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POLITICS AS USUAL (By Jim Baron) Tax increases vs. pensions

April 24, 2011

The battle lines are being drawn.
In the fight to close the state’s cavernous budget deficits, it’s coming down to tax increases vs. pensions. That’s it. There simply are no other piles of money large enough to fill the $300 million hole in Rhode Island’s finances by June 30.
Some people point to human services, which in the minds of many equates to stuff for the poor – welfare. Well, we have taken several whacks at that in recent years, lowering the income levels below which people are able to tap the services and otherwise putting them out of the reach of some people who legitimately need them. Add to that the fact that Rhode Island is still trying to claw its way out of the Great Recession, which hit us earlier and harder than many other places, and you have a convincing argument that our meager remaining resources to help the poor, unemployed, homeless and disabled ain’t the place we are going to find $300 million.
Gov. Lincoln Chafee’s flawed plan to raise the sales tax got shot down before it got off the ground. As even some of the business people grudgingly acknowledged at that six-hour, hang-the-governor-in-effigy House Finance Committee hearing a couple of weeks ago, a small increase in the income tax would be a better and fairer way to hike revenue. But that couldn’t come close to filling the $300 million.
Which brings us back to pensions.
If you listen to talk radio, read the blogs, the op-ed pages and letters to the editor, you will find throngs of people who would happily hack away at pensions for public employees. It is a perverse form of class warfare: instead of the poor fighting the rich, we have the middle class fighting a shirts-and-skins battle amongst themselves to bring each other down.
The problem is, at its root, jealousy, always a self-destructive emotion.
Workers in the private sector have seen Corporate America steadily erode our standard of living. The pensions were the first to go, but that was OK, because we had these shiny new instruments called 401(k)s. They would be just as good as pensions to provide for us all in our old age, because we’d make all kinds of dough in the stock market. We’d be the captains of our own retirement destiny. Well, if there was one good thing about the Great Recession, it is that it finally proved once and for all that all the claims about 401(k)s were BIG FAT FREAKN’ LIES.
Employer-paid health insurance was next to go, as the benign-sounding “co-shares” crept up and up and up, taking an ever-bigger bite out of workers’ paychecks.
Not only did regular pay raises go down the toilet, but wages were cut for many in the middle class (while CEO and other top executive pay rocketed through the stratosphere), workers were tossed out onto the unemployment lines by the millions and many of those who managed to hang onto their now lower-paying jobs saw their hours reduced, further diminishing their ability to provide for their families.
These people should properly turn their anger at their employers and the politicians (Republican AND Democrat) who were complicit in this redistribution of wealth from the middle class that had once made America the envy of the entire world, to the uber-rich, mimicking third-world hellholes that have a small class of spectacularly wealthy and everyone else is dirt-poor.
I read an article just last week which told about how, after decades of Corporate America shipping our jobs to China and Indonesia and Vietnam where the work can be done by 13-year-olds for 30 cents a week with no environmental or job safety protections, European companies are now locating factories in America because our pay is lower and our workers enjoy fewer benefits. That’s right, America is becoming Germany’s Indonesia.
That is the level to which we have sunk.
But instead of turning their righteous anger where it belongs, to the plutocrats who have lessened their lot in life, too many of the middle class have allowed jealousy to turn them against their neighbors who work in the public sector who have, until now, managed to maintain their standard of living.
I look at public sector unions like those African game preserves where endangered species are protected from extinction.
Let’s face it, pensions are in danger of becoming extinct. Employer-paid health care is in danger of becoming extinct. Retiree health benefits are just about extinct. If these things are yanked away from the last workers who have them, they will be gone forever and none of us will be able to enjoy them ever again.
Being old will once again be a horrible time, even if Congressman Paul Ryan isn’t able to dismantle Medicare. We are constantly told that Social Security was never meant to be the sole provider of resources for the elderly. It was meant to be one-third of a three-legged stool: Social Security, private savings and pensions. Well, for too many Americans one of those legs – pensions -- has been violently kicked away from the stool. They are left to their own devices in the brutal jungle of the stock market. If you are like those who came to their retirement age in 2008 when the Great Recession hit and the bottom dropped out of everyone’s 401(k)s, you will eat dog food in your old age, and not that fancy, expensive dog food you see advertised on TV, but the cheap, stinky kind of dog food, something the CEO of the company you worked for wouldn’t feed to his dog.
As for the second leg of that stool, when was the last time you were able to put away any significant savings after you finished paying the bills every month?
But there is one big problem with this populist screed you have been reading.
The pensions for many public sector workers, while worth preserving in concept, are, alas, unsustainable. The public sector unions made many deals with the devil (politicians), and when you make a deal with the devil you are sooner or later going to get burned (not to mention often losing your soul). Put the state and municipal pensions together and you can never raise taxes enough to make them viable.
The pension deals were made in the spirit of agreeing to something now and worrying how to pay for it later. Well, it is now later.
But much in the same way that the benefits were granted and the day of reckoning put off to the future, part of the solution to the unfunded liabilities can also (actually, for legal and moral reasons must) be put off to the future.
Unless we want to be sued (and lose) we have to start with people who are not yet vested in their respective pension plans.
One of the few half-measures the General Assembly took in dealing with state worker pensions was raising the retirement age, bringing it to 62. Increase that to 65 (not out of line), adding three more years to which employees would have to work – and pay into the system -- before they start drawing out. And those cost of living increases? Make them payable once every three years, an average of the inflation rate for the prior three years with a 3 percent cap. That should change the calculations of unfunded liabilities. Same thing goes for municipal pensions, although you probably have to keep a lower retirement age for police officers and firefighters. Would you want a 64-year-old fireman carrying you up a flight of stairs to safety?
And if there are any municipalities who still let their town and city councilors or school committee members collect pensions, that should stop, post haste. That goes for health benefits as well. Attending a meeting once a month for a two-year term shouldn’t entitle you to a pension or paid health insurance.
While we are at it, take away the paid health care for the General Assembly. The General Assembly is always moaning about being a part time legislature and they must have day jobs as well. Correct, so why are they burdening the taxpayers with their health insurance costs? That should come from their real jobs. Believe it or not, we would have to amend the state constitution to take away legislators’ paid health benefits. Of course, if that notion could get anywhere near a ballot, it would pass in a landslide. It’s a tiny dollar amount, but if we are going to cut fat and waste out of the budget, that seems like a place to start.
The same goes at the federal level for congressional pensions. A drop in the bucket dollar-wise, but it would have strong symbolic significance in slashing waste and abuse. It might also address the concerns of those people who are always squawking about term limits without messing with the U.S. Constitution.
Pensions and health benefits should be there for people who make a career working full time for a company, not as a gimme for greedy politicians who can write their own rules, whether they are in the U.S. Senate or your local school committee.
Governor Chafee said he wanted to hear alternative solutions. That’s mine.

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