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Unintended Consequences: Conclusions

  • By: admin
  • On: 06/23/2020 09:36:37
  • In: News
  • Comments: 0

Most policy makers across the country have had to wrestle at one time or another with whether to scrap public pensions and move forward with retirement savings plans that shift the investment decisions to employees, as well as whether to cut benefits and increase employee contributions. But they have been pondering these choices in an information vacuum, because they have not reckoned with the ripple effects of discarding a time-tested method of providing workers with a secure retirement. Our research demonstrates that public pensions have beneficial effects on state and local economies. Shutting them down would ultimately increase taxpayer burdens, and harm state and local economies and tax revenues.

Unintended Consequences: Conclusions


Most policy makers across the country have had to wrestle at one time or another with whether to scrap public pensions and move forward with retirement savings plans that shift the investment decisions to employees, as well as whether to cut benefits and increase employee contributions. But they have been pondering these choices in an information vacuum, because they have not reckoned with the ripple effects of discarding a time-tested method of providing workers with a secure retirement. Our research demonstrates that public pensions have beneficial effects on state and local economies. Shutting them down would ultimately increase taxpayer burdens, and harm state and local economies and tax revenues.

Detrimental “reforms” have been justified on the basis of misguided and misleading information put forth by those who would like to see public pensions go away. Their weapons in this disinformation war include manipulated assumptions, distorted data about unfunded liabilities, and apples-to-oranges comparisons that grossly understate future funding sources. As just one example, they compare 30-year unfunded liabilities with one-year state and local revenues instead of fairly comparing them with 30-year state and local revenues.

Our analysis shows that in 2018, public pensions contributed $1.7 trillion to the US economy and $341.4 billion to state and local tax revenues. Of the $1.7 trillion contribution to the economy, $872.3 billion came from investment of pension assets and $836.9 billion from spending of pension checks by retirees. Similarly, of the $341.4 billion contributed to state and local revenues, $178.8 billion came from investment of assets and $162.6 billion from spending of pension checks.

The argument that taxpayers cannot afford public pensions does not ring true and is not supported by data. As mentioned above, pension funds generated $341.4 billion in state and local revenues in 2018. During the same year, the taxpayer contribution to public pensions was $162.0 billion. In other words, pension funds generated $179.4 billion more in revenues than taxpayers contributed to the pension funds.

The fact is that dismantling public pensions carries a grave cost. Far from easing the perceived burdens on taxpayers, pursuing this path would actually increase the burden on taxpayers by $179.4 billion. Taxpayers cannot afford continued dismantling of public pensions.

Policy makers need to preserve and enhance public pensions. To address short-term budget problems, they need to bring their revenue structures in sync with the economy. They also need to look at the tax subsidies and loopholes through which taxpayer money flows out of US states to overseas tax havens. In short, they should think, understand the research, and think again before taking actions that undermine public pensions.

 

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