Accepting Gov. Walker' s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.
Out of every dollar that funds Wisconsin' s pension and health insurance plans for state workers, 100 cents comes from the state workers.
How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so, a serious crime would be taking place, the gift of public funds rather than payment for services.
Thus, state workers are not being asked to simply "contribute more" to Wisconsin' s retirement system (or as the argument goes, "pay their fair share" of retirement costs as do employees in Wisconsin' s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.
~ from The Media Isn't Telling You That Wisconsin Public Workers Pay for 100% of Their Pensions and Health-Care by David Cay Johnston ~
Thursday, February 24, 2011
One Hundred Percent
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most states account for pensions on a pay-as-you-go basis, rather than on an accrual basis (ie, reserving the funds now for the costs of the pensions later). so, even without the shrinking taxes due to the economic situation, there would still be shrinking tax revenue available for services as more and more state/city workers retire and start drawing money from the current income of the state.
ReplyDeleteuntil the 1970s, corporations also accounted for pensions (and post-retirement health care benefits) on a pay-as-you-go basis rather than an accrual basis. this allowed them to make concessions to their workers without impacting their immediate profitability as shown on the income statement.
when the accounting standards board proposed changing that, there was a backlash from corps, as many realized they would not be profitable if properly accounting for the true longer-term costs of their pensions. the compromise was to spread those losses and costs over several decades. if you take an accounting class (which i have), you'd realize that pension accounting is a big hairy ball of special cases and special rules that makes the situation very opaque without a fair amount of analysis. a huge number of corps have underfunded pensions today, and many more have what i believe are overly aggressive return assumptions, so many more are likely to be underfunded in the future as well.
this accounting change was also the reason many corps went from defined benefit pensions to defined cost (ie, 401k) pensions.
today, 3 decades or so later, state and local gov'ts are hitting the same wall the corps hit way back.
so while it's true that the workers negotiated with the state/local gov't for those benefits, the gov't didn't reserve enough money out of current income and set it aside to pay for the true long-term costs of paying those long-term benefits. (ie, their pensions are underfunded.) so even without the economic situation, a bigger and bigger slice of gov't revenues would be going to pay retiree benefits. so either service cuts, benefit cuts, or tax increases are in order one way or another.
--sgl