Tuesday, April 15, 2014

September 12, 2013

Change Agent?

Don’t expect even a populist to disrupt the political economy of rust

Bill de Blasio, the Democratic nominee for mayor of New York City, has pledged to raise the New York City income tax rate on households with incomes over $500,000. As of 2009, the last year for which the Internal Revenue Service makes local data on individual returns available, there were 3.6 million people who filed income tax returns in New York City. About 33,000 of them reported incomes of over $500,000. Those 33,000 had $72.5 billion in income and paid $6 billion in federal income tax. That would be 0.92 percent—the fabled one percent—of taxpayers; the one percent took in almost 40 percent of all the income in New York City. De Blasio says that the one percent have become much richer since the bailout of all the big Wall Street banks in 2009, and that they should pay more income taxes.
Imagine a candidate for mayor in the City of Buffalo ever suggesting that the very highest-income households here should pay more in taxes.
The day before the mayoral primary here and in Gotham, the latest update from Emmanuel Saez and Thomas Piketty, the two Berkeley economists who study income distribution (i.e., who gets the gold), was published and got just enough media attention to amplify de Blasio’s message—namely, that most people are struggling while a tiny few are immensely richer than they were just a few years ago.
Saez and Piketty have been looking at the latest IRS data, which is not broken out by cities or counties for 2012, but by income group. What they found is what every candidate should be talking about: The rich are richer, and they’re getting so much richer so fast that they’re taking in almost all the new income the economy has produced since 2009.

But you knew that already

The last time Saez and Piketty published numbers in their ongoing, annually refreshed paper entitled “Striking it richer,” they estimated that the top one percent had captured 93 percent of all the new income generated in the recovery. In this week’s PDF file, they have this to say: “Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4% from 2009 to 2012. Hence, the top 1% captured 95% of the income gains in the first three years of the recovery.”
The last time they updated their study, they found that the top one percent had taken in 93 percent of all the income gains since the end of the recession. This week’s findings: The top one percent has taken in 95 percent of all the income gains since the end of the recession.
That’s not just New York City. That’s everywhere. Here’s what you probably didn’t know: The mechanisms that are in place right here in Buffalo, New York, where only 20,000 voters cast ballots in the primary election for mayor—down from 41,000 four years ago—are enriching some of your neighbors so fast that they are almost like Manhattan-dwelling Wall Street bankers whom de Blasio wants to tax a bit more.
New Yorkers responded to de Blasio. Buffalo voters did not respond much to Byron Brown and Bernard Tolbert. It may be too soon to say whether de Blasio’s economic populism drove turnout, but it seems safe to say that in Buffalo voters may be beginning to awaken to the fact that elections in which candidates refuse to address basic economic issues are just not credible.

The Buffalo version of the one percent

What doesn’t appear in Bill de Blasio’s campaign literature is any reference at all to Upstate New York. What will happen when Mayor de Blasio asks well-off New Yorkers to pay a bit more into the common kitty?
The historical evidence is fairly straightforward on this: To the extent that more New York City income tax is collected and spent in New York, the evidence is that higher public spending drives greater economic activity. New York City is already projected to see its population grow (notwithstanding some hand-rubbing by grinning conservatives who love the IRS data on county-to-county migration, which shows that there are lots of New Yorkers still heading down to Florida). So more public goods will get purchased, including some higher pay for some city workers, and maybe even more city workers, assuming that candidate de Blasio defeats the Republican in November and goes on to implement his program in 2014.
So with the help of more public money in the New York metro economy, that economy will produce even more income and sales tax revenue for New York State, which will, in turn—as state government does no matter whether a Republican or a Democrat sits in the governor’s mansion—spend a much higher per capita portion of its receipts Upstate than Downstate. The ratio today—by my estimate, which is consistent with the 2004 estimate by the Rochester think tank CGR—is that the New York metro area produces about 75 percent of the tax revenue but consumes only 65 percent of it, leaving a bonanza for shrinking, faraway, politically dwindling Upstate.
But here’s what happens to some of the money we get from New York City via Albany: It gets spent by local entities, especially Erie County government, and by our healthcare systems, and in our project-crazy region, in such a way that private vendors of equipment and services make a bonanza. Unbelievable bonanzas.
The people who provide transportation to Medicaid patients, for example, get a combination of federal, state, and local tax dollars via the Medicaid system. Ditto hospitals, nursing homes, and other providers of services that are mandated by laws and rules handed down from Albany. One vendor, we are informed, will soon sell his service-providing business—all of whose revenue came from government, most of it from New York State and from Erie County—for a profit of almost $100 million.
Poverty and dependency in Buffalo are very good business, so long as the taxes paid by New Yorkers flood into Albany, and then sluice on over to Buffalo. Thus the paradox: Prosperity in Gotham drives further dependency in Buffalo.

Don’t expect change

This is because the political economy of Buffalo is beautifully arranged by rent-seeking insiders, who enjoy the seemingly endless largesse of New York City’s cornucopian economy in the form of subsidies so outsized that only comedy writers could dream up.
The incumbent mayor of Buffalo was re-nominated by the Democratic Party in part because the incumbent successfully communicated a positive message—that Buffalo is on the rebound, that conditions are improving, that economic uplift is ahead, that all the publicly funded construction projects and publicly assisted rehab projects are signs of great things ahead. Almost 80 percent of respondents polled indicated that they felt that Buffalo is “on the right track.”
More than half of black men here are out of the workforce, with black male unemployment over 20 percent; white male unemployment in Buffalo is no picnic either, with 35 percent or more out of the workforce and over 10 percent unemployed. The population of the city continues to erode, as does the population of the region, with fewer than 270,000 Buffalo residents, down more than 50,000 in the past decade, and 15,000 fewer students in the Buffalo Public Schools than in 2000. And the region is poor: Over 70 percent of the 410,000 Erie County filers of income tax returns in 2010 had incomes below the New York State median. Over 140,000 individuals in Erie County are participating in the Food Stamp program, now known as the Supplemental Nutritional Assistance Program, or SNAP, up from about 100,000 in 2007, before the great Wall Street speculative bubble burst. The overall workforce in Erie County has shrunk, and there are at least 19,000 fewer employed people here than there were when Congressman Chris Collins was County Executive Chris Collins. Nevertheless, the mainly non-voting electorate here tells pollsters that Buffalo looks great, and that things are moving in the right direction.
The social-service entrepreneurs, the subsidy-grabbing real-estate developers, the construction outfits that get contract after taxpayer-funded contract for building ever more buildings, and all those people who have good-paying jobs in social and human services, healthcare, education, infrastructure-maintenance, and in the various other functions of the public sector here—they all want the system to stay as it is.
Why change? The tortured political theorist Niccolo Machiavelli observed, a few hundred years ago, that “there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than a new system. For the initiator has the enmity of all who would profit by the preservation of the old institution and merely lukewarm defenders in those who gain by the new one.”
Yes. But here, unlike in New York City, where the Bloomberg era will soon end, a smaller and smaller electorate wants the place to shrink even further. Congratulations, you brave Buffalo electors. Mayor Byron Brown got 26,000 votes in 2009. In 2013, he got fewer than 15,000 of 21,000 votes cast. Endorsed, ready for more, the system will chug along, undisturbed. Yikes.
Bruce Fisher is a former deputy executive for Erie County and director of the the Center for Economic and Policy Studies at Buffalo State College. His recent book, Borderland: Essays from the US-Canada Divide, is available at bookstores or at www.sunypress.edu.

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