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Comment by anilshanbhag | Hacker News Reader

Taxes being lower or higher are not what determine size of pension hole. Greece and Italy have higher taxes and still have a pretty big pension hole. The problem is public sector employees are promised pensions higher than county/city can afford. Unlike a corporation which has to balance its budget, city officials go beyond means with their promises in order to get elected and leave the problem for the next set. This is one of the main reasons why many in this country prefer a small government vs big.

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> The problem is public sector employees are promised pensions higher than county/city can afford.

Precisely. But in fact, it's worse:

The people doing the promising and those receiving the benefits are in fact the same.

Who makes the promises? Local and state government employees.

Who receives the benefits? Local and state government employees.

Who pays for them? Us ordinary taxpayers who can only dream of such sweet defined-benefit pension deals.

Yet some folks see this as reason we should pay even higher taxes, and sacrifice our own pensions, which are already lower and less secure than these privileged government pensioners.

Unbelievable.

The people doing the promising are the same as those receiving the benefits.

That's the key point. Budget broken so we can't pay for something? Let's talk about putting money in. Systemic problem where the people making decisions about spending the money are the same people receiving benefits? You can't write a check to fix that. This isn't a traditional "how much do we tax and what do we spend our money on?" public policy discussion.

Systemic problems are another kind of problem entirely. They deserve and require non-partisan attention and discussion.

Indeed. Also notice that some of the worst problems are in locations that already have very high local and state taxes, such as California.

There's simply no reason to believe that throwing more money at these systemic problems will fix them. In fact, it may well exacerbate them instead.

> Also notice that some of the worst problems are in locations that already have very high local and state taxes, such as California.

California has, along the US states, a fairly moderate pension issue measured per capita or per GDP. It has big absolute numbers, as with nearly every other issue, because it's a very big state.

> California has, along the US states, a fairly moderate pension issue measured per capita or per GDP.

A more important question is how much room to manoeuvre does California have?

If California increases taxes by 5% to fix the issue how many businesses and highly paid employees will leave?

Not much, I think. It's already about tied with NYC for highest state+local taxes in the nation.

Also, no reason to believe just 5% will fix the issue.

> A more important question is how much room to manoeuvre does California have?

That's very hard to say.

> If California increases taxes by 5% to fix the issue how many businesses and highly paid employees will leave?

Even if it was a simple as taxes being a single number where distribution of the taxes doesn't matter, there's no consensus on the average effect of increases. And, in reality the distribution probably matters intensely.

(And, of course, taxes aren't the only lever; maybe California instead radically cuts back on mass incarceration; to the extent that California has less room to maneuver in taxes it has more on spending, which in some ways is better for this purpose—spending cuts tend to also inherently reduce the rate at which the problem is made worse, before you even consider how the savings are applied. Either spending or tax, though, may take ballot action or legislative supermajority, because much of State spending in CA is programmed by Constitution/ballot measure, and tax increases can't be done with a simple legislative majority.)

In some specific cases it's actually quite clear that specific tax increases drove out a large number of high-income earners and were thus a net loss. See for example Rhode Island's Millionaire Exodus: http://theluxuryhub.com/the-tax-factor-in-rhode-islands-exod...

Yes, a few, but those cases aren't really useful for answering quantitative questions about general tax level changes and their effects on tax base, because the only time the effects are even remotely clear (and it's telling that your one example is an article whose lead paragraph says “There could be several reasons for this out-migration, but one possible reason that finds support is estate tax”) tend to be fairly extreme cases of fairly targeted taxes, where there is a clear visible link between the change in policy and the change in behavior.

> They deserve and require non-partisan attention and discussion.

There is no such thing on significt public policy issues; if it matters, and there are different opinions, it will become partisan.

I'm a public employee. I don't cause the government to write its contract with me to be the way it is. It's negotiated between my union and the state Department of Education. It is then voted on by the legislative branch and signed by the governor. It's a long process. At no point am I or my fellow workers the ones making the promises.

It costs money to run government. Employees need to be paid. We have had lay offs when budgets were constrained. The funding per pupil has steadily decreased the last 30 years and hence tuition has similarly increased. Our salaries relative to purchasing power has decreased over this time.

> I don't cause the government to write its contract with me to be the way it is. It's negotiated between my union and the state Department of Education.

Exactly. So one group of state government employees (your state's DoE) meets another group of state government employees (your union) and decide to give each other an incredible defined-benefit pension deal that nobody outside of government can even dream of.

State government employees are giving each other dream pension plans, that are unsustainable and wildly over-budget even if they were well-managed (which generally they are not).

You know why nobody outside government has defined benefit pensions? Because they were proven to be unsustainable decades ago. Yet government employees keep conferring them upon themselves.

Then, when the inevitable deficit arises, as any economist would predict, you have a great solution: me and my peers in the private sectors should pay more taxes to bankroll your party!

I hope this slow-motion trainwreck would be a wakeup call, but either way, know this: there is no amount of taxes that will prop up your unsustainable pension plans. State and local governments wasted billions mismanaging these funds, that are unsustainable even under the best management.

Any more taxes you collect will just fuel this fire for a couple more years, before the inevitable next crisis arises.

You can't fix fiscal irresponsibility with more money, because all that money (and no accountability) is what created fiscal irresponsibility in the first place!

Your state government needs to start applying the same basic fiscal responsibility that every single business in your state is adhering to.

Pensions are not inherently unsustainable. They exist in the private sector in other countries and there are still some well funded private sector pensions in the U.S. They don't work well if they are not properly funded. Corporations got rid of pensions not because the concept is inherently unsustainable but because it's more profitable to do away with them.

My pension plan is not a good one. You characterization of one group of state employees giving a dream set of benefits to another is not based in reality. Administration does not negotiate strongly with us the contract won't be approved by the legislature or signed by the governor. Our wages relative to buying power has not been going up or remaining steady.

If pensions are inherently unsustainable then you must conclude that it is unsustainable for a society to care for itself.

> Pensions are not inherently unsustainable.

Please read the link I posted above:

https://www.investopedia.com/articles/retirement/10/demise-d...

Defined Cost pensions are sustainable. That's what we in the private sector have: 401k and Roth.

Defined Benefit pensions aren't sustainable. That's why nobody outside of government has them, and the ones sponsored by the government suffer huge deficits and are slowly but surely edging towards bankruptcy.

> If pensions are inherently unsustainable then you must conclude that it is unsustainable for a society to care for itself.

How do you figure?

It is unsustainable for us to support all people over e.g. 60. But we can support the 5% over 60 who really need the support and can't look after themselves.

Supporting that 5% who really need it would effectively be a means tested pension system. The point of a pension (retirement savings) is to prevent masses of destitute elders. The goal is to have a society in which masses of elderly are not left without means to live at a reasonable standard. That’s the purpose of a pension system. If the goal can be effectively accomplished in another way then I support it. I’m not personally tied to the notion of a pension system.

> me and my peers in the private sectors should pay more taxes to bankroll your party!

We are all to blame (if you are older than about 25).

Collectively, we have known the pensions are unsustainable for at least the last 40 years.

Yet we have refused to face the problem head on and vote in people who will fix it. Instead we push the problems onto the next generations.

The teachers union is a powerful lobby in California. By paying dues to your union you are supporting their efforts to lobby for the unfunded pensions.

Teacher unions are also responsible for keeping bad teachers employeed. See NYC rubber rooms.

Is there no level of personal responsibility involved? If the whole of my retirement was tied up in the promises of one entity... I have to imagine I'd be deeply concerned when my pension is underfunded. And underfunding is not new, there has been plenty of time to adjust on a personal level.

Pension holes mostly formed because interest rates dropped. Higher interest rates mean less money can be paid in to fund a pension today, since it will grow faster.

The critical error that pension providers made was to buy equities and 'alternative' investments instead of bonds. Had they bought bonds, their assets would have matched their liabilities. Instead, they assumed riskier investments would grow faster, effectively making pension promises cheaper.

Following the financial crisis, rates were cut aggressively, making bond prices and the present value of pension liabilities soar. IMO this is an under-appreciated facet of the financial crisis that's still waiting to bite us.

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