The Tragedy of America's Public Pension Tsunami
Many of America’s disasters have been a byproduct of Mother Nature, while others a consequence of mankind’s quest for power and retaliation over our policy. And we managed the arduous process of recovery courageously. We survived the stock market crash of 1929, fought a war to avenge the attack on Pearl Harbor, and punished the cowards who murdered 2,996 during 9/11.
While these atrocities took unbridled adroitness to recover from, we have created others equally dire through faulty arithmetic that are neither hidden nor arcane.
It’s these self-inflicted wounds that will bury us.
The disappearance of middle-income jobs in factory-dependent towns reshaped our working class as the private sector adjusted to globalization and automation. Workers survived though retraining and adaptation.
But this is not the case with public-sector employment. Many Americans traded pride for a paycheck, but public-sector workers never faced the reality we are not living in yesteryear’s economic macrocosm.
As the ever-increasing schism of benefits and wages between private and public sectors steadily grows, so does our inability to pay for this social and economic tragedy.
Organized labor has undergone a major transformation. In 1955, one-third of the work force was unionized. Today, it represents just 12 percent.
Although industry faced the reality that FDR’s utopia didn’t work, public-sector unions never got the message. And the change in the composition of the unionized work force reflects this. Private-sector unions have withered like a tulip in summer, while public-sector unions have grown like a weed in spring.
Today, unionized civil servants eclipse their private industry counterparts by 7.4 percent. This disparity was force-fed to the American taxpayers by government.
We’ve all heard, “It’s good enough for government work.” While this parlance regarding civil service is a bit derogatory, today government work is good work for the 22 million people with government jobs. This is 15 percent of the labor force and 7 percent of the population. These numbers don’t include those who are paid in the private sector who work for a government. In a recent study by the U.S. Fair Tax Coalition, the national average government employee’s salary was 49 percent more than those in the private sector. This discrepancy increases to 78 percent when benefits are included.
This has created a fiscal tsunami.
The U.S. Civil Service Reform Act of 1883 was passed to curtail the practice of hiring for political reward. But what was once an asset for our taxpayers has grown into a liability due to union pandering.
When JFK legitimized all public service unions, he opened up a can of financial worms nobody has been able to close for 50 years. Each year, this can of worms grows larger as government expands to appease voters, and hires more workers to run this mammoth machine. And the people who make these demands pay dearly for it everyday.
While all Americans are paying for more government and getting less, one surprising result from this year’s “Survey of U.S. Attitudes on Tax and Wealth” was to the question, “Of the following state and local taxes, which do you think is the worst tax — that is, the least fair?” The responses were surprisingly predictable: Corporate taxes, 7 percent; sales tax, 18 percent; state income tax, 19 percent; and property taxes at 38 percent were considered the most unfair taxes. Considering the burden of property taxation falls upon only those who own land, a business front or a home, this report is revealing. What makes property taxation so unfair? It pays for more local goods, services and payrolls than any other tax.
There is a consensus among Americans that the taxation of property is unfair since each time local governments need more money, they go after homeowners. They know increasing the sales tax alienates business, which supports too many campaigns. Although the state property tax system is unfair since it takes a much greater share of income from property owners, it’s immediate revenue. It pays for schools, roads, parks, police, firefighters and government administration. This is how local officials justify going after the homeowners when they need more cash for running government.
Since local governments around the nation have worked under the microscope of the Department of Justice for years, public service employees have found ways to reap the harvest of rewards for political support through public service unions. These guarantees pay increases and their pension and benefit packages grow larger each election. Elected officials that the unions financially support approve massive benefit and wage packages at the taxpayer’s expense. And U.S. cities and states are facing a foreordained crisis in the collective funding hole and going after homeowners to fill it.
Public pension debt in the U.S. jumped by $434 billion last year, yet our local governments continue burying their heads in the sand.
Josh Rauh, a professor of finance at Stanford School of Business, recently said, “The deficit in U.S. public pensions is a looming crisis.” He has estimated unfunded pension liabilities in Chicago alone are equal to 19 years of the city’s tax revenues. Fort Worth, New Orleans, Dallas and Philadelphia also have huge unfunded pension schemes.
Although greedy politicians have continued to take advantage of an inflated housing market and raised property taxes to bail them out of big pension deficits, eight U.S. cities since 2010 have filed for Chapter 9 or 11. San Bernardino, Mammoth Lakes and Stockton, California, went belly up. Jefferson County, Alabama; Harrisburg, Pennsylvania; Central Falls, Rhode Island; Boise County, Idaho; and Detroit all threw in the economic towel. An additional 28 utilities, water districts, hospital authorities and Puerto Rico declared a form of bankruptcy after amassing billions of unfunded pension debt and obligations.
Milton Friedman said many times, “There’s no such thing as a free lunch.” It‘s the homeowner who has been buying lunch for public service employees for years. But the water in the well is empty and the pie is shrinking and there’s little left for the taking. That’s what’s occurring around America today as city by city and state by state run their deficit spending up and look under every rock for a few dollars the taxpayers buried in their back yards to hide them from the reach of government.
The only money governments have is money they have taken from the taxpayers in order to buy votes and appease an underclass they created to keep them in office. The reality is “the buck stops here” and there is only so much juice you can squeeze out of an orange before you end up with a handful of worthless pulp.
Public service workers beware! The tsunami has already hit.
William Haupt III is a retired professional journalist, author and citizen legislator in California for over 40 years. He got his start working to approve California Proposition 13.
A version of this Op-Ed previously appeared on the website Watchdog.org under the headline “Op-Ed: The tragedy of America’s public pension tsunami.”
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