I wrote this a few weeks ago as a comment on a retired teacher’s blog. The post there was about how we need to “tax the rich” in order to fund the teachers’ pensions. I was asked to comment on the post by a retired teacher I know. Analysis follows:
There is no one sided solution to this problem. Perhaps if Springfield moved on this a decade ago it could be solved with “funding” but at this time both sides are going to have to give.
According to Crain’s Illinois’ unfunded pension liabilities are $86 billion. See: http://jamesbosco.com/2012/06/19/illinois-pensions-are-the-worst/
According to the Il Dept. of Revenue there were 36,682 returns filed in the state with over $500,000 in AGI. These returns paid $1,633,991,633. See: http://www.revenue.state.il.us/AboutIdor/TaxStats/2010/IIT-NetIncome-2010-Preliminary.pdf
If we (a/k/a Illinois) doubled the tax on these folks with AGI over $500k we could bring in an extra $1.63B assuming no one flees the state (which would happen.) So doubling the tax on “the rich” would cover 1.9% of the current pension liabilities.
If we quadrupled the tax that would cover less than 7.6% of the current pension liabilities. So it would take over 13 years of quadruple taxation on those making over $500k per year just to get current pension liabilities square. This would not cover the additional debt.
Union members can sit around pointing fingers but it’s not going to solve the problem. Illinois is broke. Everyone’s going to have to give more than they want. Of course, the “rich” can always move to Indiana or Wisconsin. Then they contribute nothing; that doesn’t help retired teachers one bit. So I recommend that you be careful what you wish for.
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We cannot solve our problem by eating the rich. We must grow the size of the pie. … Well, growth and inflation.