Are Lazio’s proposed tax cuts good for New York?

October 29, 2000. Point-counterpoint opinion from FPI’s Frank Mauro and Stephen Kagann, New York State Chief Economist, in the New York Daily News.

It’s a Boon to the Rich
By Frank Mauro, Executive Director, Fiscal Policy Institute

Rick Lazio likes to refer to his proposed tax cuts as balanced and fiscally responsible, and says they will “extend economic expansion across New York.” In reality, he fails on all three grounds.

The Lazio tax cuts are not fiscally responsible. Together with the spending increases he has proposed, Lazio’s cuts would reduce the federal government’s projected budget surplus by more than $2 trillion over the next 10 years. That’s too much, and would return the country to an era of chronic budget deficits or further threaten the solvency of Social Security and Medicare.

Lazio’s tax plan does virtually nothing to bring economic prosperity to parts of New York State that have been left behind. Only a minuscule two-point plank in his plan is devoted to this purpose.

Interestingly, these proposals are both direct ripoffs from the comprehensive Economic Agenda released by Hillary Rodham Clinton in February. Clinton calls for a $3,000-per-job tax credit and Lazio for a $1,000-per-job credit for those who create jobs in what he calls “areas of our state where the wave of prosperity has not yet reached.” Both candidates also support federal incentives to make high-speed Internet access available in such areas. These two proposals are small parts of Clinton’s comprehensive economic agenda, but the entirety of Lazio’s.

The Lazio tax plan is not balanced. Overall, 30% of Lazio’s cuts would go to the wealthiest 1% of taxpayers and 74% to the top 20%. This doesn’t leave much for the other 80% of taxpayers with incomes below $65,000 — an average saving of about $340 a year when the plan is fully phased in, 10 years from now.

This absence of balance is a result of the taxes that Lazio would cut and how he would cut them. In regard to the “marriage penalty,” Lazio backs the Republican congressional leaders’ bill even though it would cut taxes for the wealthiest Americans much more than is necessary to eliminate this problem. When it comes to reducing the unfairness of the payroll tax — the one element of Lazio’s plan that is targeted to the middle class — he leaves out lower-income working families even though he knows the tax hits them the hardest.

Many of Clinton’s tax proposals, like her College Tuition Tax Credit and her tax credit for contributions to Retirement Savings Accounts, are referred to as targeted because their value is reduced and/or phased out as a family’s income exceeds $100,000. Most of Lazio’s proposals are also targeted, but more indirectly.

For example, he proposes eliminating the estate tax for everyone. But, 98% of people who die each year leave no estates or leave estates that are valued at less than the level (now $675,000 and soon to be $1 million) on which there is no tax, and most of this tax is paid by a very small number of very large estates.

Thus, the benefits of this and other Lazio proposals, like his plan to reduce the capital-gains taxes, are concentrated on much smaller, wealthier portions of the population than Clinton’s proposals, which target those who need economic relief the most.

Cuts Are Best for N.Y.
By Stephen Kagann, Chief Economist, New York State

Which tax plan, Rick Lazio’s or Hillary Rodham Clinton’s, is better for New York’s workers, families, seniors, jobs and future? The Lazio plan wins by a mile.

A analysis by the Manhattan Institute shows the Lazio plan would leave $4.2 billion in the hands of working New Yorkers, while the Clinton plan would provide at most $1.2 billion for relatively few.

The Lazio plan would eliminate the marriage penalty. Lazio would make Social Security taxes deductible, by up to $4,724 off each worker’s taxable income. Lazio would repeal the Clinton-added tax on Social Security for seniors who choose to work and earn more than $34,000.

Lazio would increase deductible IRA contributions for working people to $5,000. His capital gains tax cut would enhance the regional economy, increase state and local tax revenues and leave more in the accounts of New Yorkers who save and invest.

Clinton’s plan relies on targeted tax credits, copying Mario Cuomo’s strategy that failed our economy so miserably. Tax credits are camouflaged spending, in which tax dollars we all pay are used to benefit those few who meet the Clinton requirements. Her claim that her plan would create 200,000 upstate jobs with targeted tax cuts is based on preposterous numbers and would never work.

These election-year plans raise a broader issue: how to help create more jobs in New York. In 1993, New York was in deep recession. The 1993 Clinton tax increase soaked up state income needed to create jobs, delaying our recovery for years. Only Gov. Pataki’s massive, multi-year, across-the-board state tax cuts catapulted New York from last to 11th in job growth.

New Yorkers pay more federal taxes because our pre-tax incomes are higher and therefore taxed at higher rates. Our higher pre-tax incomes are not adjusted for our high cost of living, so more of our real (inflation-adjusted) income is taxed away.

Excessive federal taxes on New York are not only unfair, they damage our economy. As more of our dollars are used for spending in other states, we have less to spend in our stores, and less to invest in our homes and our businesses.

During the last 20 years, New York has grown jobs at 33% of the national average. The 10 states with the lowest federal tax burden grew jobs 48% above average. The outflow of New York dollars was followed by jobs. Families were separated; congressional representation declined.

New York now sends $54 billion more each year to Washington than in 1992. But while New York has been a federal cash cow, the Clinton administration cut real federal spending in New York by 1% while increasing it 7.4% in other states.

Yet Hillary Clinton has said she views the 1993 tax increase as a sound economic plan, while criticizing tax cuts as risky spending. She could not be more wrong, and in fact is forced to rely on statistics dating to the Cuomo years to badmouth the New York economy. She should tell the truth: Upstate does not “still rank 45th in the nation in job growth”; it ranks in the top 20, largely because of our across-the-board tax cuts.

The bottom line: The straightforward Lazio plan would leave New Yorkers with more dollars in their pockets, and it would help to create jobs so young New Yorkers could build careers close to home, like other Americans. The Clinton plan would do neither.

Impossible Choices: Food and Housing or Prescription Drugs?

October 11, 2000. This report was prepared by the Fiscal Policy Institute for USAction, the nation’s largest consumer organization. It examines how rising prescription drug prices are affecting the household budgets and living standards of older Americans. The report was released today in Washington by USAction and at numerous locations around the country by USAction’s state and regional affiliates. FPI Senior Economist Trudi Renwick presented the reports results at USAction’s press conference in Washington, DC, while FPI Executive Director Frank Mauro did the same at an event in Albany, NY, with Richard Kirsch, Executive Director of Citizen Action of New York.

Below, the text of the report. Impossible Choices with tables and graphs>>

Summary

Several recent studies have documented the phenomenal increases in prescription drug prices that have occurred in recent years. This report builds upon these previous analyses by examining how rising drug prices have affected the household budgets and living standards of older Americans.

During the 1990s, the price of most prescription drugs commonly used by seniors increased much more than the increase in the overall cost of living as measured by the Consumer Price Index (CPI). Moreover, the prices of prescription drugs increased faster than any other basic necessity – food, housing and even medical services. The average cost per prescription also increased faster than the overall price index and the indices for other basic necessities.

Over this same period, older Americans, on average, saw some growth in their incomes, but not enough to keep pace with skyrocketing drug prices. The squeeze on household budgets was even greater for those seniors whose incomes were stagnant or grew more slowly than the average. Those whose incomes did not grow with the average and who also happened to be in need of prescription drugs whose prices had increased at two or three or even more times the rate of inflation were particularly hard pressed. Many older Americans with incomes well above the poverty level are forced to make difficult choices between the prescription drugs they need and other necessities of life, from food, clothing and shelter to other medical services and transportation.

The Basics: What happened to prescription drug prices during the 1990’s? Section I of this report reviews the findings of two reports from Families USA and one from the Kaiser Family Foundation that document the changes that have occurred during various portions of the 1990’s in average retail prices per prescription, average manufacturer prices for all prescription drugs and for brand name drugs, the average price for seniors’ prescriptions, and the price of the 50 prescription drugs most commonly used by older Americans.

The Cost Factors: How have the increases in prescription drug prices compared to increases in the overall cost of living and the cost of other necessities? Section II presents data from the U. S. Bureau of Labor Statistics on changes in the Consumer Price Index and in key components of that index (for necessities like food and housing). It then compares the changes in these components of living costs with the increases in prescription drug prices over the same period.

The Impact on Household Incomes. Section III uses data from the Social Security Administration and the Census Bureau to compare prescription drug price increases with the increases that have occurred in Social Security benefits and incomes for elderly women living alone and for elderly couples. Average prescription prices and the prices of the majority of the prescription drugs commonly used by seniors have grown faster than the Social Security benefits and the total incomes of both income for elderly married couples and elderly women living alone.

That prescription drug prices have increased faster than incomes has meant that the burden of paying for prescription drugs has worsened for the elderly across the United States. Section IV: The Impossible Choices shows that seniors today are paying a greater percent of their income for prescription drugs. This section of the report also includes a number of case studies of elderly couples and individuals whose prescription drug costs consume an inordinate percentage of their incomes.

This report shows that the increasing prices of prescription drugs represent a burden not just for low-income seniors but for middle-income seniors as well. Any solution to the problem of prescription drug coverage must address both the needs of this broader spectrum of the elderly population and the soaring prices of prescription drugs.

 

Section I. The Basics: What has happened to prescription drug prices during the 1990s?

Over the last 8 years, the average cost per prescription for senior citizens increased steadily.

  • From 1992 through 2000, according to a recent report by Families USA, the average cost per prescription for senior citizens grew from $28.50 to $42.30, an increase of over 48%.
  • In 5 of these 8 years, the average price per prescription increased by more than 5%.
  • In only one of the 8 years, did the average price increase by less than 3%.
  • For a senior citizen whose usage remained constant during this period, at 23.5 prescriptions per year – the average number of prescriptions per senior for the 8 year period – the increase in price alone would have increased the average senior’s prescription drug costs from $669.75 per year to $994.05 per year.
  • For seniors with greater health problems and a greater need for prescription drugs, the increase over the period would have been even more substantial as will be demonstrated later in this report.
  • A couple, such as the Bergeons of South Milwaukee, who now spend about $6,500 annually for their prescription drugs, would be devoting $2,120 (or more than 10%) less of their annual $21,000 income to prescription drugs if it were not for these price increases.

Families USA, “Cost Overdose: Growth in Spending for the Elderly, 1992-2010, ” July 2000.

More than half of the increase in prescription drug expenditures has been driven by the growth in the average price per prescription.

  • In its July 2000 report, Cost Overdose: Growth in Drug Spending for the Elderly, 1992-2010, Families USA, in conjunction with PRIME Institute of the University of Minnesota, used data from the Medicare Current Beneficiary Survey to calculate both total and average prescription drug expenditures per senior for the period 1992 to 1996. Data from the Health Care Financing Administration (HCFA), Office of the Actuary, was then used to estimate total and average prescription drug expenditures per senior for the years 1997 to 2000.
  • Annual spending per elderly person for prescription drugs grew from $559 in 1992 to $1,205 in 2000, an increase of 115.6 percent.
  • Some of this growth in spending is the result of increasing usage. The number of prescriptions per elderly person grew from 19.6 in 1992 to 28.5 in 2000, an increase of 45.4 percent.
  • A more significant factor, however, in driving up spending on prescription drugs was the increase in the average cost per prescription. The average cost per prescription for the elderly increased from $28.50 in 1992 to $42.30 in 2000, an increase of $13.80 per prescription or 48.4 percent.

During the 1990’s, the price of brand name drugs grew even faster.

In a July 2000 report, the Kaiser Family Foundation reported that the average retail price of all prescriptions grew from $23.68 in 1991 to $37.38 in 1998.

  • This represented a 59% increase over the course of the seven year period, and an average annual increase of over 6.7% per year.
  • Over this same seven year period, the retail price of brand name drugs grew even more rapidly – 8.8% per year.

While some of the increase in the average retail price of a prescription can be explained by shifts to the use of new, more expensive drugs, the prices for existing drugs have gone up year after year.

  • According to a July 2000 Kaiser Family Foundation report, manufacturers prices for existing drugs have increased every year during the 10-year period studied.
  • On average, drugs that were marketed for the entire period studied, cost 52% more in 1998 than in 1989.

The Kaiser Family Foundation, “Prescription Drug Trends: A Chartbook,” July 2000.

A study of the 50 prescription drugs most commonly used by older Americans found that prices increased by over 30%, from January 1994 to January 2000, for the existing drugs that were marketed throughout this period.

  • The prices of the 39 such drugs that were marketed during all of this six year period, when weighted on the basis of sales, increased by 30.5%.
  • Of these 39 drugs,
    • 4 saw their prices more than double
    • 10 had price increases of 50% or more
    • 27 have had price increases of more than 25%
    • all except 2 had increases of more than 15%.

Families USA, Hard to Swallow: Rising Drug Prices for America’s Seniors,” April 2000.

Section II. The Cost Factors: How have the increases in prescription drug prices compared to increases in the overall cost of living and the cost of other necessities?

37 of the 39 prescription drugs most commonly used by seniors (which were marketed throughout the January 1994 to January 2000 period) experienced price increases greater than the increase in overall prices.

  • Between January 1994 and January 2000, the overall Consumer Price Index (CPI) increased by 15.5%.
  • During this same period, the prices of all but two of these 39 prescriptions drugs increased faster than the CPI.
  • 19 of these prescription drugs experienced price increases which were greater than twice the overall increase in the Consumer Price Index during this period.
  • 8 of these prescription drugs increased in price more than triple the overall change in the Consumer Price Index.

Fiscal Policy Institute analysis of drug price data reported by Families USA in “Still Rising: Drug Price Increases for Seniors: 1999-2000,” April 2000.

Other basic necessities are increasing at about the same rate as the overall CPI, but prescription drugs are putting much greater pressure on the budgets of older Americans.

  • Senior citizens whose income increased at the rate of inflation, would be able to keep up with the cost of most necessities.
  • But seniors who are in ill health or otherwise in need of prescription drugs face a much more difficult situation, even if their incomes are growing as fast as the CPI.
  • For seniors with fixed incomes and substantial drug costs, something has to give.

The average cost per prescription for seniors has also increased much faster than the prices of other necessities.

  • Between 1992 and 2000, the overall Consumer Price Index increased by 23.0%.
  • During this same period, the average cost per prescription increased by 48.4% – more than double the increase in overall prices.
  • No other basic necessity (food, housing, apparel, transportation) increased as much as the increase in the average cost of prescriptions for seniors.

Section III. The Impact on Household Incomes: How do the increases in prescription drug prices compare to the increases in Social Security benefits and the overall incomes of the elderly?

Prescription drug costs represent an increasing share of older American’s incomes.

  • Social Security has an annual Cost of Living Adjustment (COLA) but average prescription drug costs represent an increasing portion of seniors’ Social Security benefits.
  • Average prescription drug spending for elderly couples as a percent of average Social Security benefits for elderly couples increased from 8.4% in 1992 to 13.5% in 1999.
  • This is significant since for most retired Americans, Social Security is the only part of their incomes that is automatically adjusted for inflation.
  • From 1991 to 1998, the average Social Security benefit of elderly couples increased by 22.9%. Over the same period, the average retail prescription drug price increased by 57.9%.
  • For elderly widows, the situation was very similar with Social Security benefits increasing by 28.3 % in the face of that same 57.9% increase in prescription drug prices.

Section IV. The Impossible Choices: What do the combinations of increasing drug prices and relatively stagnant incomes mean for some typical elderly households and for some real ones?

Elderly women, even those who are not considered poor, are particularly burdened by high prescription drug costs.

  • Elderly women tend to have very low incomes.
  • In 1999, 20 percent of elderly women living alone had incomes below the federal poverty threshold of $7,991.
  • Almost two-thirds – 62.2% – had incomes below 200% of the federal poverty threshold or $15,982.
  • Even with an income at 200% of the poverty threshold, an elderly woman with just three prescriptions can have prescription drug costs consume up to 14% of income.

The high cost of prescription drugs also puts increasing pressure on the budgets of many elderly couples.

  • Although elderly couples have a relatively low official poverty rate, many have incomes just above the poverty threshold of $10,070. In 1999, almost one fourth of the elderly individuals living in married couple families had family incomes less than $20,140 or 200% of the federal poverty threshold and more than 40% had incomes less than 300% of the threshold.
  • An elderly couple using five prescription drugs (Iorazepam, Klor-Con 10, Imdur, Premarin and Atrovent) with an income at 200% of the poverty threshold in 1994 spent about 5.5% of its income on prescription drugs in 1994.
  • An elderly couple with an income at 200% of the poverty line today would need to spend over 10% of its income to purchase the same bundle of prescription drugs.

USAction is the nation’s largest consumer organization with 37 affiliates and over 4 million members. USAction advocates for quality, affordable health care for all Americans. Through working with key lawmakers and organizing at the grass-roots to raise awareness, USAction has led the fight on prescription drugs at both state and national levels.

USAction is truly unique among national progressive organizations in its ability to mobilize coordinated efforts in 25 states. USAction reaches a broad constituency including communities of color, people with disabilities, and senior citizens. USAction also advocates for quality public schools for all students, a safe and clean environment, and consumer rights. USAction affiliates are: Arizona Citizen Action, Connecticut Citizen Action Group, Colorado Progressive Coalition, Florida Consumer Action Network, Georgia Rural Urban Summit, Iowa Citizen Action Network, United Vision for Idaho, Idaho Community Action Network, Citizen Action/Illinois, Maine People’s Alliance, Dirigo Alliance (ME), Michigan Citizen Action, Missouri Progressive Vote Coalition, Montana People’s Action, North Dakota Progressive Coalition, New Hampshire Citizen Action, New Mexico Progressive Alliance for Community Empowerment, Citizen Action of New York, Oregon Action, Citizens for Consumer Justice (PA), Ocean State Action (RI), South Carolina Progressive Network, Tennessee Citizen Action, Texas Citizen Action, Washington Citizen Action, Wisconsin Citizen Action, Democracy South, Midwest States Center, Midwest Academy, Northeast Action, Northwest Federation of Community Organizations, Progressive Action Network, American Federation of State County and Municipal Employees, Communication Workers of America, Service Employees International Union, and US Student Association.

The Fiscal Policy Institute is a nonpartisan research and education organization that focuses on tax, budget and related public policy issues that affect the quality of life and economic well-being of New York State residents. Founded in 1991 by a broad range of labor, religious, human services and community organizations, FPI’s work is intended to further the development and implementation of public policies that create a strong economy in which prosperity is broadly shared by all New Yorkers.

Acknowledgements

Thanks to the Nathan Cummings Foundation and The Midwest Academy for their support for this report, and to Wendy Chamberlain for graphic assistance. Thanks also to Amanda McCloskey, Director of Health Policy Analysis, Families USA for her research assistance and to The Civil Service Employees Association, Inc, Local 1000, AFSCME, AFL-CIO for printing the report.

Building a Ladder to Jobs and Higher Wages

October 1, 2000. New York’s public and private leaders can create more jobs, expand training and educational opportunities, and ensure that work is a path out of poverty. This report from the Working Group on New York City’s Low-Wage Labor Market examines the current nature of the city’s low-wage labor market and includes a comprehensive set of policy recommendations to address the labor market problems of New York City’s growing low-wage labor force. FPI was a member of the working group, which consisted of policy analysts from government, non-profit organizations and academia, specialists in worker training and representatives of business and labor, and was chaired by Mark Levitan of the Community Service Society of New York. Full report >> Summary of recommendations >>