Tuesday, April 09, 2013

An Alternative Solution to the Public Pension Problem

Public pension liabilities continue to be a problem in America. This will not end until the collective bargaining agreements are changed and the end of the FED's ZIRP. We face a pension tsunami as Boomers retire en masse. This will grow into a more disgusting problem as municipalities and states shift more money to retiree funds and away from actual public expenditures ($2 mil for cop pension instead of cars/guns/equipment). The problem with collective bargaining agreements is that changes often just alter current active employees (future retirees). Rarely can changes to retiree benefits occur as the union reps have to protect them at all costs since it is a tool to use on active union guys of "look, we give up something in negotiations when active but you never get touched as a retiree, so you need us". If union reps want to play hardball and will do so because the jobs can't be outsourced, governments should tax the pension payments about X amount at 100%.

Just step away from the union negotiation table. Back away from it. Move over to the policy side and do your work there. We have taxes that are refined and surgical in their application and others that are sledgehammers. A silly thing about the public employee retirement system (PERS) is that they are well organized, automated and know where every nickel and dime goes due to the benefit aware public employees. Take advantage of that. How easy would it be to collect taxes from those automated systems? Set the line at whatever you can get enough votes in the legislation for, and tax away (income indexed for inflation). In California, the line could be 100,000. That has a nice, round look to it, and no one would think legislators would be cruel to tax income from pensions for early retirees at 100% if 100,000 is the line. It would be an easy propaganda movement in the mass media. Now $100,000 might not be low enough, so use $50,000. Now you are talking. Fifty thousand can be negotiated up in the inevitable back and forth. The media would have a hard time saying that $50,000 is not enough to live on as a retiree, and it is a higher amount than a vast majority of Americans make when actively working. This is a winner.

It is a winner because while inefficient, you can recoup the money poured out that taxpayers poured in for years. Legislation and technology can make that money sealed off for use right back into those departments or a specific niche in the state's general fund. It is also a winner for one more reason: the unions might negotiate rather than face such a great idea. How many people love to say, "I pay their salaries" about public workers? Plenty. Supporting taxing those same employees that you think are underworked and overpaid will be the common voters' privilege. Public employee unions can't hide behind discrimination protection because discrimination statutes don't protect a type of employee. The public employee unions would cart their wide asses to the table and cave. What is great about the legislation tactic is that a governor or mayor has multiple points that ratchet up the threat. It passed council/house, will they bend? It passed the senate/voter referendum, will they bend? Oh gosh, all he or she has to do is sign it into law, oh, will the union bend?

They will bend. The economic pie is stable or shrinking and debt loads are still too high. We have not had any structural reform or debt write downs to spur capital expenditure investment or personal savings. As the engine stays stalled, the easy targets will be the first picked off. Welfare leeches are an early target, but welfare leeches that have friends in the state house are usually later. Public employee unions have friends now, but the media attention on them has been at a steady, low level for years now. Fat cats of all stripes make good copy. Their time will come. The threat of 100% taxation will get them moving. When opponents drag their feet, it is best to start up the wood chipper in front of them.

1 comment:

Portlander said...

You're right-on on this. I've been saying the same thing for a couple years now. Why the h*ll should public retirees be entitled to 6 figure pensions? That money is coming straight out of the public purse so that some bozo can have a *retirement* that puts them in the top 10% of incomes.

Pensions are supposed to be insurance against poverty when one is too old to work. Unfortunately they are now sinecures for a lifetime of voting Democratic. It's disgusting.

Oregon is threatening to index only the first $29k or some-such to inflation. You should hear the screaming from public employees.

I do find Obama's new tax on IRA's & 401(k)'s interesting. No mention of public pensions in that. There are very few 6 figure private pension, but for public pensions those are very routine. I wonder if that angle will get discussed. I think it will show that, as Sailer has repeatedly pointed out, Obama is more a race warrior than a class warrior. He has no compunction about throwing public employees under the bus. He did it with the taxes on cadillac health insurance after all.