It Never Rains in Delaware
Yesterday about 80 state employees gathered on the steps of Legislative Hall to protest Gov. Jack Markell’s plan to cut their wages by 10%. Speaking for the workers, Michael A. Begatto, executive director of Council 81 of the American Federation of State, County and Municipal Employees, said:
“Too many times have we stood here and had the budget balanced on our backs” [Then he added] that many state employees already were struggling to make ends meet and could not afford a pay cut.
The state employees had an alternative plan in mind:
The state employees want Markell and the General Assembly to tap into the state’s Rainy Day Fund as an alternative to cutting salaries and state services.
I am in solidarity with the state employees on this matter, but they need to learn that it never rains in Delaware.
The nation is plunged into a recession so deep and so profound that one needs to look to the Great Depression to find a greater one. The nation’s recession has hit Delaware especially hard. Even Gov. Markell says so:
More than most states, Delaware was exposed to cracks in the foundation of our national economy. Delaware’s reliance on manufacturing and financial services made our hit particularly hard. As you can see here, our unemployment rate nearly doubled over the last 12 months to 6.7% and will get worse as employees laid off at the end of last year continue to enter the unemployment rolls.
A near Great Depression like recession, one that hurts Delaware especially, and that is not a rainy day in Delaware. What exactly is a rainy day in Delaware? Does anyone even know?
Perhaps the reason now is not a rainy day is because, as Gov Markell said yesterday, it is entirely possible that Delaware’s state revenue picture could be worse before the end of the current legislative session:
It is quite possible that when Delaware’s economic forecasting group meets again, the budget shortfall that grew by hundreds of millions between June and March could grow by millions more each month between now and June.
But if that should occur, Gov. Markell said:
these cuts may only get deeper; our reductions more severe and the need for shared sacrifices more certain.
In other words, even a worse budget shortfall will not constitute a rainy day in Delaware, and state employees might have to undergo an even greater pay cut (“shared sacrifices”). The rainy day fund for all intents and purposes doesn’t exist.
Wage Cuts as Regressive Taxation
When the state increases the taxes of a citizen, it reaches into the citizen’s paycheck and takes more money. That is precisely what Gov. Markell proposes to do to state employees to the tune of 10%:
All state employees will take an 8 percent cut in pay starting July 1, under the governor's recommendations. Markell said all employees will also be asked to pay a larger share of their health care benefits.
With the reduction in pay and increase in benefit costs, Markell said employees will see a 10 percent total reduction in pay.
With the reduction in pay and increase in benefit costs, Markell said employees will see a 10 percent total reduction in pay.
Notice this 10% wage cut applies to “all” state employees. It makes no distinction between merit and non-merit employees (non-merit employees tend to make more money), and hired state employees and politically-appointed state employees; nor does it make any distinction among state employees according to their pay scale. Apparently, this is an example of Gov. Markell’s principle of
Ensur[ing] shared sacrifice. No one person or group will bear a disproportionate burden of this challenge alone.
As much as I like Gov. Markell personally, I cannot help but think that this is a naïve notion of fairness, especially from a politician who is often lauded as a progressive. When has it ever been a progressive notion to tax or cut the pay of someone whose wages are, say, near poverty level the same as someone whose wages are substantially higher? If Gov. Markell really thinks that treating all state employees the same in this regard is an example of no one bearing a “disproportionate burden of this challenge alone,” then he is seriously mistaken. Some low paid state employees will be thrown into the official poverty level if 10% of their wages is cut. Some lower middle class state employees will suffer significantly as well. Gov. Markell’s 10% wage cut for all state employees is effectively a form of regressive taxation.
Why Not Tax the Rich More?
Why Not Tax the Rich More?
Sometimes I get suspicious about the order of a presentation and the way a presentation is worded.
Immediately after Gov. Markell talked about cutting the wages of state employees, he talked about new sources of revenue and made this proposal:
By increasing the top marginal rate by one percent to 6.95% for individuals in our top state tax bracket – those making more than $60,000 annually – we should generate $108M over two years – roughly the cost of keeping 1,134 inmates incarcerated. Again, this new rate applies only to income in excess of $60,000. Individuals who make less than $60,000 will not be affected and individuals who make more will only pay the extra one percent on money over $60,000.
Notice he says that this income tax hike (which only applies to income of $60,000 or more) will generate $108 million over a 2-year period. Why did he select a two year period to cite? Why didn’t he cite a 1-year period figure as he did with the savings that would be generated by cutting the wages of state employees?
To that end, we are proposing a temporary 8% across the board cut in the salaries of all state employees, which will save us $91M in fiscal year 2010.*
This makes me suspicious because if you compare the dollar amounts alone, then $108 million from a tax increase and $91 million from wage cuts sound more or less the same—you know, as in “no one person or group will bear a disproportionate burden of this challenge alone.” But once you realize that the figure from the tax increase is a 2-year figure and the figure from the pay cut is a 1-year figure, you realize that these numbers are not close to being equal at all. In fact, it looks like those who make $60,000 or more are getting spared, relatively speaking, and state employees are taking the big hit for them. It seems that Gov. Markell is financing a low tax increase for the better off by taking wages from state employees.
Consider it in real terms. A state employee who makes $20,000 a year will lose $2,000 income under Gov. Markell’s 10% wage cut plan. But a person who makes $160,000 per year will only experience a tax increase of $1,000 per year under Governor Markell’s tax increase plan (1% increase on all income above $60,000). Gov. Markell protects your bottom line more if you are rich than if you are poor. I call that grossly disproportionate.
For the life of me, I cannot understand why there could not be a graduated tax increase with the greater percentage of the tax burden falling on the well-to-do (since they are more likely able to afford it during a recession), one, even, that taxes incomes greater than $60,000 per year.
But what do I know? I cannot figure out why it seems to never rain in Delaware.
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* Note that the $91M figure doesn’t include the savings the state will accrue from making state employees pay more for their health insurance plans.
