I see journalists offering their random thoughts in columns, so here goes some of mine. The Arizona State Budget is in shambles. Like virtually every government at every level that runs into budget problems, the answer is to increase taxes. Arizona is considering a 2 % sales tax increase, a sales tax base broadening to food for home consumption and a tax on services, as well as increases in state property taxes. Tax increases is not the correct policy. Although the State has sold some property and shut some facilities, it could privatize most of these facilities and properties. It could collect either a rent as it enables private companies to run the parks or highway rest stops or it could sell them to a private company. In addition, the state needs to simply eliminate some departments. There is no need for many of the state government departments that currently exist. Simply go to www.AZ.gov/app/
and look a the the number of state agencies and departments. Perhaps a better source is Dean Martin's new website, http://www.azcheckbook.com/. Inside that website is the diagram of the allocation of state spending by agency, www.AZcheckbook.com/index/statewide-spending.I bet few of us cold even suggest what these agencies do.
The book by Stephen Greenhut, Plunder, describes how public employee unions are destroying America. You can see the poster childs of plunder in California, New York, and New Jersey specifically. The unions fight privatization of any form; fight merit based pay; fight any termination of teachers even incompetent or dangerous ones. The pay of a government worker is now on average significantly higher than that of the average worker in the private sector. Federal workers average more than $60,000, state workers $41,000, local government workers $42,000 and private sector workers less than $40,000. But the real difference is the value of pensions. Most state employees are under a defined benefit pension fund whereas most private sector employees are under a defined contribution penson plan. For instance in California, a state employee can retire after 30 years (3% per year) at 90% of the highest year's salary. With a defined contribution plan, the employee's contributions plus the employer's contributions are invested and its size depends on the performance of the investments.
Unfunded liabilities will drive states into bankruptcy and perhaps the US as well. The likely proposed solution to this issue will be tax increases. I fully expect Obama's "bipartisan" budget commission to propose a VAT tax. If adopted, the United States will not ever be the country its founders intended. The VAT is a destroyer of jobs and new businesses.
While most economists noted in the media and most media commentators are claiming the economy has recovered or is recovering and that the future is only up, I am far more pessimistic. I see the huge debts, the huge amount of potential money supply that has been created, and the upcoming increases in taxes, I can only see at best a sluggish economy.
and look a the the number of state agencies and departments. Perhaps a better source is Dean Martin's new website, http://www.azcheckbook.com/. Inside that website is the diagram of the allocation of state spending by agency, www.AZcheckbook.com/index/statewide-spending.I bet few of us cold even suggest what these agencies do.
The book by Stephen Greenhut, Plunder, describes how public employee unions are destroying America. You can see the poster childs of plunder in California, New York, and New Jersey specifically. The unions fight privatization of any form; fight merit based pay; fight any termination of teachers even incompetent or dangerous ones. The pay of a government worker is now on average significantly higher than that of the average worker in the private sector. Federal workers average more than $60,000, state workers $41,000, local government workers $42,000 and private sector workers less than $40,000. But the real difference is the value of pensions. Most state employees are under a defined benefit pension fund whereas most private sector employees are under a defined contribution penson plan. For instance in California, a state employee can retire after 30 years (3% per year) at 90% of the highest year's salary. With a defined contribution plan, the employee's contributions plus the employer's contributions are invested and its size depends on the performance of the investments.
Unfunded liabilities will drive states into bankruptcy and perhaps the US as well. The likely proposed solution to this issue will be tax increases. I fully expect Obama's "bipartisan" budget commission to propose a VAT tax. If adopted, the United States will not ever be the country its founders intended. The VAT is a destroyer of jobs and new businesses.
While most economists noted in the media and most media commentators are claiming the economy has recovered or is recovering and that the future is only up, I am far more pessimistic. I see the huge debts, the huge amount of potential money supply that has been created, and the upcoming increases in taxes, I can only see at best a sluggish economy.
The Pew Foundation completed and published a study on one of the issues raised by Boyes in this post - public sector pension plans.
ReplyDeleteThat report:
The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform
http://www.pewcenteronthestates.org/report_detail.aspx?id=56695
Eye opening:
$1 trillion. That’s the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees’ retirement benefits and the $3.35 trillion price tag of those promises.
Why does it matter? Because every dollar spent to reduce the unfunded retirement liability cannot be used for education, public safety and other needs. Ultimately, taxpayers could face higher taxes or cuts in essential public services.
Key Findings
Retirement benefits provide a reliable source of post-employment income for government workers, and they help public employers retain qualified personnel. For states that have not been disciplined about fulfilling their obligations, the financial pressure builds each year.
• In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.
• In eight states—Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia—more than one-third of the total pension liability was unfunded. Two states—Illinois and Kansas—had less than 60 percent of the necessary assets on hand.
• Nine states were deemed solid performers, having enough assets to cover at least 7.1 percent—the 50-state average—of their non-pension liabilities. Only two states—Alaska and Arizona—had 50 percent or more of the assets needed.
• Forty states were classified as needing improvement, having set aside less than 7.1 percent of the funds required. Twenty of these have no assets on hand to cover their obligations.
Arizona is discussed here
http://www.pewcenteronthestates.org/report_detail.aspx?id=57264