Growls

Over the past month, we’ve growled on any number of occasions (here, here, and here) of how America’s politicians keep digging ever deeper the financial holes which taxpayers eventually have to fill.

The latest latest example is an op-ed over the weekend in the Washington Post by two professors, Robert Novy-Marx and Joshua Rauh (they link to their paper at the social science research network; HT Via Media.). Their question:

“How much will the underfunded pension benefits of government employees cost taxpayers? The answer is usually given in trillions of dollars, and the implications of such figures are difficult for most people to comprehend. These calculations also generally reflect only legacy liabilities — what would be owed if pensions were frozen today. Yet with each passing day, the problem grows as states fail to set aside sufficient funds to cover the benefits public employees are earning.

“In a recent paper, we bring the problem closer to home. We studied how much additional money would have to be devoted annually to state and local pension systems to achieve full funding in 30 years, a standard period over which governments target fully funded pensions. Or, to put a finer point on it, we researched: How much will your taxes have to increase?

“We 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. An alternative would be public-sector budget cuts of a similar magnitude, or a combination of tax increases and cuts adding up to this amount.”

Virginia is better off than many states, but the difference is relative, as Novy-Marx and Rauh write:

“ . . . Under legislation Virginia passed in April, for example, new employees will have about 40 percent of their defined-benefit pensions replaced by small 401(k)-style plans. As a result, Virginia’s annual household burden of $1,066 will fall around 20 percent. Virginia’s load will remain heavier than that of Maryland, which is in better shape than all but 12 states but nonetheless requires an additional $818 per household each year. Even Indiana, the state in the best condition, would need to increase contributions by $329 per household each year to meet its pension obligations.”

As former President Calvin Coolidge once said (HT Forbes' "Thoughts on the Business of Life"):

“Governments are necessarily continuing concerns. They have to keep going in good times and in bad. They therefore need a wide margin of safety. If taxes and debt are made all the people can bear when times are good, there will be certain disaster when times are bad."

Now, one more time! How is it that liberals can say that government does good things?