I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Tuesday, March 30, 2010

Simple Questions to ask the Gov, Part I

Fair warning: I'm not an accountant, an economist, or a public policy expert. I'm just a teacher asking some questions.

Christie has a new scheme to incent school districts into freezing teacher pay: give state aid to districts who get their teachers to agree to a wage freeze.

Here's what I thought was odd about the whole thing:
The offer won't cost the state any more money. The Republican is offering to give districts all the money the state would save on Social Security and Medicare payroll taxes as a result of the wage freezes.
In my experience, anytime a guy like Christie comes along offering a free lunch, you'd better stop and look hard.

First thing we need to remember is that Social Security/Medicare taxes, or FICA, are split between the employee and the employer. Each pays 7.65% to cover both Social Security and Medicare. (I didn't realize until today that the state of NJ reimburses districts for paying the employer's share of FICA. Why is that? I'm trying to find out; something with the pension I'm guessing...)

So, if you have a wage freeze, the district saves not only the amount that they would have raised the employee's wages; the state also saves 7.65% of that raise in taxes.

For example, take a teacher making $50K, scheduled to get a 4% raise. The school district not only gets to save $2000 on a wage freeze, they also save the extra FICA tax they would have had to pay on the raise - here, $153.

But WAIT! Would the teacher have had to pay STATE INCOME TAX on the raise?

They sure would have. How much would that be? Well, the rate on income at the level is 5.525% - $110.50 in our example.

That makes the total savings to the state $42.40 for every $2000 frozen. Put another way: total savings on $1 million in frozen wages for the State of NJ is $21,200, or 2.12%.

Now, how much is Christie going to give out?
But if teachers agree to wage freezes, districts could see a significant increase in aid. For example, a district that saves $1 million in salaries as a result of wage freezes would receive an extra $75,000 in state aid.
Now, he gets that $75K figure because he figures he's saving 7.65% on the wage freeze. But he's not collecting income tax on it - he's really only saving about $20K (hey, if he can round, so can I).

So a simple question, Gov: Where you gonna get that other $50K?

Did you not take this into account? Or is this yet another example of you saying you'll come up with money for the schools that you have no intention of following through on?

Just asking...

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