What Dean Baker Got Right and Government Flunkies Get Wrong

Dean Baker on Fox Business makes two excellent points about the public pension crisis (not the one where he denies there is one) when he explains why retirees need to be protected and the dangers of hedge funds:
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Unfortunately public retirees (at least those dependent on New Jersey politicians to keep their promises) will not be protected and will lose a majority of their pensions.  The reason for this is that politicians cannot comprehend (intentionally or not) public pension funding and gleefully accept gimmicks that will allow them to reduce payments now to keep their gravy trains fueled without considering that someone (taxpayers, retirees, bondholders) will need to make good later.  For example…..
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To be able to claim a $3.7 million reduction in a budget bloated by at least $20 million in wasteful spending in other areas these freeholders cut $1.5 million from capital improvements and accepted $2.2 million in actuarial gimmickry.  Someone will have to pay for that decision but it won’t be them and it won’t be now.

3 responses to this post.

  1. Posted by FormerJerseyan on April 13, 2014 at 12:56 pm

    The Philadelphia Inquirer reported on Thursday that NJ now has the 3rd lowest bond rating (above only CA and Illinois). http://www.philly.com/philly/blogs/inq-phillydeals/NJ-bond-rating-cut-now-3d-lowest-of-US-states.html

    I found this quote interesting: “Despite its ranking as one of the wealthiest U.S. states, “almost five years after the official start of the economic recovery, New Jersey continues to struggle with structural imbalance and stands in stark difference to many of its peers who registered sizeable budgetary surpluses in fiscal 2013.”

    As if “wealth” of those paying taxes were what governments look to when it seeks to balance its books. Far from it. Instead of taxing the net present value of state and local pension benefits as they are “earned” by the so-called public sector workers, they instead suck the life out of the taxpayers through a combination of crippling property taxes, high sales taxes and high income taxes. None of these are a genuine proxy for “wealth” and yet the focus of the marxists who run both houses of the NJ state legislature continues to pretend that it does.

    Now, I am not proposing that NJ tax wealth as this will only exacerbate the flight of those who can leave (like I did). I am merely pointing out the myopia of those responsible of setting public tax policy at both the state and the federal level.

    Better to tax consumption, rather than wealth, and make up the difference at the federal level with TARIFFS to favor domestic manufacturing and employment. And of course, the NJ public sector needs to fire half its workforce and privatize education.

    Reply

    • Posted by Tough Love on April 13, 2014 at 8:14 pm

      I’m convinced that the USA will (in the not too distant future …. likely within 10 years) have a value added tax or a national sales tax …. 40 cents of every dollar the US Gov’t spends today is borrowed. Clearly that is unsustainable ….. and China and Japan are now a net SELLER of US Treasury debt.

      Reply

  2. Posted by Richard on April 15, 2014 at 1:01 am

    As always, the working stiff (public in this case) bears the burden of malfeasance by the politicians. I will grant Toughlove her normal contention that union bosses bear culpability too but they are not fiduciaries. The politicians are and they willfully failed. And not just on pensions. Politicians love budget gimmicks that avoid touch choices.

    Reply

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