Study: $1400 Tax Hike Needed to Fund US Pensions

[Denny Crane]

http://www.cnbc.com/id/43498037

U.S. state and local governments will need to raise taxes by $1,398 per household every year for the next 30 years if they are to fully fund their pension systems, a study released on Wednesday said.

The study, co-authored by Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester, both of whom are finance professors, argues that states will have to cut services or raise taxes to make up funding gaps if promises made to municipal employees are to be honored.

Wall Street rating agencies and investors in the $2.9 trillion U.S. municipal bond market are increasingly focusing on unfunded pension liabilities as they weigh the credit-worthiness of state and local government debt.

 

[BLAZER PROPHET]

Bloated state governments with too much social services. To me, taxing isn't the issue or the remedy.

 

[jlprk]

Bloated state governments with too much social services. To me, taxing isn't the issue or the remedy.

I think you'll find that police pensions are way out of proportion to pensions for social services or for pensions for real administration of the goverrnment.

I don't believe the number about a $1400 increase every year for 30 years. Also, there is no reason to fully fund pensions within 30 years, or ever. The current method works fine.

A clue to Republicans on how to win (since I don't like deficits either): You won't get Democratic support until you include police (state level) and military & spies (Federal level) in your payroll rollbacks. Even then, you might not get support, but you definitely won't until it's evenhanded.

 

[MARIS61]

I think you'll find that police pensions are way out of proportion to pensions for social services or for pensions for real administration of the goverrnment.

I don't believe the number about a $1400 increase every year for 30 years. Also, there is no reason to fully fund pensions within 30 years, or ever. The current method works fine.

A clue to Republicans on how to win (since I don't like deficits either): You won't get Democratic support until you include police (state level) and military & spies (Federal level) in your payroll rollbacks. Even then, you might not get support, but you definitely won't until it's evenhanded.

I'd start with JUST those, and worry about the small stuff later if needed.

 

[MARIS61]

Also, there is no reason to fully fund pensions within 30 years, or ever. The current method works fine.

It's just another tiresome attempt to create fear out of ignorance.

To pay your house off in 2 years might cost you $100,000 a year.

"Luckily" they make 15 & 30 yr mortgages, so it's affordable to most.

 

[Denny Crane]

It is over a 30 year period. $1400 x 30 years. Not to worry, tho. The fallout form Japan is going to kill us all long before 30 years is up.

 

[barfo]

Seems not everyone believes those numbers:

The latest attack on public pension plans from Joshua Rauh and Robert Novy-Marx reaches its improbable conclusions in part by projecting future economic growth of just 1.8 percent, a rate that is nearly one-half of the rate the U.S. economy has grown over the past 60 years. As shown in the above chart, this assumed rate is also the lowest average 10-year rate of economic growth the U.S. has experienced in more than 60 years.

Rauh and Novy-Marx’s conclusions are assisted by a second questionable and unlikely assumption, of future real (inflation-adjusted) rates of pension fund investment returns of just 1.7 percent. This rate is a fraction of the real rates of return public pension funds and other diversified portfolios have achieved historically.

These unrealistic assumptions are used to derive improbable conclusions. The projections in this paper would be significantly different were more realistic assumptions for economic growth and investment returns used.

Last year, Joshua Rauh published a paper projecting near-term insolvency of most state pension plans, a conclusion that was, like this paper, based on specious methods and assumptions and that has been effectively rebutted by the Center for Retirement Research at Boston College and the National Institute on Retirement Security.

barfo

 

[Denny Crane]

welcome to the new normal, barfo.

 

[barfo]

welcome to the new normal, barfo.

The new normal is posting stories about conclusions drawn based on sketchy assumptions? I thought that was the old normal...

barfo

 

[Denny Crane]

The new normal is low GDP growth, so the assumptions aren't so sketchy after all.

But you do realize you make a great case for partially privatizing social security. Historical trends and all that.

 

[barfo]

The new normal is low GDP growth, so the assumptions aren't so sketchy after all.

But you do realize you make a great case for partially privatizing social security. Historical trends and all that.

I'm not making a case for anything, other than not believing everything you read on the internets.

But thinking that the current economic conditions are going to last forever is pretty silly.

barfo

 

[jlprk]

Since I'm not a government employee, and not on track for a private pension either, I can easily be turned against overpaid government employees. But Republicans haven't come up with the formulation to sway us hundred million voters. I keep giving you guys clues. You should make me your leader.

What would do it would be to have a detailed plan on how everyone--government employees, rich people, and everyone else--will make evenhanded, proportional sacrifices. Rich people have more they can sacrifice without dying from it (because they benefit more from capitalism) than poor people on the edge of survival.

It would take a brilliant effort, but maybe the whole economy could be downsized so fairly that we wouldn't notice. Everyone would stand in the hierarchy about where they had before, only with less ability to buy foreign goods. Domestic goods and services would still cost the same relative to your income, since all other Americans' income would go down about the same percentage as yours.

Republicans want the people who will die from cuts to take the cuts, and want the people who are already wealthy from the system to actually get even more tax cuts and pile up even higher proportional mountains of money. It'll have to be a lot fairer than that or the country is going down. (I think the latter will occur. The impasse will remain.)

 

[Denny Crane]

A person rich enough to put $1 in something that has a yield and compounding interest will accumulate wealth faster than a person who doesn't. As long as the tax rate on the income from that compounded interest is anything less than 100%, this will always be true.