefit to marginal investment by the very wealthy, and that everyone (including the rich!) would be better off if that income were instead taxed and used on infrastructure, public health, national security, etc.
@Hal_10000:
On that, we disagree.
This comment strikes me as a challenge to more of what is a valid purpose for Government Spending. The far far far right talking points have taken the extreme position that there is NO valid government spending: Taxation is theft.
So if the position is that extreme, then there is no way any spending can be validated. And I won’t take on that argument.
But if we assume that taxation is the price we pay for a civilized society, then we have a place to begin talking.
First, consider the top marginal rate: https://www.savantcapital.com/uploadedImages/Savant_CMS_Website/Blogs/Sample_Blog/US-Income-Tax-Marginal-Rates.png
Individual rates have dropped, while the cost of doing business has gone up. As a result, deficit.
But focusing on the individual is a way to surely get fleeced. It’s misdirection. You can always sell the ideas to the mark that they are getting robbed by the government, while ensuring that corporations bilk them even further. And let’s not kid ourselves, the GOP = Corporations and capitalism.
So let’s look at the taxation on corporations — The Effective rate on Corporations (the ones making billions from Americans while not investing in Americans) continues to drop: https://betweenthebalancesheets.files.wordpress.com/2011/10/effective-corporate-tax-rate.png
So: If Federal taxes drop and corporate taxes drop, then why should I care? Well, other than that being a default acceptance of the deficit, it actually is not one-for-one.
Consider this: https://upload.wikimedia.org/wikipedia/commons/thumb/9/96/Taxes_revenue_by_source_chart_history.png/1280px-Taxes_revenue_by_source_chart_history.png
This shows that the drop in corporate taxes is such that the difference ends up being made up in payroll taxes. That is why the “Average Joe” is disgruntled: The rich find a way to shelter their taxable earnings, the corporations pay less and less thanks to Political Action Committee actions (where $$$ = speech, and corporations are people too!).
So, while I would like to speak as an Average Joe, I can’t… My annual earnings put me in the 2% of US annual income. And, to be honest, I am OK with paying taxes.
But like they say, if you don’t know who the sucker is at the poker table, then it’s probably you.
So yes, the rich and corporations can pay more. Let’s turn it back into a fair poker game.
@DrDaveT: Well, you do have to remember that if you count the three middle quintiles as “the middle class” incomes in the middle class range from about $30K to $120K (if I remember correctly. Most of the families in the bottom 50% of the income range have so little income that they have no federal tax burden.
And yes, GINI coefficients play a big role in this discussion, but if we include that factor, we need to admit that “the middle class” is probably only the 4th quintile and that 60% of our population should be counted as “working poor” or below.
ETA: My guess would be that Piketty’s book would provide the best evidence, but one might need to extrapolate from his data because IIRC he examines the phenomenon from a global macroeconomic perspective.
@DrDaveT: Some updated numbers from 2016 tax statistics:
55% of personal income tax revenues come from returns reporting $200,000 or more in income.
The effective tax rates by income bracket were:
[Bracket, total revenue, effective rate]
Under $2,000 1,119 3.2%
$2,000 under $4,000 12,832 6.6%
$4,000 under $6,000 25,383 9.7%
$6,000 under $8,000 96,473 10.1%
$8,000 under $10,000 243,998 10.3%
$10,000 under $12,000 427,709 10.0%
$12,000 under $14,000 782,760 9.8%
$14,000 under $16,000 1,205,384 9.8%
$16,000 under $18,000 1,564,422 9.9%
$18,000 under $20,000 2,000,307 10.0%
$20,000 under $25,000 7,606,516 10.8%
$25,000 under $30,000 11,359,955 11.5%
$30,000 under $40,000 31,739,908 12.1%
$40,000 under $50,000 38,010,850 12.6%
$50,000 under $75,000 113,493,718 14.1%
$75,000 under $100,000 118,137,857 14.9%
$100,000 under $200,000 332,990,982 17.3%
$200,000 under $500,000 293,815,947 22.5%
$500,000 under $1,000,000 150,504,559 28.5%
$1,000,000 under $1,500,000 64,768,671 31.5%
$1,500,000 under $2,000,000 38,379,062 32.4%
$2,000,000 under $5,000,000 95,374,087 32.8%
$5,000,000 under $10,000,000 51,246,005 32.1%
$10,000,000 or more 116,877,029 29.0%
Not only are the rates very nonmonotonic, they also flatten out and then go regressive at the end. If that looks correct and rational to you… you must be a Republican.
@DrDaveT:
How does that chart handle long term capital gains?
Here, Here, Here.. Will agree on the taxation of dividends but even your own data shows rates going up as income goes up until the very top.
But as for tax rates kicking in earlier:
The UK’s top rate of 45% kicks in at 150,000 pounds. Their 40% rate kicks in at 46,351 pounds.
France’s maximum rate of 45% kicks in at 152,00o Euro. Their 41% rate kicks in at 72,000 Euro.
Sweden has 32% at 18,800 kronor, 52% at 469k and 57 % at 678 k
(one thing you’ll notice. NO country has a 70% marginal rate, because it would be insane.)
Japan’s maximum rate of 45% kicks in at 40 million yen (about 365 k).
Germany’s 42% rate kicks in at 56000 Euro. 45% at 265k Euro.
I could go on. That’s not even including regressive taxes like VATs. Most countries that have big welfare systems have way bigger taxes on the middle class. It’s the only way it works.
Let’s not. The top marginal rate is a junk talking point. No one paid that rate. The tax code was littered with shelters. Check the graph in the Slate article I linked. The top marginal rate is only cited by ignorami who know nothing about how taxation works.
This still places us (or did) in line with the rest of the world. If you want them to “invest in Americans” may stop using a worldwide tax system that taxes overseas earnings. No other country does that because it’s stupid.
@Stormy Dragon:
The chart only shows the adjusted gross income band, the total income tax paid by people with AGI in that band, and what percent of “modified taxable income” that represents. That incorporates any separate rates for long term capital gains.
@Hal_10000:
Almost. There are some weird wiggles in the lower brackets. The effective rate is essentially flat from $8,000 to $20,000 (and why are those people paying any tax at all???), behaves fairly reasonably up to about $500k, then flattens out and eventually goes the wrong direction when the handouts to the rich kick in.
For the 0.1% at the high end that currently generate about 20% of the revenue, the effective rate is no higher than for the borderline 1%ers who make an order of magnitude less. If you doubled the rate on those people, they would scream, but they would not actually notice in their daily lives. And the treasury would have an extra $300B+ per year to work with.
So insane that the greatest period of US prosperity and growth occurred when our top marginal rate was significantly higher than that?
I understand the talking point, but the empirical fact is that high top marginal rates are at worst unharmful, and possibly beneficial, as long as (as you note) they kick in high enough. If you read my post in the other thread, you’ll recall that this is in part because of the diminishing marginal utility of a dollar. If you want to argue that tax rates that don’t affect consumption behavior are nevertheless somehow detrimental, I’m willing to hear the argument.
That’s probably because they still have large middle classes to tax — which is a feature, not a bug. It’s also only half of the equation; you need to consider what they get for their money that Americans have to pay for out of pocket.
@Hal_10000:
What does that have to do with the question of whether they are paying their fair share? You might as well argue that the idea that Major League Baseball teams were screwing their players (pre-free agency) was nonsense, because the fraction of revenues going to the players was generally steady…
Are you seriously claiming that one marginal dollar is worth as much to Warren Buffett as one marginal dollar is worth to me?
@Hal_10000:
You also should include healthcare spending (premiums and out of pocket expenses) both here and there, in addition to taxes, to get a more apples-to-apples comparison. Otherwise, you’re comparing the price of a Whopper with a Big Mac Value Meal, and neglecting the fact that the person with the Whopper has no greasy salty starch or sugar water.
It doesn’t really matter if you’re paying that huge chunk of money to the government as taxes, or to a private company — you’re paying that money.
C’mon now, wealthy people are already put upon enough! They should really do something about being mistreated…
@Gustopher:
You’d have, and healthcare is definitely the main reason why I would not want to live in the United States. In this sense, higher taxes are worth it. Every single penny. But you’d need higher taxes on everyone, and Democrats should be talking about how they would pay for Medicare for All. Specially because Medicare has lower cost controls than other public healthcare systems in the world.
@Tyrell: I’d rather run my company here in Illinois where I can find workers who can do the high-tech stuff required. And access to VC groups. And other entrepreneurial groups. Ever thought of that?
Also, it was -20 F this morning when I got up. Am NOT going outdoors, but certainly there’s no reason for me to have jumped on a plane and fled down to Florida. We’re a bit hardier than that here in Chicago.
@grumpy realist:
If it’s too cold, you should just sit in the corner.
It’s 90 degrees. =)
@DrDaveT: My gross income is $38 – $39, 000. My tax rate was around 30%. Something wrong somewhere.
@Tyrell:
Then your preparer is cheating you. If you prepare your own taxes, you’re doing it wrong.
For 2017, the Personal Exemption plus Standard Deduction (filing singly, not Head of Household, no dependents) was $10,400. That means you’re paying tax on about $28,000 taxable income. The tax on that was $932.50, plus 15% of (28,000 – 9,325), which works out to about $3750 total tax. Overall effective tax rate: less than 10%. If you qualify for Head of Household or EITC, it’s even lower.
Or, I suppose you could just be lying…