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Tag Archives: taxes

Getting involved


A bit dramatic, but it does make the point, the debt is a huge issue and we need to get involved to do something about it. Freedomworks.com is a great way to get involved in the political process. Their FreedomConnector is a great way to connect up with other conservatives who are active in your area.

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Impending Doom?


Most people are not aware of a financial crisis which may be even worse than our Federal Government issues with the budget deficit and unfunded liabilities for Social Security and Medicare. The local and state unfunded pension crisis is something that you should care about because it is big and it is coming soon. Many cities pensions are just a few years away from running out of money.

From a the report, The Crisis in Local Government Pensions in the United States by Robert Novy‐Marx, Univ of Rochester and Nberjoshua Rauh, Kellogg School of Management courtesy of the Heritage’s Foundry. full report

Chicago takes first prize in underfunded city pensions, and this in a state that already has such seriously underfunded state employee pension plans that each household in the city already owes $29,000 just for the state plans. The authors estimate that the combined underfunding of the two jurisdictions equals about $71,000 per household.

However, other city pension funds are so underfunded that they could run out of money in the next few years regardless of the amount owed per household. In order, the first 10 to run out of money unless they do some major reforms quickly are as follows:

1. Philadelphia: $9 billion underfunding ($16,700 per household) in 2015
2. Chicago: $45 billion underfunding ($42,000 per household) in 2019
3. Boston: $7.5 billion underfunding ($31,000 per household) in 2019
4. Cincinnati: $4 billion underfunding ($15,700 per household) in 2020
5. St. Paul, MN: $1.4 billion underfunding ($13,700 per household) in 2020
6. Jacksonville, FL: $4 billion underfunding ($13,000 per household) in 2020
7. New York City: $122 billion underfunding ($38,900 per household in 2021
8. Baltimore: $3.7 billion underfunding ($15,400 per household) in 2022
9. Detroit: $6.4 billion underfunding ($18,600 per household) in 2023
10. Fort Worth, TX: $2 billion underfunding ($7,200 per household) in 2023

The paper goes on to report that the total of State and Municipal unfunded liabilities is over $3 trillion. California alone has a $500 billion unfunded liability.

The time has come to reform these pensions. Contributions by public union members must increase. The retirement age to receive a full pension must be raised (with the possible exception of Police and Fire pensions due to the physical demands of these jobs). Pension benefits have to be reduced for younger workers and those who are not immediately dependent upon the benefits.

I suppose we could continue to ignore the problem and assume that the states can punt and ask the Federal government for a bailout. Yes, the Federal government with a $14 trillion debt and near $100 trillion in unfunded liabilities. No, that is not workable and it just shifts the burden. Or we could raise taxes, but given the size of these liabilities the increase would have to be so large that they would depress the economy (I would prefer that we grow the economy in order to increase tax revenues).

Promises have been made that could never be kept in order to garner votes and political contributions. Reality has set in and it is no longer a future problem that we can delay, but a pressing current issue that has to be addressed. The reaction of the Wisconsin public unions, over the proposed increases in pension and health care contributions and limiting collective bargaining to just wages, tells me that this is going to be a long and difficult battle. I hope that the American people arm themselves with the facts and press our political leaders to make the hard choices that are necessary to get ourselves out of this mess.

 
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Posted by on February 19, 2011 in Pensions

 

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The deficit problem


I’m not interested in arguing about who got us into this mess.  The fact is we are on an unsustainable trajectory.  We have to do something about our debt and deficit because if we continue on our current course we will be unable to borrow money or worse yet we will be unable to meet our obligations.

Many will say that we need to increase taxes, specifically on the wealthy.  The argument is that we need to increase the revenue to offset spending increases.  This is a very logical argument taken in the abstract, just a simple mathematical calculation.  Increasing the incoming revenue while holding spending steady should result in a decrease in the deficit.  However we are not dealing in the abstract.  We have empirical information available to examine and based on that information we can predict what is likely to happen if we raised taxes and increased revenues.  I will set aside the supply side argument that raising taxes will decrease revenue and assume for discussion sake that revenues will actually increase.

What we know about our Federal government is that is has an insatiable appetite.  Our government never decreases in size, it only grows larger and larger.  I have no doubt that if every citizen contributed every single dollar they earned to the government that it would spend it all and still run a deficit.  This is the problem with raising taxes, spending will not be held steady, it will grow as it always has.  How often have we heard cries about how one party wants to ‘slash’ funding to a program only to learn that in fact the actual ‘slashing’ was only a decrease in the planned increase for the fiscal year.  Rarely do we see a zero increase let alone an actual decrease in funding to a program.  For this reason, I am opposed to tax increases.

That leaves us with the other alternative for addressing the deficit problem, cutting spending.  Many will argue that this can’t be done because our politicians primary objective is to get re-elected and none of them want to touch entitlements.  I think there is a simple solution to this problem.  Cut everything across the board (including defense) by whatever amount is necessary to balance the budget.  It will be painful and everyone will feel the pain.  This approach eliminates the discussion about what is fair and what isn’t.  We also need to address medicare and social security, but that is an issue for another post.

 
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Posted by on January 23, 2011 in Deficit

 

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