Since the Great Recession in 2008, warnings of an impending pension crisis have been splashed across the business pages of newspapers across the country. Despite these boisterous decrees, America’s public pension funds are stable. We explore the roots behind the false pension crisis narrative and examine the facts.
Recently, Amazon announced the list of twenty locations that had advanced to the second round of their search for an “HQ2.” There has been a lot of discussion about the lavish tax subsidies and other benefits cities and states are offering Amazon in order to be awarded the HQ2. Some of these states are also experiencing major fights over the future of their public pensions. In an earlier post in this series, we considered the false argument that spending on public pensions “crowds out” spending in other areas. In this post we will dig a little deeper into government revenues and spending priorities.
Just before Christmas last year, the Republican-led Congress passed a massive tax cut bill along strictly partisan lines, which President Trump signed into law. The tax cuts contained in this legislation overwhelmingly favor the wealthy and corporations. The Republican tax cut bill also indirectly threatens funding for public pensions. The bill caps the federal deduction for state and local taxes at $10,000. In certain high-tax states, like California, New Jersey, and New York, this may put pressure on state legislatures to lower their tax rates. This would cause the state to lose tax revenue, which could threaten funding for public schools, road repair, public pensions, and other public policy priorities.
Taken together, the Republican tax cut bill, along with the disastrous tax cut experiences of states like Kansas and Oklahoma, represent an attempt to shrink the size of government by starving the government of needed revenue and then cutting popular programs. The attacks on public pensions are part of this larger attack on the public sector. Closing defined benefit pension plans and forcing workers into risky and unreliable 401(k)-style plans shifts the burden of risk onto the individual. Pension plans earn higher investment returns and pay lower fees than individually-managed 401(k)-style plans. Pensions provide a more secure and reliable source of income in retirement for working families. Despite these advantages, promoters of the pension crisis myth are trying to undermine public pensions in states all across the nation.
Many states that face challenges in fully funding their public pensions often fail to collect needed revenue or lose revenue through corporate giveaways. As we have mentioned before, the Commonwealth of Kentucky gives away more money to the wealthy and large corporations through its tax code than it collects in tax revenue. In Colorado, the state’s so-called “Taxpayer Bill of Rights” limits the amount of tax revenue the state can collect. It is not surprising, then, that Colorado has never been a state that has paid the full annual required contribution to its pension plan. In New Jersey, former governor Chris Christie repeatedly cut the state’s contribution to its public pension plans, claiming the state could not afford them, in spite of giving away more than $2 billion in corporate subsidies during his first three years in office.
The alleged “crowding out” of public spending by public pensions is a myth. Often, the true issue is misguided or ill-conceived public policies that either unnecessarily limit the amount of revenue the government can collect or that needlessly give away billions of dollars to profitable corporations and the wealthy. Unfortunately, recent legislation like the Republican tax cut bill will only make this problem worse.
Public pensions have been offered for over 100 years for a reason: they make the American dream possible for working families. Unfortunately, too many state governments are gambling this institution away to bet on risky tax cuts. When a state cuts pensions, it signals to every worker and every employer in the state that hard work isn’t worth much. It replaces self-sufficiency and dignity in old age with dependence and uncertainty. This isn’t just about using our tax dollars wisely. It’s also about whether showing up on time and getting the job done, for decades, still means something in this country. Previous generations believed that it does and we at NPPC do too. Will you join us in fighting back against the pension crisis myth and protecting this valuable institution?