Economy

SUBPAGES:

http://www.heritage.org/research/features/BudgetChartBook/

1- http://ccrofny.wordpress.com/economy/pork-pork-pork/

DOWNSIZE DC Campaigns: http://www.downsizedc.org/etp

February 18, 2010

Study: States Must Fill $1 Trillion Public Sector Pension Gap

States may be forced to reduce benefits, raise taxes or slash government services to address a $1 trillion funding shortfall in public sector retirement benefits, a new study warns.

HARRISBURG, Pa. — States may be forced to reduce benefits, raise taxes or slash government services to address a $1 trillion funding shortfall in public sector retirement benefits, according to a new study that warns of even more debilitating costs if immediate action isn’t taken.

The Pew Center on the States released a survey Thursday of state-administered pension plans, retiree health care and other post-employment benefits in all 50 states that blamed a decade’s worth of policy decisions for leaving them shortchanged.

The result for some states will be “high annual costs that come with significant unfunded liabilities, lower bond ratings, less money available for services, higher taxes and the specter of worsening problems in the future,” the study said.

The cost of the trillion-dollar shortfall, which will be paid over the coming decades, is about $8,800 for each American household. The study did not include many city, county and municipal pension plans, which are thought to have similar underfunding.

“We have a significant problem now, but it’s a problem that can be solved by taking relatively modest steps,” said Susan K. Urahn, the center’s managing director. “If they don’t do anything, if they wait, eventually they will have an unmanageable crisis on their hands.”

As of 2008, states had $2.4 trillion to meet $3.4 trillion in promised pension, health care and other post-retirement benefits, according to the report.

The true gap may even be wider, because the study did not account for the full impact of investment losses in late 2008, during the stock market downturn, and because many plans employ multiyear smoothing techniques to lessen the effect of a single year’s losses. But more recent stock market returns could help — on Wednesday, for example, Pennsylvania’s $47 billion public school pension plan reported it had earned about 12 percent on investments in the 2009 calendar year.

Pew deemed 16 states solid performers in how they fund pensions, 15 needing improvement and 19 considered to be facing serious concerns.

“Meanwhile, more and more baby boomers in state and local government are nearing retirement, and many will live longer than earlier generations — meaning that if states do not get a handle on the costs of post-employment benefits now, the problem likely will get far worse, with states facing debilitating costs,” the study said.

The exploding financial burden could be a bitter pill for taxpayers, many of whom will not be collecting similar pensions or other benefits when they retire, said David Kline with the California Taxpayers’ Association. About one in five private sector workers have traditional defined benefit pensions, compared with about 90 percent of public-sector employees — including some that do not get Social Security.

“Taxpayers in the future will be paying for people who worked decades before they may have even lived in the area or begun paying taxes, because the obligation for these benefits is just snowballing,” Kline said.

The study graded states on how well they have managed employees’ retirement benefits. Florida, Idaho, New York, North Carolina and Wisconsin began the current recession with fully funded pension systems, while eight states have left more than one-third of their pension liability unfunded.

Illinois was rated the most troubled pension system during the study period, with a 54 percent funding level and a total liability of more than $54 billion.

In Pennsylvania, a series of decisions by the Legislature and governor have shielded taxpayers from much of the pain for the past decade, but costs of less than $1 billion a year now is projected to climb to about $6 billion annually in the coming three years.

The report said policy makers have exacerbated the problem by expanding benefits, relying on overly optimistic assumptions about investment returns and failing to sufficient fund the programs.

“Even though the actuaries tell the states what they should be doing, the states feel free to ignore that,” said Olivia Mitchell, director of the Pension Research Council at the University of Pennsylvania’s Wharton School. “So putting some teeth behind the requirements is really the problem.”

Pew calculated a $587 billion national cost for current and future retiree health care and other nonpension retirement benefits, with only about 5 percent of that amount funded as of 2008. The cost of health care and the number of retirees are both on the rise, adding to the pressure on states.

The study found that 15 states made some legislative changes to their state-run systems last year, 12 did so in 2008 and 11 in 2007. About a third of states had formal efforts to study potential reforms under way last year.

“Pension plans work when they are allowed to work, and part of that dynamic is that sometimes adjustments have to be made,” said Keith Brainard, research director with the National Association of State Retirement Administrators. “It’s important not to take away decent retirement benefits for some of the few people that have them.”

Pew said states should consider changes that have proven to be effective and politically viable. Among them: setting minimum contribution levels that are actuarially sound, sharing some of the investment risk with employees, cutting benefits, increasing the minimum retirement age, making employees pay more into the system and providing more robust oversight and investment rules.

Mitchell said many states have constitutional prohibitions against lowering employee pension benefits, but health care programs can more easily be altered.

Post “Stimulus” Unemployment: A Historical Perspective

From Tim Andrews, ATR.org on Friday, January 29, 2010 2:07 PM

As we have noted previously on numerous occasions, in January 2009 , the Obama Administration the$787 billion so-called “stimulus” would “create or save” 2.5 million jobs immediately, and 4.1 million jobs by 2010. It was claimed the “stimulus” plan would lead to an unemployment rate of below 8 percent. This – rather obviously – has not occurred. Unemployment is at over 10%, and 2.74 million jobs have been lost in President Obama’s First Year alone.

To adequately access the impact of President Obama’s so-called “stimulus”, however, it is best to compare employment data to what happened during similar, economic downturns. Enrique Martínez-García and Janet Koech, in a report for the Federal Reserve Bank of Dallas, have done just that. Their findings are both enlightening and disturbing.

Note how unemployment has exceeded any other post WWII recession. Hit Read More to continue… Read More

Updated: How Much Does It Cost To Hire a New Federal Employee?

From Ryan Ellis on Wednesday, January 27, 2010 3:48 PM

When politicians claim that they will save money by “in-sourcing” federal functions from contractors, or will respond to some new need by expanding the federal workforce, that has a cost to taxpayers. How much is that cost?

In order to determine the cost of hiring a new federal bureaucrat, ATR has calculated the “all-in” cost of hiring a new employee. We include salary as well as benefits, pension contributions, and payroll taxes. We assume a 40-year federal career. The numbers presented are both nominal and inflation-adjusted. A COLA is assumed which is equal to the average level in the Washington, DC area for the past five years.

Here are the results for a low-cost, medium-cost, and high-cost employee:

	Low Cost (GS-7)	Intermediate Cost (GS-11)	High Cost (GS-15)
Nominal	$4.73 million	$7 million	$13.86 million
Inflation-Adjusted	$2.73 million	$4.04 million	$8 million

The federal general pay schedule for the Washington, DC area is used
There are separate estimates for low-cost (GS-7), intermediate-cost (GS-11) and high-cost (GS-15) employees. This was recommended as appropriate levels by former administration officials to give a sense of scope
The employee is assigned a “Step 5” in the GS table for a 40-year career. As employees move up the GS-scale, their steps bounce up and down.
The five-year moving average for this locality’s COLA is 3.55%, so that is assumed to be the COLA rate going forward
In order to account for benefits, pension contributions, and payroll taxes, the GS dollar levels are increased by 33 percent, which was standard budgeting practice in the Department of Labor in the Bush Administration
The dollar value is expressed in nominal terms and after-inflation (2.5%)

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Tax Preparation “Simplification”: A Big Government Power Grab

From Ryan Ellis & Tim Andrews on Wednesday, January 27, 2010 3:33 PM

There has been some talk by the Administration, and in the media recently, on the creation of a ‘simplified tax return system’. On Saturday, Randall Stross, writing in the New York Times, asked: “when you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be?”

On first impressions, this seems like quite a good idea – what’s there not to like about something that would simplify your tax return? Like with many things relating to government, however, first impressions can be deceiving. And, if implemented, such a system would, without doubt, lead to greater problems for taxpayers, and, ultimately, higher taxes.

But first, some background. The United States has a system known as “voluntary tax compliance”. While usually eliciting a chortle every April 15^th, what this really means is that the taxpayer is the initiator of activity. He files the tax return. He asserts tax liability. The burden of proof is on the IRS to demonstrate that this taxpayer’s bill should have been higher.

It’s not like that in other countries. In France, for instance, most workers don’t even file a tax return. Rather, the tax authorities send taxpayers a filled-out return with a determination of tax liability. The burden of proof is on the taxpayer to say that the French version of the IRS is wrong. All the dynamics are the complete opposite of how they happen here. This is the model which advocates of ‘pre-filled’ tax returns are moving to.

Hit “Read More” to continue reading…

The Myth of the Clinton Surplus October 31st, 2007

a must read analysis here: http://www.craigsteiner.us/articles/16

The Decline: The Geography of a Recession

According to the U.S. Department of Labor’s Bureau of Labor Statistics, there are more than 31 million people currently unemployed — that’s including those involuntarily working parttime and those who want a job, but have given up on trying to find one. In the face of the worst economic upheaval since the Great Depression.

GAO: U.S. Unlikely to Get AIG Money Back
Monday, September 21, 2009
WASHINGTON — Despite some progress, congressional investigators say it’s still too soon to judge whether efforts by American International Group Inc. to restructure its operations and pay back the government will prove successful. The government has provided $182.3 billion to the insurance giant. The Government Accountability Office says that as of early September, AIG’s outstanding balance of aid was $120.7 billion. The GAO found “some progress in AIG’s ability to repay the federal assistance.” But improvement in the company’s stability depends on its long-term health, market conditions and continued government support. The report concludes that “the ultimate success of AIG’s restructuring and repayment efforts remains uncertain.”(remember, about 75% of the bailout money to AIG did not stay in the country but rather went right through AIG overseas)