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

Friday, August 12, 2011

Shared Sacrifice?

So I keep thinking about Chris Christie's call last year for "shared sacrifice" from New Jersey's teachers. And I keep thinking about how NJ public worker pension and benefits contributions are going to skyrocket over the next few years. And I keep thinking about how Derrell Bradford's B4K is calling for a radical restructuring of teacher pay; presumably, taking money from some teachers and giving it to others under a wildly unreliable testing regime.

But I'm also thinking about how Derrell got the money to wage his war on teachers unions: hedge fund manager David Tepper, one of the richest people in the US. And I'm wondering what sort of "sacrifice" Tepper is making these days compared to the teachers whose livelihoods B4K is threatening.

So I did a little calculating - you can follow my math below (warning: I'm a music teacher, not an accountant):

If David Tepper is using the hedge fund manager loophole to pay a 15% federal tax rate, and he pays a marginal NJ state income tax rate of 8.97% (I'd be amazed if it was really that high - there's got to be a shelter somewhere), and he buys a truly "Cadillac health plan" for himself (twice as much as a teacher's plan costs), I put his effective tax and benefit rate at 24%.

If the average teacher pays a marginal (not effective) state rate of 5.525% and a marginal federal rate of 15%, plus contributes 1.5% to health care (which is going to balloon over the next few years), plus 5.5% to pensions (going up to 7.5% soon), I calculate that teacher pays 28% of income to taxes and benefits. (That's without property, sales, or gas taxes, by the way; who do you think feels the brunt of those more?) The upshot?

The wealthy hedge fund manager who is funding a group that is lobbying to radically change how teachers are paid and take away tenure is paying a LOWER tax/benefits rate than those very teachers whose livelihoods are now on the line.

But you know something? The charts above are deceptive. The median teacher salary is $57,476; David Tepper reportedly made $4 billion in 2009. A much much realistic view of Tepper's salary and taxes compared to a teacher's would look like this:

Remember: Chris Christie said there is "greed and excess" in the schools. But "greed and excess" on Wall Street? Meh...

How I Got the Numbers:

Once again: caveat lector. I probably got a lot of stuff wrong here: please, correct me in the comments, and I'll make the changes.

Let's start with Tepper; again, a reported $4 billion in 2009:

  • Capital gains rate of 15%
  • FICA only on his first $106,800, at a rate of 15.3% (because he's self-employed - like it really matters)
  • Standard deduction of $5,800 (Ha! But let's keep it simple)
  • Cadillac health care plan at $30,000 (but he could self-insure anyway)
  • NJ Tax of 8.97% (no way, but again, let's keep it simple)
I get a total tax/health care bill of about $959 million.

For the NJ teacher:
  • Again, standard deduction of $5,800. 
  • Tax table for NJ shows $846 for a married couple filing jointly.
  • Federal tax table shows $6914.
  • For FICA taxes, I didn't include the employer's share (you could argue I should, but let's not for now): $4396. Notice how little difference there is between a teacher's FICA taxes and a hedge fund manager's FICA taxes.
  • 1.5% of base pay for health care; 5.5% of base pay for pension (again, those are going way, way up).
I get a total tax/benefits bill of $16,179.

Of course, the teacher gets a pension; Tepper does not. How will he make due? Isn't he worried about his future?

ADDING: A retired NJ principal asks a few relevant questions.

No comments: