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Monday, February 27, 2012

Will California Follow Greece into Insolvency?

This is a must read article for anyone who pays taxes in the US, especially California
California households owe an average $30,500 for public employee pension debt 
Key points to understand:
  •  The average California household's share of the debt for underfunded state and local government employee pensions comes to about $30,500.
  •  The Stanford studies -- written by public policy professor Joe Nation, a former Democratic assemblyman, and math and economics student Evan Storms -- help us understand the absurdity of a 7.75 percent projection and the effects of different assumptions.
  •  When pension systems assume a 7.75 percent return rate, they have only a 42 percent chance of meeting or exceeding that target. But even using that optimistic assumption, the systems are currently only 77 percent funded, with a $180 billion shortfall. That averages $14,500 for each of California's 12.4 million households. 
  •  Many argue that pension systems should base investment projections on much-less-risky bond rates, about 4.5 percent. The chance of reaching that goal is 81 percent. Using that rate, California pension systems are currently 48 percent funded, with a $658 billion shortfall, or about $53,000 per household.
  •  Investment gurus such as Warren Buffett have argued for a midpoint, about 6.2 percent. The chance of reaching that goal is 63 percent. Using that rate, California systems are currently 61 percent funded, with a $379 billion shortfall, or about $30,500 per household. 
  •  Households won't receive individual bills for their shares. Instead, they will lose government services and face demands for more taxes. Using the midpoint assumption, the $379 billion debt is equal to about 3½ years of base salaries for state and local government employees. That's a lot of lost service.
  • ... the numbers don't include the unfunded liability for promised retiree health benefits, which were estimated four years ago to be at least $118 billion. They're surely far more today.
Currently California taxes me a bit over $10,000 a year for my home, taxes my income at 9.3%  (CA Tax Rates) and charges a sales tax between 8.25 and 8.75%, depending on what county I purchase goods near me yet it doesn't have enough money to pay its current bills.  I also bought a new car last year where sales taxes and fees added over $5,000!   California also doesn't have enough money to fund its pension obligations.    I am not the magical "one percent" either.  Last year I made well under the cap on Social Security so I paid both sides of the Payroll Tax plus Federal income tax.  No matter how you slice it, I pay a ton of taxes and government still can't pay its bills or meet its future obligations.

I won't vote for higher state and local taxes until government workers (other than police and fire fighters) pay the same percentage of their income to their pensions as I do AND they don't get to retire until they are the age I am when I can collect Social Security.  I've noticed that many who argue people who think like me are wrong or "selfish" are retired government workers who are part of the problem.

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