New York residents are excluded from paying state taxes on the first $20,000 of their retirement income from private pensions. If they happen to be former government workers, though, things are quite different: Local, state, federal and military retirees don’t pay any state tax at all on their publicly-provided pensions, whether it’s $20,000 or $80,000.
Government employees are quick to defend this preferential treatment with the reasoning that if they were to be taxed, they’d move to another state in retirement. If that’s the case, then why are their retirees already leaving New York in droves? Get this: Pensions mailed to out-of-state residents who used to work in our governments cost New Yorkers $2.5 billion per year. So, if the tax exemption is a major selling point to stay in New York, why is it not working?
It’s not working because the system is broken — and utterly unfair — and it’s high time that this was rectified. Albany should either make all retirement income completely tax-exempt or cap the public pension exemption at $20,000 as well. A third option, ending all exemptions on retirement income and taxing them at their full value, is a non-starter, although I would argue that it makes the most sense and grants the most equality.
Income is income; it doesn’t matter if it occurs in your golden years or working years, so why should any of it be tax-free?
Looking at the first two possibilities and considering the dire fiscal straits that the Empire State is in (a combined $128.5 billion in state and public authority debt), it would be out of the question for the state Legislature — which never met a tax it didn’t like — to fully eliminate this revenue source. So, by process of elimination, that means public sector retirees should see their exemption capped at $20,000.
This would bring in substantial revenues. There are 375,800 pensioners from state and local governments. There are 141,000 more who were teachers. Those numbers do not include hundreds of thousands more receiving funds from the pension systems of New York City and the federal government. Nearly all of the aforementioned workers — especially into the future — would fall in the $20,000-plus bracket.
According to state documents, recent teacher retirees with full benefits receive $80,000 per year while recent non-teacher government retirees received an average annual package of $50,000.
Some will protest and say the average pensions for these job classifications are $47,000 and $19,000, respectively. But, those lower values include those who retired decades ago. Those outliers who bring down the average will either die soon or have their numbers dwarfed by a gigantic population of Baby Boomers who will take their place or add to the pension rolls, all of who will fall into the much larger “recent” category.
The massive amount of taxes they should be paying would aid in containing some of the escalating costs associated with public pensions. The retirees would actually help cover some of the burden that they and their peers have put on New York taxpayers. It should be noted that annual pension costs in New York have grown from $1.47 billion in 2001 to $15 billion today. The unfunded obligation (for future retirement disbursements) now stands at a whopping $196 billion.
Ignoring all of the numbers, let’s just focus solely on the premise of fairness. The tax exemption on government pensions is the ultimate slap in the face to anyone who has ever worked in, and retired from, the private sector. The state is implying that a certain class of individual (its class) is more important and should be rewarded for it.
It sounds foolish, but Albany is telling us a retiree who was a parks employee, social services provider, legislator or teacher had a harder career than did a factory worker, sales clerk, businessman, or doctor.
They didn’t. And neither did those other folks.
Work is work, some jobs are tougher than others, but each and every one of them comes with its own joys and stresses and, certainly, its own value. It’s time Albany realized that and put an end to the unfair advantage granted its workforce and taxed them as equally as their neighbors who worked just as hard to appreciate their retirement.