The average American household would have to pay $1,398 in additional taxes per year over the next 30 years in order to finance the promises state and local governments have made to public sector workers, according to a new paper by Joshua Rauh of Northwestern University's Kellogg School of Management and Robert Novy-Marx of the University of Rochester.
Following up on their work evaluating the liabilities of state and local systems, the authors estimate that currently states and localities are spending less than 6 percent of their revenues on pensions when they should be spending 14.2 percent. To do that states and localities must either raise taxes, cut spending or do some combination of both.
New Jersey households face the biggest burden,$2,475 per household, followed by New York ($2,250), Oregon ($2,140), Wyoming ($2,080), Ohio ($2,051) and California ($1,994). The authors acknowledge that their analysis does not take into consideration the economic impact that higher taxes might have on the states, such as possible increased outmigration of residents from states raising taxes.
Writing about the study on the Kellogg blog, Rauh notes:
New Jersey households face the biggest burden,$2,475 per household, followed by New York ($2,250), Oregon ($2,140), Wyoming ($2,080), Ohio ($2,051) and California ($1,994). The authors acknowledge that their analysis does not take into consideration the economic impact that higher taxes might have on the states, such as possible increased outmigration of residents from states raising taxes.
Writing about the study on the Kellogg blog, Rauh notes:
I would hypothesize that one of the reasons public employee pension promises have come to exceed assets set aside by such a large margin is that it is difficult for taxpayers to assess the true cost of the promises on an ongoing basis. This has turned public employee pension programs into large sources of off-balance-sheet debt finance for state and local government politicians to spend money without actually raising taxes, telling voters they can have their cake and eat it too. Perhaps calculations of the per-household tax cost of public employee pension promises will remove some of the opacity and present a picture of this pension-related debt that is more informative to taxpayers.
Union members I talk to always say, when presented with similar facts, "Hey, I'm a taxpayer, too." But it's the old theory of concentrated benefits and dispersed costs. They get far more back in direct benefits from the government than they pay into it, which is the reverse of what the rest of us have to endure. I can think of better things to do with 1400 bucks!
As a California resident, Steve, your tab is $1,994 per year in extra taxes or spending cuts, though I'm betting it will be in taxes...