You may question why CEA and AFT CT opposed the increase in the teacher payroll tax from six to seven percent. That is a fair question, and I want to share with you facts about the payroll tax increase so that we are all on the same page.
· The proposed teacher tax increases teacher payroll taxes from 6% to 7%.
· This would cost the average teacher about $750 per year, and it would raise $38 million in additional teacher payroll taxes.
· This increase does not “strengthen” the teacher retirement fund or add to the fund. It increasesthe share that teachers pay into the Teacher Retirement System, and reduces the state’s share and payment by the same amount ($38 million).
· Not one penny of the additional $38 million adds more to the Teacher Retirement System. All of it replaces and supplants dollars that are supposed to be contributed by the state. By reducing the state’s payment, the state pockets the pass-through revenue of $38 million—just as if it were general tax revenue.
This is unfair for a number of reasons:
1. Teachers are being singled out for a significant tax increase—about $750 per average teacher.
2. Teachers have always paid more than their fair share into their retirement—about 60% of the total costs.
3. In years past, the state underfunded its required payment for the year-to-year costs—which was only 4.5% of salary. Now teachers are being taxed more so that the state can pay less.
4. Teachers have already saved the state and municipalities billions of dollars by having an independent retirement system instead of Social Security—and the savings began in the late 1950s. The state and municipalities would have otherwise paid an additional 6.2% of teachers’ salary in Social Security payroll taxes, or an extra $236 million per year.
5. Teachers have sacrificed and offered other substantial concessions over the years that have saved millions of dollars, including in health insurance, where many teachers have significant deductibles ($4,000), and pay a high percentage of the premium.
Some have been caught up in a semantics game of saying the increase in teacher payroll taxes is a “contribution” instead of a “tax.” A payroll tax is, however, a tax. In referring to the Social Security payroll tax, the Internal Revenue Service states, “The current tax rate for Social Security is 6.2% for the employer…” (emphasis added). A payroll tax is a tax.
So, to summarize, the increase in the teacher payroll tax in the proposed budget unfairly singles out teachers and does not strengthen or contribute any additional funds to the teacher retirement fund. It simply reduces the state’s payment into the fund. Net result? The state gains pass-through revenue of $38 million paid by teachers, the same outcome as for any other tax increase.