Tuesday, September 11, 2012

Tax Increases and Public Sector Pension Benefits

Here's the plain, simple and ugly truth about the public sector pension unfunded shortfall dilemma facing cities and states across America.

Unless public sector employees agree to some combination of later retirement dates, reduced benefits or greater employee contributions while working, the only credible and lasting way to reduce the unfunded retirement benefits is to increase the taxes paid by We the People.

Thus, look for all local and state tax increases to in effect be used to fund public sector pensions, whether that's the expressed intention of the tax increases or not. Then be prepared for other tax increases as well, since funding unfunded liabilities will effectively yield zero net new money to the government to finance other necessary government activities.

Our individual cities, states and national governments need trillions of dollars to fill the unfunded but promised retirement money hole, and that's a very real and very big problem that simply won't disappear by looking the other way or otherwise ignoring it.

Quinn Agonistes relates the saga of Illinois Governor Pat Quinn and his ongoing struggle to convince other public officials to help him take the steps to fill the unfunded $83 billion pension hole in that state:

"It's a hard-knock life for Illinois Gov. Pat Quinn. . . . he expressed frustration that his good-faith efforts to fix the state's pension mess weren't being appreciated.

In the spring Mr. Quinn proposed a reform plan that would raise the retirement age and reduce cost-of-living increases for current workers. Employees could opt out of the new plan, but they'd then have to forego (sic) retirement health benefits. The governor also wanted to "spread the pain" by requiring downstate school districts to begin paying their own pension bills instead of the state picking up the tab (Chicago teachers belong to a locally administered pension fund).

Republican lawmakers from downstate, however, groused that forcing school districts to contribute eight percent to nine percent of payroll to the teachers' pension fund would ratchet up property taxes—unless, that is, districts were able to renegotiate contracts and make teachers pay more toward their pensions. But that's a non-starter with the unions. So is modifying current workers' benefits....

Maybe Mr. Quinn is developing some sympathy for Wisconsin's Republican governor, Scott Walker.

Last year he sided with the unions protesting Mr. Walker's collective bargaining reforms. That was before he became a born-again reformer—and not long after he had signed a 66% income tax hike and a 45% corporate tax hike. But worker retirement costs have since sucked up all $7 billion of new revenues and are on course to eclipse state education spending in another few years....

But here's the ugly truth. Fiscal reform is always a heavy lift, and Mr. Quinn made the job harder by giving away an $8 billion tax hike. Lawmakers now have little reason to heed his siren warnings.

They'll get around to reforming pensions when it suits them politically, which Mr. Quinn concedes likely won't be until January. And that's probably being optimistic.

Mr. Quinn's predicament should serve as a cautionary tale to taxpayers in California who will vote on a $8 billion income and sales tax increase this November. Once lawmakers get their hands on new revenues, don't expect any reforms.

Summing Up

That, my fellow Americans, is another excellent reason to reject government proposed tax increases, even if the proposed increases won't fall directly on us.

In other words, after the fat cats have paid their "fair share," the next grouping of We the People will be required to pay our "fair share" as well. And so on.

When government knows best OPM spending is involved, there has never been enough money for them to do all the wonderful things they want to do with taxpayers' money. And that's especially true when it comes to spending for their political cronies and allies.

Accordingly, an increase in taxes will only lead to another "fairness" increase. And then another. And so on.

But if we don't agree to raise taxes, what then will we do about the pension shortfall, the Social Security and health care shortfalls and all the other woefully underfunded promises we've made to ourselves?

While admittedly I don't know the answer to that question, I do know this. Giving the government knows best gang more money to spend won't solve our problems. It will only make them worse.

On that the record is perfectly clear.

Thanks. Bob.

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