Dear America's Public Workers ~
[posted November 14, 2009] I know you have tremendous confusion and anxiety about the rumors of pay cuts and furloughs due to the state's budget shortfall. Regardless of the final outcome, it is likely we will suffer some type of "tax." Our leaders won't use this word but this is essentially what appears to be coming. They are afraid to tax the general population so they have targeted workers they believe are less politically viable. If you want to have a voice in this process you should stand up and speak out now.

Years ago a president made a big splash telling America the NINE most TERRIFYING words in the English language, "I'm from the government and I'm here to help."

Since this announcement dedicated employees in our civil branch of service have been vilified and treated as door mats. We are perceived as leeches on the capitalist engine of society.

Post Great Depression and WWII, the TOP marginal federal tax rate ranged 91-92 percent. This took excess wealth from our MOST rich and allowed the middle class to prosper. This was the greatest expansion of wealth and prosperity in our nation's history. Many things have changed today. The TOP marginal tax rate has fallen to 35 percent and our nation's middle class, as you know, is collapsing.

Let me provide a brief tax analysis to put things into perspective. This week it was reported that financial employees at Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.'s investment bank, companies you bailed out with your taxes, will receive $30 BILLION in record bonuses - up 60 percent from last year.

Approximately 119,000 employees will be awarded, on average, $250,400 bonuses, on top of their annual salary.

Current estimates (which are always changing) suggest New Mexico fell behind by $650 million last year (FY09) and project the state will be short about $400 million this year (FY10). I assume conditions will worsen so let's use $1.2 billion as our total.

If we had a MORE FAIR tax system, society would ask these financial employees to help cover New Mexico's shortfall - caused of course, by the crisis on Wall Street.

If each of the 119,000 financial employees donated $10,084 from their bonus, not regular salary, New Mexico would not suffer a shortfall over these two difficult fiscal years. These employees would receive an average bonus of $240,316 rather than the $250,400.

Does anyone believe they will miss it? On the other hand, how much will you miss the income from five forced furlough days or possibly an eight percent salary reduction?

Let's continue with this analysis. I assume these 119,000 financial workers make a base salary, on average, of $150,000. Adding the bonus their annual compensation comes to over $400,000. This puts them in our nation's top tax bracket.

Using a rough 35 percent marginal tax figure, these employees would pay about $140,000 in federal taxes. If we include the $10,084 to support New Mexico their total federal tax would be $150,084. This is an increase of 2.5 percent and raises their total federal tax rate to 37.5 percent. During the Clinton administration, the last time our federal government ran years of surplus, the top federal marginal tax rate was 39.6 percent.

Again, when we demand greater sacrifice from our MOST wealthy, our nation prospers. When we diminish their contributions, middle class families collapse along with state and federal government.

Let's look at this from the other angle - you, the middle class worker. We'll assume workers make $40,000 on average. This places workers in a 25 percent marginal tax bracket. Workers pay about $10,000 in federal taxes and take home some $2,500 per month. Not easy to live on this amount.

These workers, most of whom have suffered take home reductions around 1.5 percent to date, may see additional cuts totaling 8 percent during these difficult times. This trims another $200 per month from take home pay, leaving workers with about $2,300 per month on average.

These changes raised the combined tax rate to about 31 percent - a six percent increase. Conversely, had society increased the tax rate on our MOST wealthy by ONLY 2.5 percent, we could also have balanced the budget.

The affected number of people is similar. There are about 60K state workers and 27K state educators. There are 119,000 financial workers. We can demand a 31 percent sacrifice from 90,000 middle class workers or request a 37.5 percent sacrifice from America's most fortunate. The budget balances either way.

Putting this into perspective ... we are currently battling a financial crash. This is a DEMAND crisis. Consumers, primarily middle class families, are struggling and cannot purchase goods or services. Therefore the private sector sends workers home - primarily middle class employees. This leaves more consumers unable to buy or spend and forces more companies to lay off workers ... and the crisis cycles down into the abyss.

Clearly our legislative leaders are not economists. When facing a DEMAND crisis it is best to tax neither the middle nor upper classes. The best option for New Mexico would be to borrow from permanent funds. These are rainy day funds and it's pouring outside. The next best option though would be to tax the MOST wealthy. While their take home pay would be reduced by $150,084 rather than $140,000, they are still left with an annual salary of $240,316 - nearly FIVE TIMES the median household income of ALL Americans.

The increase in their federal tax rate to 37.5 percent does not alter their buying and spending habits as dramatically as does a tax increase on middle class workers to 31 percent from 25 percent.

I realize I have not included other taxes, which both middle and upper class workers pay - or deductions. I also point out I have used broad estimates that may change as we move forward in this crisis. Yet the general picture is accurate and relevant.

By reducing the tax burden on our MOST wealthy we have transferred this responsibility to the middle class. Since 1986 wealth held by the MOST fortunate Americans has nearly doubled. On the other hand worker productivity has increased by over 60 percent since 1970 yet, adjusting for inflation, middle class salaries have gone up by only ONE percent.

However you slice it ... middle class families are collapsing in America. To increase the financial sacrifice on nearly 11 percent of New Mexico's labor pool during this financial crisis not only harms working families further - it also ensures our state and national economies will continue to sputter.

I urge you to write your elected leaders and share these facts with them. Be polite and respectful but firm. Pay cuts and furloughs equal tax increases; and tax increases on middle class families at this time further stalls the private sector recovery.

In unity ...

Scott Goold