Pension Tension

More "Shock Doctrine" economics on its way:

The numbers are mind-numbing. As of June 2009, the state's pension systems faced unfunded liabilities of $45.8 billion. That number assumed an annual 8.25 percent return on investments, an actuarial standard that many experts are now declaring as unrealistic. In the past decade, the pension system averaged 2.56 percent a year, not nearly enough to keep pace with projected costs.

More pessimistic assumptions about rates of return peg the pension system liability as high as $173.9 billion — not to mention some $55 billion in unfunded health care costs.

Experts and officials have begun to say it more clearly: There is no way New Jersey will ever be able to pay for the promises it has made to current and retired workers.

Let me tell you a story:

Back in the '90's, Jim Florio played a little actuarial game with pensions and the state budget. Christie Whitman was happy to play along when it was her turn to not lead, especially since she had a booming market to help. Of course, when the market tanked, everything turned to dreck, but by then she was in Washington. Jim McGreevey did little to help; Jon Corzine, to his credit, made some contributions, but backed off when things got really bad. Now Christie won't pay anything into a system he says is "broken."

Everyone who knows anything about our pension problems knows this part of the story; now let's add something else:

On October 12, 2006... Ms. Zelio stated that 43 states permit some form of local option sales or income tax....

According to the U.S. Census Bureau figures for 2001-2002, municipal own source general tax revenue in the U.S. totaled $120 billion. Of that, $58.3 billion (less than half of the total) was generated by the property tax... 

According to the same source for the same year, New Jersey municipal own source tax revenue equaled $2.9 billion, of which $2.8 billion was produced by property taxes. [emphasis mine]

You would think that a pension crisis would have been the perfect time to act upon this fact and try to get some other form of taxation into the mix. But no, and here's why: property taxes are regressive. If you moved a lot of the burden of off the property tax payer and on to the income tax payer, you'd be moving the burden off of the middle class and on to the wealthy; not to mention, you'd also be taking in more revenue to help pay pension obligations.

And this, of course, must never, ever happen.

So, in our last election, the incredibly wealthy Chris Christie squared off against the really incredibly wealthy Jon Corzine in a philosophical battle where neither seriously discussed the idea of slashing property taxes and replacing them with increased income, business, or other taxes - taxes that would have shifted the burden off of the middle class and on to the rich.

As I've documented in my "fact toolkit," the wealthy in NJ pay a smaller share of their income in state and local taxes than the middle class or the poor. We give $4 billion in tax breaks alone just to exempt corporate dividends from taxes. We are only the 31st highest taxed state in the nation.

But instead of, at the very least, considering a shift in our tax structure, our discourse now has introduced the idea of reneging on promises made to retired teachers, cops, and civil servants.

It's insane. Why aren't we allowed to at least talk about this idea?

UPDATE: Added a phrase to make my point more clear - I hope.