Posted on by Californiacontrarian

What if? . . . What to do about it

In the last essay, I outlined the problem of the upcoming tsunami of state and local pension deficits. Today I will explore the possible ways out of this disaster!
Recently there was a mixup with some AT&T pension payments. However the problem in this situation was that some pension recipients were inadvertently overpaid, and AT&T wanted the overpayments back. Some of these overpayments were thousands of dollars, and this money was long gone! Interestingly the general consensus sided overwhelmingly against AT&T. The basic sentiment went something like this, “AT&T made the error, and so the pensioners should not be punished.” But what will the sentiment be when there isn’t enough money to pay the state and local pensioners what they were promised? Should the pensioners be punished because the politicians were in bed with the union negotiators? On the other hand should the state’s populace be punished because of that same politician-union rep skullduggery? In general can this problem be solved? Can the state of California get out of its mess?
When you think about the problem, there are only a limited number of possible solutions:
#1 The most obvious solution is to not pay the retirees what they were promised. Besides the fact that the courts have thus far sided with those who are owed the money, I would find it hard to imagine the rest of us going along with stiffing these retirees. Compromise, Maybe. Stiffing them, No.
#2 The second way out of this conundrum is for the Federal Government to make up these pension plan deficits for each state. Since these payoffs would be with real money, this real money would have to come from somewhere. I can’t imagine states like Tennessee, Indiana, Nebraska, or Wisconsin (the four states that are the least in the hole per capita) going along with this. Why should their federal tax money go to paying for those states that have let themselves fall into such a deep hole. This will never happen!
#3 The third way out of this mess is for the powers that be to devaluate the dollar. This will never happen for basically the same reason as #2 will never happen. Those states that owe the least would not go along with the punishing of their citizens  to save the few states that are the worst off.
#4 The last option is for each state to sink or swim on its own. This may be the only feasible way out of this mess. Under this scenario, each individual state would have to solve its own deficit problem. To me the only way for each state to make up its own deficit is to raise taxes to whatever it would take to pay what they owe to their retirees. For those states with a low or a zero tax rate, it would be painful for the residents of that state, but a reasonable compromise. However in those states that already have a high state income tax, increasing this rate even higher would be extremely painful for its residents. For instance in California with an already very high state tax, each man, woman, and child is on the hook now for $25,166 to make up for these pension shortfalls. Considering that many of the residents of the state do not pay any taxes, where is this pension deficit money going to come from?
Not from me, as I will be moving!

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