Friday, May 6, 2011

Carrying the burden: how much is too much?

Paying personnel is often the most expensive part of a budget. Curbing benefits or asking public servants to pay a higher percentage of their benefits produces a heavy burden on a significant portion of society; however, according to this Wall Street Journal article, adopting the latter policy may actually save state and local governments’ budgets more money than enacting budget cuts.

It makes me wonder “how much is too much?” Public workers often earn lower salaries but have more dependable pension benefits than their private sector counterparts. Additionally, since public workers make up such a significant portion of the working population (I’ve read 10-15% in the United States and up to 25% here in France), increasing the cost of pension plans could be construed as an effectual excise tax on a specific portion of the population.

How will forcing public employees to pay more of their pension benefits affect their current spending? Employees will likely spend less in the short run because they have less spending power, which may substantially lower sales tax revenue in their cities of residence. At the same time, more of their potential spending power will be tied up in financing their retirements, leaving them with a net gap for discretionary spending in the short run. Before enacting this policy, we would need to forecast the projected loss in sales tax revenue and compare it to the net savings in having public employees foot more of the pension bill.

Do you believe it is fair to force public employees to pay a higher percentage of their pension benefits in times of recession in order to balance budgets? How does this “tax” on public employees affect the greater tax-benefit linkage for other public programs? Is this what we expect of responsible government?


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