Save as much money as you can.
Live well below your means.
The pension time-bomb is coming.
One of the most vexing problems for Chicago and its teachers went virtually unmentioned during the strike: The pension fund is about to hit a wall.
The Chicago Teachers’ Pension Fund has about $10 billion in assets, but is paying out more than $1 billion in benefits a year — much more than it has been taking in. That has forced it to sell investments, worth hundreds of millions of dollars a year, to pay retired teachers. Experts say the fund could collapse within a few years unless something is done.
“Each day we wait to enact comprehensive pension reform, the problem gets worse,” Quinn said in a statement. “The unfunded liability will grow to more than $92 billion by the end of next fiscal year. Illinois is currently on track to spend more on pensions than education by 2016 and that is unacceptable.
— Pat Quinn
via Des Plaines, IL Patch.
If you think that taxpayers are going to fund your pensions, forget-about it.
If you think you can tax the rich to fund your pensions, forget-about it.
If you think that people are going to move into a community where their property taxes increase by 7% every year in order to fund failing schools, forget-about it.
If you think you’re going to get your COLA every year, forget-about it.
You have two options: Save every nickel and dime you can, or plan to work until you’re in your 70’s.
Illinois has an unfunded pension liability of at least $83 billion, according to state figures. It had 45 percent of what it needed to pay future retiree obligations as of 2010, the lowest among U.S. states, data compiled by Bloomberg show. …
Illinois had about $28 billion of general-obligation debt as of May 8, according to bond documents. The state of about 13 million people plans to sell $50 million of debt next month for technology projects, John Sinsheimer, the state’s director of capital markets, said in an interview.
Illinois’s backlog of unpaid bills has risen to more than $9 billion because of pension costs and falling federal aid, leaving the state “essentially treading water,” Comptroller Judy Baar Topinka said.
$83B + $28B + $9B = $120,000,000,000 in debt. The extra $50 million at 0.42% of the total is a rounding error. It should also be noted that this does not include the City of Chicago (or any other municipality or county debt) which is another $12-16 billion in debt depending on who you ask.
12,869,257 people in the state of Illinois. Every man, woman, and child owed owes $9,324.54 to the state. If you live in Chicago you owe another 5,910.34 locally for total of $15,234.89. (Are you feeling good about your new contract yet?)
I was just looking over the FY2013 Illinois State Budget as prepared by Gov. Quinn. On Pg 37 we’re told that Debt Service is 5.42% of all outlays. That’s over $3.3B per year paying principle and interest on money we borrowed. That’s $3.3B per year we could use to hire police officers, or teachers, or fully fund the pension funds but will instead go to pay for our bad fiscal decisions of the past.
More importantly, total expenditures are $61.0B. That means that if we (a/k/a the State of Illinois) completely stopped operating, fired all the employees, shuttered all the buildings, and spend 100% of the budget on paying off debt we’d be debt free in 2 years.
Oh, I know what you’re going to say… You’re going to tell me all about how the Chicago Teachers’ Pension Fund is not as underwater as the general state fund. True, but it’s still broke and broken. And there’s no money to fix it.
Then you’re going to say that this is a right guaranteed by the Illinois Constitution. Oh ya? Well where’s the money going to come from? The rich? You wish:
When New Jersey governor Chris Christie heard British Prime Minister David Cameron invite France’s wealthy to decamp to England to escape a proposed 75% tax rate, he felt something akin to déjà vu. Every day top executives of Johnson & Johnson (JNJ), Merck (MRK), and other companies commute from their homes in Pennsylvania to offices in Christie’s state, saving roughly two-thirds on their state income tax bill — and costing New Jersey’s treasury $50 million, by one estimate.
via Fortune (a/k/a CNN).
You don’t understand the Laffer Curve.
The study, by the anti-tax group Change Maryland, says that a net 31,000 residents left the state between 2007 and 2010, the tenure of a “millionaire’s tax” pushed through by Gov. Martin O’Malley. The tax, which expired in 2010, in imposed a rate of 6.25 percent on incomes of more than $1 million a year.
The Change Maryland study found that the tax cost Maryland $1.7 billion in lost tax revenues. A county-by-county analysis by Change Maryland also found that the state’s wealthiest counties also had some of the largest population outflows.
You’re confused how a state and raise taxes and lose revenue. It happens all the time. I wrote a piece about cigarette taxes in Cook County; raised taxes, lost revenue.
The more you tax something the less of it you get.
You tax income, you get less income. You tax babies, you get less babies.
Even the left-loving Bono (of U2 fame) moves his wealth around to avoid taxes.
In Illinois, if we quadrupled the state income tax on those with adjusted gross income over $500k it would take over 13 years just to get current state pension liabilities square. This would not cover the additional debt of Chicago Teachers, Chicago Police & Fire, or any of the billions and billions of general debt.
So take your 16% raise and start saving. Save like your life depends on it. Because it does.