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The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

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Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#161

Post by dunpeal »

dragonwriter wrote: post #160
sheepmullet wrote: post #149

Earlier quoted context omitted.

> California has, along the US states, a fairly moderate pension issue measured per capita or per GDP. A more important question is how much room to manoeuvre does California have? If California increases taxes by 5% to fix the issue how many businesses and highly paid employees will leave?

> A more important question is how much room to manoeuvre does California have? That's very hard to say. > If California increases taxes by 5% to fix the issue how many businesses and highly paid employees will leave? Even if it was a simple as taxes being a single number where distribution of the taxes doesn't matter, there's no consensus on the average effect of increases. And, in reality the distribution probably…

In some specific cases it's actually quite clear that specific tax increases drove out a large number of high-income earners and were thus a net loss. See for example Rhode Island's Millionaire Exodus: http://theluxuryhub.com/the-tax-factor-in-rhode-islands-exod...

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#162

Post by wahern »

gok wrote: post #148
chris_mc wrote: post #115

Earlier quoted context omitted.

Why in the ever loving fuck are you blaming the _workers_ for this shortsightedness instead of the government organizations who are about to fuck those people over when they're 70? Maybe the administrators of the pension accounts and financial planners for these organizations should have done better by the people who are busting their (collective) asses to provide services for you, the taxpayer?

The flip-side of collective bargaining is collective responsibility, I'm afraid. The federal government saw this coming 30 years ago, moved to a hybrid, mostly-defined-contribution system and (surprise!) is doing fine. Most state and municipal unions fought to keep their defined-benefit plans and now are going to suffer for it.

Huh? As of 2012 "[t]he vast majority of full-time civilian federal workers receive roughly half of their retirement compensation through their defined-benefit pension plans (the rest comes from Social Security)." (https://www.nationalreview.com/corner/private-vs-public-defi...)

That National Review hit piece notwithstanding, in truth defined benefit plans are, technically speaking, the most efficient form of deferred compensation. Lowest overhead with maximum value received by the [average] retiree, which theoretically permits employers to minimize total amount of compensation.

The rub is that the employer needs to fully fund the liabilities as they accrue. Government and unions, however, have been content for state employers to "pay as you go"--use today's contributions to pay yesterday's liabilities. That's a recipe for disaster.

It sucks that we've thrown the baby out with the bath water--swapped pensions for 401(k)s. Defined benefit plans are annuities, and most economists agree that the most efficient retirement savings plan is an annuity. How we pay for that annuity is a different matter altogether. We know that people aren't rational enough to choose to put their retirement savings into an annuity, so it's obvious the employer should do this for them. The only real question is how to structure the premium payments so employers can't cheat (and employees can't be complicit in the cheating).

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#163

Post by omegaworks »

pathseeker wrote: post #75
omegaworks wrote: post #21

Earlier quoted context omitted.

>The choice is raising taxes, reducing spending elsewhere, or demanding workers give up the pensions they were promised. Why is there a fourth option for banks and not for pensions? Why is Quantitative Easing left out of this discussion?

Quantitative easing was not for banks. Also, the bailouts to which you refer were not free money, they were loans with low interest rates that have been paid back. The pensions don't have enough money so easy access to debt does nothing to help them solve that problem.

>the bailouts to which you refer were not free money, they were loans with low interest rates that have been paid back.

Any loan at an interest rate lower than the rate of return that can be earned by investing that money is essentially free money.

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#164

Post by ghein »

slededit wrote: post #11
pzone wrote: post #6

Comparing stock variables (Pension liability shortfall) vs. flow variables (GDP, a rate of annual output) is a mistake that peeves me to no end. That said, the pension shortfall is a disaster playing out in slow motion. We're just waiting for the hard cash constraints to bite - when they do it's not going to be pretty.

GDP comparisons are worthless, but cash flow to debt is an important metric. If it was compared to cash inflows of the actual government entity it would be interesting (and depressing).

In 2005 (pre bankruptcy) each GM car had $1525 worth of health care costs and $675 worth of pension cost built into the price.

So $2200 was being spent on benefits for a population that had 1 worker for every 2.5 retirees.

In California, School Districts are increasing pension contributions from 8 percent of their payroll in 2013 to 19 percent in 2020. This is already creating havoc as teachers unions are threatening to strike unless they get pay increases because districts were saving money to prepare themselves for the 2020 budget math!

https://calmatters.org/articles/california-teacher-pension-d...

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#165

Post by a_tractor »

ngngngng wrote: post #136
betterunix2 wrote: post #127

Earlier quoted context omitted.

I actually think the answer is simpler and more immediate than that. The government made a promise. If the government does not keep that promise, can it be trusted with other obligations? In fact, this problem of unfunded pensions has impacted municipal credit ratings and wound up costing taxpayers more in higher interest rates than they would have had to pay in higher taxes to stabilize the pension funds.

But why does the government get to make a promise with the money of someone that wasn't even born at the time (me)?

Promise, in this case, is a nicer version of the word debt. The government that made the promise is just an abstraction or buffer for the people making the promises, the people voting for them, and the people benefiting from those decisions. Note how current stakeholders (me and you) had no say on a decision that they would be (potentially) responsible for.

Thomas Jefferson's view of deficit finance was that one generation has no right to impose its debts on the next. He would have refused deficit spending that would not be completely paid back within 19 years (roughly, a generation).

I don't think many people listened to him on that. Here we are.

I think we do have the right to ask this question. We should have the option of denying that the previous generation ever had the right to impose this upon us.

At the very least, we should learn from this, recognize these types of short-sighted promises for what they are, and reject them when we see them. This is one big way we can be better than our forefathers.

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#166

Post by dragonwriter »

dunpeal wrote: post #161
dragonwriter wrote: post #160

Earlier quoted context omitted.

> A more important question is how much room to manoeuvre does California have? That's very hard to say. > If California increases taxes by 5% to fix the issue how many businesses and highly paid employees will leave? Even if it was a simple as taxes being a single number where distribution of the taxes doesn't matter, there's no consensus on the average effect of increases. And, in reality the distribution probably…

In some specific cases it's actually quite clear that specific tax increases drove out a large number of high-income earners and were thus a net loss. See for example Rhode Island's Millionaire Exodus: http://theluxuryhub.com/the-tax-factor-in-rhode-islands-exod...

Yes, a few, but those cases aren't really useful for answering quantitative questions about general tax level changes and their effects on tax base, because the only time the effects are even remotely clear (and it's telling that your one example is an article whose lead paragraph says “There could be several reasons for this out-migration, but one possible reason that finds support is estate tax”) tend to be fairly extreme cases of fairly targeted taxes, where there is a clear visible link between the change in policy and the change in behavior.

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#167

Post by TheRealDunkirk »

NTDF9 wrote: post #17
betterunix2 wrote: post #9

The choice is raising taxes, reducing spending elsewhere, or demanding workers give up the pensions they were promised. Somehow I doubt anyone is going to agree to pay more in taxes to cover pensions in their state or city. After all, why should the government keep its promises (especially if it means we have to pay for it)?

The government doesn't keep its promises because it is not required by law that they are held accountable for dubious lawmaking. Put simply, representatives need to be on a personal financial hook (or penalty) for laws, rules and policies, even after they've exited office.

Yes! Some city or state is going to go bankrupt because of this, and the people affected are going to sue. It will take at least a decade to work up to the Supreme Court, who will find (no matter WHAT the liberal/conservative makeup at the time) that, surprise, surprise, the government is NOT legally obligated to pay out the benefits they said they would. Various governments will try to implement various forms of austerity to make it work, and former employees are just going to have to suck it up.

Don't worry though. This exact same thing is also happening to Social Security, which will crash around the same time, or shortly after, so everyone working now will get the shaft.

Of course, the latest date I've seen (2038) is almost exactly when I should have been eligible to start drawing on it.

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#168

Post by sykhic »

mistermann wrote: post #150
sykhic wrote: post #33

Overal taxation in the U.S. is low compared to other OECD countries [1]. We, as a nation, decided that low taxes was the goal. As a result infrastructure is poor, toll roads are increasing, privatization of prisons, intelligence gathering, war, etc. are rising too. Yet Americans falsely believe they are overtaxed. The situation is easy to fix in economic terms but not in political terms. The road to an Ayn Randian pa…

> The road to an Ayn Randian paradise in which everyone fends for themselves will lead us to ruin. It always depresses me to read comments like this. Rand's central themes were about corrupt relationships between pseudo-capitalists and government, the immorality of a desire for the unearned, and the consequences of what will happen to a society that can't be bothered to concern themselves with ethics. Well, one of th…

I use Any Randian to describe those who publicly cite her and they tend to have a certain political philosophy that is best described by me as, "I've got mine, fuck you." I'm not critiquing her personally or her philosophy. It's sort of like Ghandi's famous quote on Christianity. He said, "Your Jesus I like. Your Christians, I do not."

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#169

Post by betterunix2 »

gok wrote: post #53

> It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts. Boohoo. Public service union members should have thought about that before pursuing a pyramid scheme retirement plan instead of a defined contribution pension like the rest of us.

Like it or not these pensions are already legal obligations of state and local governments. Yell about or at the unions all you want, but if these obligations are not met, get ready for lawsuits and negative consequences for municipal credit ratings. Would you rather pay somewhat higher taxes now to cover pension obligations, or significantly higher taxes later because of the higher muni bond rates your state will have to deal with when the problem worsens (or your state is forced into bankruptcy)?

This is not just a problem of public employees or their unions. You are on the hook for these payments and will remain on the hook even if starting today everyone had a defined-contribution plan. Yes, this is your problem too.

Re: The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy

#170

Post by a_tractor »

xeromal wrote: post #48
spullara wrote: post #22

Earlier quoted context omitted.

You could increase the taxes on pensions to return them to sane levels.

I feel wary of doing this because I feel this is what's going to happen with my IRAs. I was promised that if I pay my taxes now I don't have to pay them when I'm old, but supposed the next generation decides they want to change the rules. Do I just pound sand and give up? Pensioners were given a promise and now we're changing the rules. It feels wrong even if the promise was unrealistic.

In a way, there is no way to complete avoid long-term risk. Sort of why we hang on to the saying "dont put your all your eggs in one basket."

You should know that you are taking a risk by putting your money into your IRA.

For all we know, the next generation could abolish private property and euthanize the elderly upon retirement.

There is a lot that is wrong with the situation, and I am not sure what can be judged about their expectations being unrealistic without the benefit of hindsight that we have, but the principle I would use to determine what is fair is this, via Thomas Jefferson: does one generation have the right to impose debt on the next? I would say no. Did these pensioners think this scheme would need to be paid by the next generation, who would not benefit from it?

Was there unanimous agreement about the pension schemes at the time? What did the detractors have to say about it? Who was right? I'd be interested in seeing the counter-arguments at the time, I bet we would learn a lot.

Finally, this is how I see it: My father mortgaging a house that disappears when he dies, literally vanishes, except I inherit the mortgage that has to be paid off. Its a scheme that is literally the opposite of how western society become prosperous over time in the past.

That said, I would be okay "taking responsibility" for past promises if we are the last generation to have to do that. As long as it is recognized as a total failure not to be tried ever again, I would feel ok about it in terms of helping people. Otherwise, if we are forced to deal with it in order to "save" the scheme itself or some convoluted spin that makes it look like successful government planning, then hell no.

One way or another, someone is going to be making a sacrifice.

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