The growth of government in America has not been gradual.
Rather, government spending has remained a consistent fraction of
our economy except for periodic dramatic bursts to new, and too
often permanent, levels. The Civil War, World War I, and World War
II all increased government spending and control over the American
economy to new — and permanent — highs.
Franklin Roosevelt refused to let a good crisis go to waste and
used the Hoover recession to enact the New Deal. His big-government
solutions were supposed to lead to economic recovery, but instead
lengthened the recession into a 10-year Great Depression — longer
if you measure up to when civilian employment recovered and even
longer if you measure up to when the stock market recovered: the
Dow Jones Industrial Average peaked at 381 on September 3, 1929,
and didn’t hit that mark again until November 24, 1954.
Lyndon Johnson used his supermajorities in Congress to pass
Medicaid and Medicare and to create the new cabinet post of Housing
and Urban Development.
Still, federal spending as a percentage of the economy averaged
20 percent of GDP from 1970 through 2007. The growth of social
welfare spending was masked by the decline of defense spending from
10 percent of GDP under Eisenhower to 4 percent today.
Obama, Reid, and Pelosi jumped spending from 20 percent of GDP
to 24.7 percent in 2009 through the massive TARP bailouts, the $878
billion “stimulus” package, and a doubling of domestic
discretionary spending that will add a trillion to the debt over
the next decade.
At this writing, it appears that Obama & Co. will have
failed to pass cap and trade legislation, which would have added
$800 billion in new taxes by 2020 — taxing existing real energy to
subsidize non-economic or nonexistent energy sources. This tax
increase on the American people was brought forward by Al Gore in
1993 and again by Gore in 2009, but with the damaging revelations
of “Climategate,” Gore, like Sisyphus, finds himself forced to
begin again.
Furthermore, the value-added tax — the silver bullet the left
hopes will turn America into Europe without the charming cathedrals
— and “Card Check,” which would have forced several million
Americans into labor unions, remain beyond the reach of
Tantalus.
However, there remains, within grasp, one more great leap
forward on the road to serfdom: a federal bailout of the $3
trillion in unfunded state and local pension plans.
OVER THE YEARS politicians have “hidden” their payoffs to
organized labor, which now commands union dues from 32 percent of
state and 43 percent of local government workers by promising them
rich pensions that would be paid out after said politicians were
retired or dead. Well, that day has arrived and governors, state
legislators, and mayors find themselves having promised $3 trillion
more than they had planned to steal from taxpayers.
Luckily for them, a trial run is already under way to
nationalize the unfunded liability of state and local government
workers’ pensions. That is House Democrat Earl Pomeroy’s “Preserve
Benefits and Jobs Act of 2009,” which would put federal taxpayers
on the hook for the $165 billion that Moody’s estimates is the
underfunding of multi-employer, union-controlled pensions.
Pomeroy’s legislation sets no limit on federal taxpayers’
liability, and has 51 co-sponsors in the House and a more modest
sister bill that might slip through the Senate.
The size of the federal government often confuses us into
thinking that most government workers work for the federal
government. In fact, much federal spending simply passes through
Social Security, Medicare, Medicaid, and some 80-plus welfare
spending programs to individuals.
There are “only” 2,854,000 federal civilian workers. That
includes 711,800 postal workers. There are an additional 1.2
million Americans in the military.
State governments employ 4,850,000 workers, 2,021,200 of whom
work in state colleges and universities.
Local governments pay 13,570,000 employees. Of those, 6,834,700
are in education.
Why would federal congressmen and senators add $3 trillion in
federal debt to pay off the overpromises of state and local
politicians?
Money and power.
When labor unions demanded union dues from 33 percent of the
workforce in 1955, almost all union members were in the private
sector. John F. Kennedy signed the executive order that allowed
federal unions. State-by-state laws were enacted or governors
unilaterally allowed the formation of teachers’ unions that target
half of state and local employees as well as police and fire unions
and AFSCME.
Today only 12.5 percent of workers are paying union dues — only
7 percent of private sector workers, and fully 37.4 percent of
government workers.
Fifteen million unionized employees paying $500 in union dues a
year creates a political slush fund of $7.5 billion each and every
year. The Communications Workers of America v. Beck
Supreme Court decision found that only 20 percent of union dues
were spent representing workers. That frees up almost $6 billion
per year for “other stuff.”
Of all the paying customers of the Democratic Party, only the
trial lawyers come close to commanding these sorts of
resources.
To gin up the base, Democrats could move on such a bailout
before November 2, or they might choose to avoid irritating
taxpayers before the election and wait until a lame-duck session of
Congress if Republicans capture either or both houses of Congress.
Or, if Democrats retain slimmer majorities in the House and Senate,
they could move before 2012 or hope to reelect the president and
enact the bailout in a second term.
WHILE THIS PUBLIC SECTOR pension bailout will remain on the
Democrats’ to-do list — just as Gore’s energy tax was on the
agenda in 1993 and 17 years later in 2010 — there are reasons to
believe taxpayers can avoid a bailout that would be twice the size
of TARP plus the Obama stimulus.
Why the optimism?
First, taxpayers are beginning to pay attention. For decades
there was believed to be a “grand bargain” in which government
workers were paid less than the private sector but in return had
greater job security and a modest pension.
Labor unions, though, have pushed government pay upward. Less
visible health insurance and other benefits have skyrocketed and
gold-plated pensions have gone platinum.
It took a while, but the establishment press and the general
public are now aware that the grand bargain is dead. Newspaper
stories about the southern California town of Bell (which was
paying chief administrator Robert Rizzo $788,000, police chief
Randy Adams $457,000, and assistant city manager Angela Spaccia
$376,288) hit a raw nerve.
Federal workers’ average compensation — pay, pension, and
benefits — is $123,000 a year. The private sector total
compensation is $61,000 a year. An overpayment of $62,000 per
worker, times the 2.8 million federal employees, means an
overpayment of $174 billion a year.
State and local government workers earn a total compensation
package of $80,000 a year, for an overpayment versus the private
sector of $19,000 each year. That, multiplied by the 18.4 million
state and local employees, adds up to $349.9 billion that taxpayers
are overpaying each year.
Federal and state government can be cut back more than $500
billion each year without cutting any services at all. We can
provide the present level of government at a reduced cost simply by
having pay equity between taxpayers and government employees.
According to the Bureau of Economic Affairs, total government
spending (federal, state, and local) is $5.5 trillion. So, cutting
$500 billion per year in government spending would save nearly 10
percent of everything government spends.
One reason taxpayers and the media are better informed is the
efforts of state think tanks like the Maine Heritage Policy Center
and the Illinois Policy Institute, which have used the Freedom of
Information Act to collect and post all state employee salaries and
pension payments online.
Ohio’s Buckeye Institute for Public Policy Solutions has gone
one step further in highlighting the high cost of paying and
pensioning our civil servants. On its website
(www.BuckeyeInstitute.org), one can find the list of all employee
pay, and on the top right the actual annual pension any given
person would receive if he retired now, and on the top left a
calculator to calculate his pension if he retired at a normal age
and lived 18 years afterward. In the first 120 days after posting
the list, the website drew 755,562 visitors from all 50 states.
Buckeye Institute president Matt Mayer plans an iPod app that will
allow students at Ohio public universities to check out the pay and
pensions of their professors.
State and local workers earning $350 billion more than the real
economy would pay is a statistic. Your neighbor’s gold-plated
pension visible online is an outrage.
PUBLIC OPINION HAS SHIFTED in measurable ways. In Ohio, voters
were asked how the state should deal with its $8 billion
overspending problem, and 50 percent wanted to reduce the
compensation packages of government workers, 27 percent wanted to
cut government services, and 16 percent wished to increase taxes.
Fully 40 percent of liberals wanted to reduce government pay and
pensions. Sixty-seven percent of government workers thought their
compensation should be equal to the private sector, 14 percent said
“higher,” and a sainted 12 percent said “lower.”
Nationally, Rasmussen polls find that 77 percent of adults say
government workers have more job security than private sector
employees. Sixty-seven percent say private sector employees work
harder. Forty-six percent believe government workers make more
money than comparable workers in the private sector. Fifteen
percent say government workers make less and 17 percent say they
are paid the same amount.
But the best news for taxpayers hoping to avoid the pension
bailout comes from Utah. There, state senator Daniel R. Liljenquist
introduced and passed legislation that, beginning July 1, 2011,
ends the creation of any more unfunded liabilities. The state was
thrown into crisis in 2008 when it fell behind its pension
obligations by 30 percent. Utah was heading for bankruptcy and
would not be able to fund and pay its pension obligations.
Liljenquist’s legislation capped the taxpayers’ payment for new
state employees at 10 percent for most state and local employees
and 12 percent for police and firemen. All new employees will have
a defined contribution pension similar to a 401(k). If they want a
traditional defined benefit plan and the state’s contribution is
not enough to cover costs they are responsible for “topping off”
their pension contribution. There are no hidden costs to taxpayers.
No unfunded liabilities.
Retiring state and local employees have the state kicking in 22
percent of salary for their pensions. New employees will get 10 or
12 percent. As workers retire and are replaced, the savings will
increase to $500 million a year.
Republican governor Gary Herbert signed the legislation that
passed 55-35 in the House with four Republicans voting wrong (one a
highway patrolman, one the battered spouse of a teachers’ union
member). The Senate vote was 20-9 with no Democrats voting for
reform and one Republican (a current police officer) voting against
taxpayers.
Utah is the model for reforming state and local workers’
pensions in a politically feasible way. Present retirees and
employees were untouched. No new hires will create unfunded
liabilities, and their compensation packages will approach those of
the real economy.
When 10 states have enacted the Liljenquist/Herbert reform, it
will be near impossible for the federal government to put together
the votes to tax responsible states to bail out irresponsible state
and local governments. Until then, we are all in danger of one more
giant step forward to America becoming a hybrid of Greece, France,
and California.
