tag:blogger.com,1999:blog-582368152716771238.post4278199706020855157..comments2024-03-29T04:41:56.077-05:00Comments on The Grumpy Economist: Who will pay unfunded state pensions? John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger40125tag:blogger.com,1999:blog-582368152716771238.post-41518196800889518672018-08-15T16:37:25.891-05:002018-08-15T16:37:25.891-05:00A solution might be to split the state of Illinois...A solution might be to split the state of Illinois into two new states. This immediately negates the fantasy clause of pensions being involatile. There's also a political/economic justification as well, the Chicago metro area has always been 'different' than the rest of the state.<br /><br />Another solution, can't the state just issue 100 year bonds? Surely the people currently benefiting from the overly generous pensions will be long gone by then, and what do they care if their grand or great grand children have to shoulder the burden? <br /><br />Finally several commentators above correctly pointed out the moral hazard of the state defaulting on their obligations. But this default is for sure going happen! Short of a miracle there is no way the state can possibly cover this debt. It's really just a matter of how much pain the citizens of Illinois are willing to put up with before they are in the streets calling for revolution. Anonymoushttps://www.blogger.com/profile/15784806918141068030noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42280408610883743632018-08-15T16:20:13.107-05:002018-08-15T16:20:13.107-05:00A possible solution is that Illinois split into tw...A possible solution is that Illinois split into two seperate/new states. This immediately does away with the criminal clause that demands pensions be paid, regardless of the circumstances. In addition, The Chicago metro area has always been a 'different world' relative to the rest of the state and hence would make sense politically and economically. Anonymoushttps://www.blogger.com/profile/15784806918141068030noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23767335953076696922018-08-12T03:16:14.309-05:002018-08-12T03:16:14.309-05:00The Illinois state constitution may prohibit pensi...The Illinois state constitution may prohibit pension benefit cuts, but does it prohibit taxing pension benefits? When the US government taxes interest on US government debt, that is not considered a default, nor am I aware of any requirement that tax rates on such interest equal other income tax rates. So, why would a state tax on state pension benefits be considered a benefit cut? In fact, I am surprised that courts have not already employed a "saving construction" a la John Roberts by recasting potentially unconstitutional pension benefit cuts into constitutional taxes. Aren't judges supposed to defer to legislatures whenever possible?BCnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8111802477628176902018-08-11T20:41:25.776-05:002018-08-11T20:41:25.776-05:00Well Yeah, sure...The point is, avoid anyway you c...Well Yeah, sure...The point is, avoid anyway you can with any instrument that accomplishes your objective. Good point. :)David Seltzernoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-33948708362643365932018-08-10T15:47:10.136-05:002018-08-10T15:47:10.136-05:00Well yeah, sure, obviously. "Sell/save X, th...Well yeah, sure, obviously. "Sell/save X, then invest the proceeds into the lowest fee S&P 500 fund available" is the default solution to EVERY financial problem for EVERY middle-class person in the U.S. under the age of 45.<br /><br />To move the ball you need some kind of edit to the baseline... maybe replace "the S&P 500" with "Initial Coin Offerings" or something like that :)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-28990916038778256542018-08-10T10:39:20.630-05:002018-08-10T10:39:20.630-05:00Property taxes in Illinois is just one tool of the...Property taxes in Illinois is just one tool of the Block Busters. Others are Blight, Crime and Violence. Illinois and particularly Chicago are the model for others around the country. Example: Palm Beach County, Florida.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29188518447785483872018-08-09T13:40:59.523-05:002018-08-09T13:40:59.523-05:00I too think property taxes most heinous. You neve...I too think property taxes most heinous. You never really own your home and as you become older, getting out of debt is the goal, so in retirement you have fewer financial obligations when faced with a static income. Property taxes are a big question mark. No one could have predicted when I bought my home 30 years ago taxes would increase so dramatically. It forced me from my home, which I loved, by making renovations impractical because doing so would raise the taxes even higher. After searching for 5 years for a replacement home in my area, I ended up moving out of state. Homes to fit my needs were affordably priced but the yearly property tax burden made them out of reach. The heftiest portion of taxes were school taxes. I happened to live in a state that had more teacher strikes than the rest of the nation combined. After looking out of state, at what I could get, and what taxes were, it was a no brainer. Public sector pensions, federal, state, county, city, and school districts are going to bankrupt us. Pension reform is a must. ockamrazorhttps://www.blogger.com/profile/05252998434520237312noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-58687380180158864232018-08-09T10:46:05.148-05:002018-08-09T10:46:05.148-05:00"Why should taxpayers (who are having trouble..."Why should taxpayers (who are having trouble paying for their own retirement) have to pay even more taxes so government employees can receive their pensions?"<br /><br />One possible answer is that the primary reasons the U.S. was able to build the greatest economy ever known are (1) rule of law, and (2) guaranteed contracts. Taking away fairly bargained for pensions might be good policy or "fair," but is a divergence from what creates our privilege in the first place.<br /><br />The whole pension issue is an almost perfect example of WHY rule of law and guaranteed contracts are such difficult principles to adhere to, and why most countries therefore choose a different path. Just understand that when you take away something you promised to pay years ago because it turned out to be unfair, well, next time people will not trust your promise the same way, and there is a cost to that. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13394990792942082992018-08-08T21:05:59.895-05:002018-08-08T21:05:59.895-05:00Why should taxpayers (who are having trouble payin...Why should taxpayers (who are having trouble paying for their own retirement) have to pay even more taxes so government employees can receive their pensions? <br /><br />And if taxpayers can no longer afford to guarantee Social Security pensions, then taxpayers can no longer afford to guarantee government pensions either.<br /><br />If the government is telling Social Security recipients that they have to take a haircut on their Social Security pension benefits then government workers will have to take a haircut on their pension benefits too.<br /><br />https://www.bloomberg.com/news/articles/2018-03-14/michigan-figures-show-widespread-distress-in-local-pension-plans<br />Based on Detroit’s bankruptcy, pension benefits are far from secure. <br /><br />There are many ways to address this issue, but the taxpayers should not be burdened with it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-19436432952618460182018-08-08T16:46:46.397-05:002018-08-08T16:46:46.397-05:00There will be a federal solution. This will solve...There will be a federal solution. This will solve the "taxpayers will move" problem but create others. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-72983171452680562412018-08-08T16:44:06.849-05:002018-08-08T16:44:06.849-05:00Another option. Take the hit on the sale of your h...Another option. Take the hit on the sale of your home, move to a state where property taxes are lower and rent, use the proceeds from the sale and invest in the S&P 500. Hopefully it's more than a wash and you avoid further increases in property taxes as the pension crisis escalates. And It will!!! David Seltzernoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-82594767857443896472018-08-08T14:07:49.309-05:002018-08-08T14:07:49.309-05:00This whole thing is nuts. United Airlines went ban...This whole thing is nuts. United Airlines went bankrupt because customers and banks didn't want to fund the operations of the company. <br /><br />The people who paid the price for the bankruptcy were creditors. Including defined benefit pension plans. Employees got their pensions turned over to PBGC. <br /><br />The people who paid the least were customers. Close to no customer was unable to use different transportation providers (or United as it didn't go out of business).<br /><br />Yet taxpayers are expected to keep on funding the bloated, overpriced provision of government services because of "fairness". I feel sorry for people who would lose their jobs and some portion of their pension. But not that much.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-24557323302660976632018-08-08T14:03:12.216-05:002018-08-08T14:03:12.216-05:00I am with the "property tax is the worst"...I am with the "property tax is the worst" crowd. It is proportional to accumulated savings (many of us buy a house as a stable investment) and yet it takes from income. It is a war on saving.<br />--E5Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20281308879682703012018-08-08T12:37:15.748-05:002018-08-08T12:37:15.748-05:00"What can states tax that can't move? Onl..."What can states tax that can't move? Only real estate."<br /><br />In a very real sense, real estate can move. Most of the value in real estate is in the improvements. If you tax those too high, the owner will liquidate it by not maintaining it and letting it depreciate. New York "expropriated" apartment buildings through rent control and was left with empty shells paying no taxes. <br /><br />Real returns on investments going forward are likely to be in the 2% to 4% per year range. The pension / retirement savings problem is a lot bigger than just a few states that were bad at math. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81826942864690614752018-08-08T11:56:53.659-05:002018-08-08T11:56:53.659-05:00A relative and retired Illinois teacher and union ...A relative and retired Illinois teacher and union member who receives more each month than he made while working, smiles and says..., "If pension fund goes bankrupt, your Federal government is obligated to pay my pension. That's the law". <br />Bobguzhttps://www.blogger.com/profile/01242161794584984731noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5502179996335505572018-08-08T11:46:48.604-05:002018-08-08T11:46:48.604-05:00Prop 13 also has it's warts in very much the H...Prop 13 also has it's warts in very much the Henry George tradition. James Carlylehttps://www.blogger.com/profile/06778250145758547603noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-18888590020187396942018-08-08T11:01:08.634-05:002018-08-08T11:01:08.634-05:00well NJ is at about 10% of gross income....for pro...well NJ is at about 10% of gross income....for property taxes....and its economy is floundering while much of the USA florishes....it only get worse from here. Real Estate away from NYC....declines year after year...so as the public unions owned Democrats keep raising taxes the real estate continues downward....where Wall Street(some healthcare companies) money doesn't reach.<br />Even places like famed Short Hills, NJ still has numerous empty store fronts and failing restaurants...in this "booming" economy.Guyhttps://www.blogger.com/profile/03057507938210279134noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26319487053104595802018-08-08T08:32:54.136-05:002018-08-08T08:32:54.136-05:00There are two things they didn't understand: (...There are two things they didn't understand: (1) life expectancy would jump, and (2) inflation would slump.<br /><br />Look, like you, I'm in favor of paying what is owed to pensioners (I'm the anonymous from two posts up). But let's not pretend unfunded pensions are the sort of issue everyone saw coming, but were just too greedy or short-term focused or stupid to do anything about it. That certainly describes many government deficit problems, but not this one.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-24570640376523118932018-08-08T08:18:22.883-05:002018-08-08T08:18:22.883-05:00Interesting thought, but not feasible in the vast ...Interesting thought, but not feasible in the vast majority of states. That's (in part) what makes this issue so very intriguing: the normal partisan answers are impossible. Republicans cannot just "slash wasteful spending" (the payments are guaranteed) and Democrats cannot just "soak the rich" (there aren't enough "rich" to soak in most states relative to the size of the unfunded pensions). <br /><br />So sure, maybe in New York and California you MIGHT be able to treat the unfunded pension issue like any other economic policy matter. But in other places more creative thinking will be required.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-9036426887627628992018-08-08T07:53:08.472-05:002018-08-08T07:53:08.472-05:00Of course the article also illustrates why propert...Of course the article also illustrates why property tax is superior to income tax in the first place.<br /><br />States would be better off replacing income tax entirely with property taxes. Some already have, and they are not the states in financial trouble. Fish Goldsteinhttps://www.blogger.com/profile/13864053986442147618noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-11703770786270114232018-08-07T22:01:55.646-05:002018-08-07T22:01:55.646-05:00The point here is that creditors can squeeze just ...The point here is that creditors can squeeze just about so hard and the balloon goes pop, and they wind up with nothing. If the public employee unions were run by people who were shrewd, if not smart, they would be looking for a way to climb down off their perch, before the limb they are seated on snaps. Fat Manhttps://www.blogger.com/profile/09554029467445000453noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-721902956470070032018-08-07T21:08:54.469-05:002018-08-07T21:08:54.469-05:00John,
"States can try to raise income taxes....John,<br /><br />"States can try to raise income taxes. And people will move. States can try to raise business taxes. And businesses will move. What can states tax that can't move? Only real estate."<br /><br />And states must rely on market prices to assess property taxes. So okay, I sell my house to my brother for $1.00 and he sells me his house for the same $1.00.<br />The market price of my house is now $1.00 and the market price of my brother's house is now $1.00. Rinse and repeat.<br /><br />"States can try to raise income taxes. And people will move. States can try to raise business taxes. And businesses will move."<br /><br />And you moved from the University of Chicago to Stanford University because California is a low tax state?<br /><br />"If indeed courts will insist that benefits may not be cut, then state governments must raise taxes, and this is the only one that can do the trick."<br /><br />No, wrong, next...<br /><br />"In sum, a property tax is essentially the same thing as the government grabbing half the houses and selling them off to make pension obligations. And unless a miracle happens, it is the only way out."<br /><br />No, wrong again, thanks for playing. When I sell my house, I negotiate the price that will be accepted. When the government sells my house, they negotiate the price that will be accepted.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38867287450571475852018-08-07T20:46:38.317-05:002018-08-07T20:46:38.317-05:00Rather than taxing real estate and further burdeni...Rather than taxing real estate and further burdening the taxpayer why not try any or all of the following to fix the pension problem<br />*Raise the age of eligibility for government pensions, so the age of eligibility is the same for Social Security and for government pensions. You only get your full pension at age 67. (If we can retroactively change Social Security agreements then we can retroactively change pension agreements.)<br />*Limit/cap the maximum annual government pension payout to $100,000 annually per retiree<br />*Convert pensions to 401k/403b plans <br />*No more pensions for new employees and instead provide 401k/403b type of retirement plans<br />*No more raises for government workers until there is enough money to cover the pensions. <br />https://www.huffingtonpost.com/moneytips/federal-employees-earn-50_b_8855508.html <br />In 2014, the average government employee salary was $84,153, approximately 50% more than the average private sector worker earned. This discrepancy increases to 78% when benefits are included. The average federal worker cost the government (aka taxpayers) $119,934.<br /><br />The Wall Street Journal did a similar study (government vs private sector workers’ pay) with similar results.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91207667690592990072018-08-07T20:23:58.856-05:002018-08-07T20:23:58.856-05:00Just once, instead trying to guide the readers tow...Just once, instead trying to guide the readers toward your preferred solution (cut the pensions or refuse to pay them altogether, I think), why don't you say explicitly what the states should do. rafalhttps://www.blogger.com/profile/03627684458558457142noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-89451058032385676712018-08-07T20:06:19.833-05:002018-08-07T20:06:19.833-05:00Property taxes are the worst of all taxes and can ...Property taxes are the worst of all taxes and can also be considered a tax on productive behavior. If I squander $1000s to take my family on a 6 week tour of Europe, I'll pay some taxes in there somewhere but then it's done. If I invest that same $1000s into an addition to my house, I am punished with taxes on that addition every stinking year afterward. Property taxes are the most unfair of all. Maybe a consumption tax on non-essentials is the fairest of all.<br />Dennishttps://www.blogger.com/profile/09217052182296630361noreply@blogger.com