When you hear talk about “the fiscal cliff,” ask, “Which one?”
This coming January, if Congress and the president fail to take action, every American who pays income taxes will pay more. Also set to increase? Payroll taxes, which every worker pays.
But even if we can avoid falling off those cliffs, another threatens.
It has been identified by finance professors Robert Novy-Marx at the University of Rochester and Joshua Rauh at the Stanford Graduate School of Business, who summarized their recent research paper, “The Revenue Demands of Public Employee Pension Promises.”
The bottom-line? Looking at the pension commitments state and local governments have already made to public employees, the professors “found that, on average, a tax increase of $1,385 per U.S. household per year would be required, starting immediately and growing with the size of the public sector.”
That’s only the average. “New York taxpayers would need to contribute more than $2,250 per household per year over the next 30 years,” according to their analysis. “In Oregon, the amount is $2,140; in Ohio, it is $2,051; in New Jersey, $2,000.”
Politicians have promised lavish pension benefits. And then not funded them. Plus, employees often outrageously game the system, spiking their benefits to the tune of millions over decades of retirement — like the Illinois teacher’s union lobbyist did by teaching a single day in the classroom.
If we don’t get the problem under control, this cliff keeps getting higher, making, as the professors put it, “the $1,385 per-household increase required today seem cheap.”
This is Common Sense. I’m Paul Jacob.