The “unfunded pension liability” scam

For really major, systematic looting of the treasury, consider the potential inherent in public employee unions.  To really work well, you need a union with mandatory dues in a closed shop state, but it can be done without the closed shop.

The scam has three parts:  every state employee below a certain level belongs to the union; by law all union members have to pay dues, which are extracted from their paychecks and paid directly to the union; and the union agrees privately to donate a very large sum of money every year to the pro-union party, which these days in the US is invariably the Democrats.  When the Dems control the state government, they vote a pay increase for the union and a large increase in the already generous pension; the union raises its dues by a substantial percentage of the pay increase (members are happy to pay it, since they still come out ahead in their pay envelopes); and the union’s payment/bribe/“donation” to the Democratic party increases by the same amount, helping keep the politicians in power to repeat the deal.  Presto!  One political party has just voted itself a perpetual river of cash from the state treasury!

However, this comes at the expense of the future citizens, since the pay and pension packages quickly grow to the point where they simply cannot be paid in any conceivable future circumstance.  To hide this from taxpayers, the legislators vote for sham accounting rules letting the pension fund pretend to be solvent – but eventually reality catches up and the system is exposed as grand larceny on an almost inconceivable scale.

The recent bankruptcy filings by major cities, most notably Stockton and Detroit, and the near- bankruptcy of California and Illinois are just the harbingers of a pension debt crisis at state and local level across the US as a result of this scam.  Actual bankruptcy is rather rare, but the number of local governments that have defaulted on their loans is rising and many states have been forced to bail out municipalities (like Harrisburg, the capital of Pennsylvania, and Newark, NJ) that were bankrupt in all but name, and this is imposing a major burden on states that are themselves in financial trouble.  Many more cities and states would already be in bankruptcy if it weren’t for the accounting gimmicks.  All told, unfunded pension liabilities for all states and local governments now total well in excess of trillion dollars [### double check], and many of these governments will have no way to avoid bankruptcy.

What voters need to understand is that the translation of that innocuous-sounding phrase “unfunded pension liabilities” is this:  “We, the politicians of the past, have massively ripped off you, the taxpayers of the future, and by the time you figure it out, we’ll either be dead or long gone out of office – so nyahh, nyahh, suckers!”

Back to the Impact of Taxes and Spending and Corruption on each other


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