New Tax Law and Unfunded Pensions

Robert C. Pozen had a piece in Marketwatch warning:

Unless states can implement effective ways to circumvent the SALT restriction, they will face much higher political barriers to meeting their unfunded benefit obligations through increased tax revenues. Instead, states will be forced to severely cut spending on public services and/or adopt major reforms of their benefit plans.

The story included a table of the four worst state pension systems with calculations of how much revenues would need to increase or spending would need to be cut in order to close each state’s funding gap. New Jersey had by far the largest percentages:

After dismissing any of these options as unworkable the author settles on:

In short, the new federal restriction on SALT deductions will open up a new window on reforming state benefit plans with large unfunded liabilities. As voters absorb the financial implications of the new restriction, they will probably oppose tax increases and service cuts to deal with these liabilities. Instead, they will pressure elected officials to renegotiate benefit plans to the extent legally permissible.

There are a few quibbles I have with this position based primarily on my experience observing how a local government operates.

  1. 26% tax increases are not unheard of in New Jersey, especially with property taxes. It may take a few years to get there but it happens. The problem is that hardly any of those increases get spent on something as misunderstood as pension funding.
  2. Spending can be cut by 24% but it won’t be as long as the that is the 24% that is filtered through various power brokers to dispense.
  3. The idea of pressuring elected officials in New Jersey to do anything is absurd. Unless you somehow can pressure the unelected officials who choose the elected officials you have no shot in a state without an informed electorate.



4 responses to this post.

  1. Posted by skip3house on January 11, 2018 at 6:39 am

    “..Unless you somehow can pressure the unelected officials who choose the elected officials you have no shot in a state without an informed electorate…..” about no political ads, just info at web sites/libraries/ etc. where interested voters can read (or attend rallies), but not subjected to $$million dollar ads from wealthy backers who actually choose…..?


  2. So what should new Governor Murphy do?

    Here is my suggestion.

    Moody’s should have expressed the data as a percent of the total personal income of NJ residents, as I did. One thing that could offset soaring taxes/service cuts/higher pension contributions for screwed younger generations: lower housing prices, with less paid to the generations who put the state so deep in the hole as they die off or run to Florida.

    Don’t buy Generation Greed’s houses until the price is so low it pains them to sell it. Certainly don’t pay 50 percent of your income in debt, which is what Generation Greed policies seek to force you to do.


    • We all saw how well that worked out in the housing meltdown in 2008 ..the banks own most of the skin in the game through mortgages …the banks own the government so they’ll never take a hit …


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