The War between Public Pensioners and Tax Donkeys Is Heating Up, by Charles Hugh Smith

The tax donkeys win this battle by withdrawing from it, a la Atlas Shrugged. From Charles Hugh Smith at oftwominds.com:

The migration is only beginning, but that’s only half the story.

You know it’s serious when the newspaper of record finally reports it: A $76,000 Monthly Pension: Why States and Cities Are Short on Cash (New York Times).

It’s a long article but the summary is brief: corrupt politicos promised the moon to public employees, and now the fiscal chickens of insolvency are coming home to roost.

Public pension obligations are rising so fast that even repeated tax increases can’t keep up.

This is setting up a second front in the war between entitled Baby Boomersand younger taxpayers who pay most of the federal and local taxes. Public pensioners are a subset of the entitled Baby Boomers, but their pensions can’t be paid with borrowed money like Social Security and Medicare; public pension obligations come out of local and state taxes, and as those obligations soar then public services must be slashed and taxes jacked up by annual double-digit increases.

So there is a war brewing between public pensioners and the Tax Donkeys: the Unprotected who pay local property taxes on their homes, state and local taxes on their incomes, sales taxes on their purchases, junk fees on local government services, and so on.

Corrupt politicos created the war by over-promising benefits to public employees and ignoring fiscal realities. By the time the bill comes due, the politicos who rubber-stamped the unaffordable promises are themselves gorging at the public-pension retiree trough.

Not every public employee is receiving gold-plated pensions and benefits, of course, but that doesn’t negate the reality that nationally, public pensions are increasing faster than government revenues and the returns earned by the pension programs.

If the stock and bond markets suffer multi-year declines, even modest declines, the pension war will move from skirmishes to open political combat.The 2008-09 Global Financial Meltdown was a taste of the reality facing public pension programs: once annual returns slip from +7% annually to -7% annually, the pension plans are soon insolvent.

Like virtually all wars, there are asymmetries between the two combatants: in the war between public pensioners and the Tax Donkeys, the pensioners can’t switch pension programs, but the Tax Donkeys can move to lower-tax states.

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