In this weekend's New York Times Magazine, Annie Lowrey notes that the recovery has been slower for government jobs than for private-sector ones. But her explanations — implicit racism and imprudent tax cuts — miss the mark. As I explain in a recent report, one also has to look at costs, specifically those related to pensions, in order to fully make sense of why the public-sector workforce has still not returned to its pre-recession peak.
The Times article reports mainly on the state and local scene, and rightly so. "Government" employees mostly work for states, cities, counties, and school districts. The federal workforce composes only 12.5 percent of government employment nationwide. This fact is significant because state and city fiscal policy is different from federal fiscal policy, most notably in the commitment to balanced-budget requirements, and because states and cities are truly driving the decline in government jobs. State and local payrolls are around 500,000 below where they were prior to Lehman Brothers' collapse.
To go to the root of the matter, you have to look at both state and local budget data and the differences between the public- and private-sector workforces. Economists do not agree whether government workers are overpaid, but there is consensus that their compensation has a different structure that what is found throughout corporate America. Specifically, state and local compensation is markedly "back-loaded": Health and retirement benefits take up a proportionately larger share than they do for private-sector employees, and retirement benefits are provided mostly in the form of defined-benefit pensions.
In the defined-benefit model, the employer promises each worker a certain percentage of their final salary through their retirement years. This benefit is funded through a combination of employer (and often employee) contributions and investment return.
That last clause is key. Over the years, states and cities have become increasingly reliant on risky asset classes, such as stocks and alternative investments, to fund benefits. This policy was developed to minimize costs to taxpayers and employees, but in more recent years, underperforming investments have meant increased budgetary volatility. Market losses dig holes in pension funds that have to be filled by larger contributions by taxpayers.
Between 2008 and 2013, the last year for which full data are available, governments' pension expenses rose 32.2 percent, whereas state and local general revenues rose only 11.1 percent. Looking back to the dotcom collapse, from 2002-2013, pension costs went up 176 percent while general revenues increased only 60 percent.
Again, virtually all states and cities are legally required to balance their budgets. Thus, when a major cost category such as pensions rises more rapidly than revenues, some other spending commitment, such as more teachers or cops, gets "crowded out."
In my report, I estimate that, had pension costs risen at the same rate as general revenues since 2008, state and local government jobs would now be roughly 200,000 higher than their current total, and 500,000 more if costs had tracked general revenues since 2002.
To be clear, rising pension costs cannot totally account for why the state and local jobs recovery has lagged that of the private sector since 2008. And conservatives should understand that cutting taxes while your pension-debt totals keep growing is not fiscally responsible. The public-pension crisis is by no means unique to blue states.
But there's simply no way that, across the nation, diminished government workforces can be chalked up solely to a revenue problem. Many, many governments in blue states are having budget troubles these days, such as Monterey County, Calif.; Palo Alto, Calif.; Providence, R.I.; Hartford, Conn.; the Connecticut state government; and the Chicago Public schools. I'd add that racism is probably not behind Monterey County's hiring freeze.
Increasingly generous benefits are not the reason states and cities are spending more on pensions. In fact, benefits have become less generous, as a result of a wave of pension reform passed in the wake of the recent recession. Pension costs are up because pension debt is up. Unfunded liabilities — the gap between assets on hand and how much has been promised in benefits — are now at a 50-year high relative to revenues. The Obama administration has taken note of this troubling development in its "Economic Report of the President" (see Figure 2-v on page 69).
Rising pension-debt service means spending more on the costs of the past. Governments are, in effect, compensating workers and retirees for services the public enjoyed many years ago. The more you have to spend on the costs of the past, the less you have to spend on the costs of the present, such as hiring new employees.
Of course, the larger question is, do we have a problem at all if government jobs are down? I think we probably do, for two reasons. First, even if payrolls are down, government is not truly shrinking if costs are rising to fund pension debt. Second, the public is accustomed to a comfortably-staffed state and local workforce.
Low class sizes are universally popular. Structure fires have declined dramatically in recent decades, and a modest increase in emergency-response times may not be medically consequential, but public pressure to keep emergency-response times low will continue to prop up firefighter and emergency-services staffing levels. Cities can't turn to robots to improve police-community relations. It is probably not a coincidence that the most popular level of government, local government, also happens to employ most of the public-sector workforce.
At the very least, governments should possess the flexibility to rehire as needed. But that is easier said than done when so much of their new revenue growth is being consumed by pension-debt service costs.
The gap between public- and private-sector employment trends points to the serious and unaddressed fiscal challenges now faced by the state and local sector. It's encouraging to see prominent outlets raising awareness of it. But the way to advance constructive debate is to acknowledge that both blue and red states are struggling and to take a broad look at budget dynamics, instead of simply reaffirming liberal biases about those Republicans being at it again with their racial insensitivity and stupid obsession with tax cuts.
Stephen Eide is a senior fellow at the Manhattan Institute
Do the staff at national think tanks reflect the nation as a whole? Or are they more representative of the Acela Corridor, that narrow slice of America from D.C. to Boston where they are headquartered?
It's a serious shortcoming if national policy staffers too frequently have an urban pedigree, only have friends with similar views and education, and don't think much of their fellow Americans in flyover country, if they think of them at all. If staff at these institutions — who are charged with generating new ideas, turning those ideas into policies, and then convincing government officials to implement those policies — have little in common with the very people they claim to help, how can they be effective?
Elites' lack of familiarity with mainstream America is extensively documented in Angelo Codevilla's book The Ruling Class, and it was recently acknowledged by liberal writer Emmett Rensin in a Vox essay as well. Of the left, Rensin writes that
a movement once fleshed out in union halls and little magazines shifted into universities and major press, from the center of the country to its cities and elite enclaves. ... Finding comfort in the notion that their former allies were disdainful, hapless rubes, smug liberals created a culture animated by that contempt.
But state-level think tanks likely don't share this national-level weakness. Where national think tanks generally draw on a narrow base of experience, then offer advice to the entire nation, state think tanks are apt to more closely represent residents in the surrounding state and offer solutions crafted with first-hand knowledge.
To test this proposition, I turned to Charles Murray's "Bubble Quiz" — a 25-question survey that attempts to gauge a respondent's "isolation from mainstream white America" (which, while receding as a percentage of the population, is still a majority). Questions include whether you've lived in a small town, whether you've served in the military, etc.
Murray estimates that the mean for a nationally representative sample would be 44, with a lower score indicating more isolation from, and ignorance of, mainstream culture and experiences. When Murray analyzed scores from those who took the quiz online through PBS, he found that elite enclaves from Manhattan to Silicon Valley — and even Austin — had median scores ranging from 12.5 to 24.5.
When I took the quiz myself, I received a 50 — in spite of graduating from an elite school (Claremont McKenna College on an Army ROTC scholarship) and whiffing many of the pop-culture questions dealing with the likes of NASCAR and television.
Curious, I asked my colleagues at the Texas Public Policy Foundation, a state-level conservative think tank, to take it. My hunch was that they would score pretty close to Murray's national mean of 44.
In fact, they had a median score of 50. Here's the full distribution of scores from our staff and interns:
My bet is that most national think tanks inside the Washington Beltway would have a Bubble Quiz score more Manhattanite than Middle American. I advanced this theory when I circulated TPPF's results in an office email, prompting a colleague to reply, observing:
I agree with you about the DC-based think tanks. During my nearly 13-year DC experience, I purposely spent every bit of vacation back here in God's Country [Texas] because I saw the bubble and didn't want to get sucked in. I keep a copy of Dr. Codevilla's book, "The Ruling Class," in my office to remind me about that bubble. And shop Walmart (1/2 the price of Target).
Perhaps Murray should add a question about shopping at Walmart to his next iteration of the Bubble Quiz.
America's ongoing turmoil is partly fueled by the growing distrust between the cloistered elites and the rest of the nation. This points to the vital importance of state-level think tanks and their mission to formulate effective policies based on personal connections with average Americans. Further, it suggests that a return to federalism would not only result in policies tailored to specific regions, but also result in less resentment directed at a distant, condescending ruling class demanding compliance with its narrow worldview.
Chuck DeVore is a vice president with the Texas Public Policy Foundation and served in the California State Assembly from 2004 to 2010.
Kudos to state representative Gregory Holloway. The black Mississippi Democrat, a veteran legislator, has proposed a bill asking schools to grade parental involvement in their children's education. Called the Parental Involvement and Accountability Act, the bill addresses a crucial issue that has become too hot to touch for most politicians.
The case for responsible parenting may seem too obvious to merit discussion, but it's the elephant in the room that no one is talking about when it comes to schooling. This has hurt children, undermined efforts to improve schools, and embittered educators.
Not so long ago, American education-reform discussions were full of talk about parental responsibility and had too little mention of holding schools and teachers accountable. How times have changed. Today, there is an intense and generally healthy focus on ensuring that schools and teachers are doing their part. Along the way, though, the insistence that parents also do their part has been lost. We've worked so hard to avoid blaming parents that it's become controversial to even acknowledge that some parents aren't holding up their end of the bargain.
We got to this point by following a path of good intentions. In the No Child Left Behind era of school accountability, talk of parental responsibility sounded to many reformers and civil-rights leaders like an attempt to excuse bad schools and lousy educators. The resulting overcorrection has led to a careful-not-to-offend tolerance of the kind of parental behavior that would once have been roundly condemned. Today, we're loath to say much about parental responsibility when children skip school or don't do their homework. There are far too many cases where only a handful of parents attend PTA meetings — even when educators rearrange their schedules to accommodate parents. The status quo is especially destructive because it disproportionately affects schools with the most at-risk students.
Those who dare to talk about parental responsibility, Republican or Democrat, risk being attacked for doing so, sometimes in the most vitriolic terms. Indeed, some of President Obama's harshest criticism on the left has come when he has challenged black fathers on parenting. Indeed, Ta-Nehisi Coates, winner of 2016 National Book Award and a leading light of the contemporary left, denounced the president's stance in a 2013 commencement speech at Morehouse College, saying, "It is hard to avoid the conclusion that this White House has one way of addressing the social ills that afflict black people — and particularly black youth — and another way of addressing everyone else."
Research echoes common sense when it comes to the profound effect that parents have on their children's academic outcomes. Children who are read to, talked to, and taught patience and self-discipline are far more likely than those who are not to succeed in school. As a study published in the journal Pediatrics demonstrates, whether and how a parent monitors his child's exposure to television has an impact on everything from school performance to obesity. Common Sense Media, which provides information about children's entertainment media and television habits, reports that nearly two-thirds of preteens watch television every day — most of them for many hours, and that half of all teens regularly watch television or use social media while doing homework.
Parenting is hard, demanding, unrelenting, and sometimes exasperating work, especially for an overworked, struggling mother or father. But that's where clear public expectations can help. While American society has grown quite comfortable using social pressure to discourage smoking and excessive drinking, we're reluctant to be equally assertive about encouraging parents to read to their kids, treat teachers with respect, and make sure that their children get to school on time.
Today, educators are increasingly being asked to be accountable for how much a student learns. Yet, what a pupil retains is a multifaceted product that depends, in part, on how much they study at home and whether they take their studies seriously. This is an important reality to remember. Teachers should not be blamed for things that are beyond their control. Recent debates about teachers who feel accused this way have been fraught with distrust and ill will. It will be far easier to forge trust and find common ground if we acknowledge that successful students require the help of responsible parents as well as accountable educators.
We are not sure that Representative Holloway's bill is the best way to tackle this thorny challenge. We're inclined to think that a better way to start might be with local school boards' adopting a parental bill of rights and responsibilities that more clearly articulates shared expectations for both parents and educators. Still, Holloway deserves great credit for his willingness to put a tough issue front and center, and we hope that his example will find imitators and fuel healthy debate.
Frederick M. Hess is director of education policy studies at the American Enterprise Institute and author of Common Sense School Reform. Gerard Robinson is a resident fellow at AEI, former president of the Black Alliance for Education Options, and former schools chief in Florida and secretary of education in Virginia.
The founders knew we all had the rights to life, liberty, and the pursuit of happiness, but they apparently did not know that we also have the right to free online tax-preparation tools. It took Sen. Elizabeth Warren to discover this new inalienable right late in the 2015 filing season.
The founders might be excused for their failure of recognize this right, because in their day, the U.S. had no income taxation. The personal income tax would not become a permanent feature of the American economy until 1913. At that time, there was still no software and no internet, but there was also no need for technological assistance in complying with the tax.
As you can see from reviewing the original IRS Form 1040, tax returns were relatively easy to compute back then. All forms and instructions totaled a mere four pages. Most taxpayers simply reported their total income, subtracted some basic deductions, and then multiplied the balance (if any) by 1 percent. Only taxpayers reporting income over $20,000 paid graduated marginal tax rates ranging from 2 to 7 percent. This complexity affected a relatively small number of taxpayers, since $20,000 in 1913 was equivalent to over $450,000 in today's money.
Over the years, tax forms became more and more complex. The instruction booklet for today's Form 1040 extends to over 100 pages. While Form 1040 itself is only two pages, entries on the 1040 must be substantiated by a variety of supporting forms and schedules. In all, Form 1040 references 11 supporting schedules and 25 supporting forms. Not only is computing taxable income complex; calculating one's tax liability based on this income can also be very involved due to the Alternative Minimum Tax and phase-outs of various deductions. The complexity of income-tax compliance is especially objectionable because every other payment we have to make each year is either calculated for us or simple to compute.
Innovative firms such as Intuit and H&R Block have responded to this mind-numbing complexity by developing desktop software and, more recently, internet-based tools to perform many of the lookups and calculations for us. The cost of using such tools is typically below $100, well worth the money for the time and aggravation they save.
The two tax firms have even gone further by offering free access to their online tools for taxpayers who are eligible to file simplified forms 1040A or 1040EZ. These taxpayers have less than $100,000 in income, don't itemize, and don't have self-employment income. One incentive for the tax-preparation companies to offer these free services is clear. Taxpayers with simple filing requirements are often at the beginning of their careers. If they become Intuit or H&R Block users in 2016, they are likely to become paying customers in future years as their tax-filing needs become more complex.
But this isn't good enough for Senator Warren. On April 13, her office released a report criticizing the IRS' reliance on for-profit tax-preparation firms and proposed legislation directing the IRS to develop its own free online tax-preparation and filing service accessible to more taxpayers.
In fairness to Warren and her colleagues, a law enacted by a Republican Congress in 1998 did call for return-free filing, and it is true that the tax preparation industry has lobbied against the implementation of this provision. Further, the tax-preparation companies have inserted language into their free-file service agreements with the IRS that preclude the agency from developing its own return-free solution.
But asking the IRS to create its own tax-preparation software would threaten a repeat of the HealthCare.gov fiasco: an expensive development process that results in seriously flawed technology. The IRS' record is not promising in this regard. In the 1990s, the agency spent $4 billion on a failed system modernization. After that effort was canceled, more modest upgrade initiatives suffered from cost overruns, delays, and less-than-expected functionality, as shown in a 2003 IRS Oversight Board Analysis and a 2014 GAO Report.
Warren's report alleges that the tax-preparation industry and anti-tax groups have teamed up to prevent the IRS from simplifying the tax filing process. Her approach, endorsed by Bernie Sanders, Al Franken, and other left-leaning senators, is to have the IRS complete our tax forms for us by harvesting data from all the W-2's, 1099s, and other third-party forms it receives on our behalf. Ultimately, they imagine that the IRS could implement a return-free tax system like those in Denmark and Sweden.
Taxpayer advocates are rightly concerned that return-free filing could be a gateway to greater government control over our financial affairs. Besides, private tax-preparation services already interface with many third parties that provide tax data, so it is hard to see how the technology-challenged IRS can provide substantial benefits in this regard.
Rather than socialize the tax-preparation industry, perhaps Warren and her colleagues should embrace the idea of shrinking the industry through tax simplification. Despite differing views about tax rates, there should be broad agreement across the political spectrum about increasing the efficiency of our tax system. Reducing the number and complexities of tax brackets, deductions, and phase-outs will both ease compliance and reduce the distorting impact of tax rules on economic behavior.
Marc D. Joffe is an independent public policy researcher. He also heads the not-for-profit Center for Municipal Finance.
The American Dream is premised on the idea that the circumstances of your birth should not determine how far you can rise. Yet a growing body of research shows that a child's ZIP code too often limits her life chances, with factors such as failing schools, dangerous streets, lack of quality jobs, and a dearth of community resources coming together to perpetuate poverty. And a new report suggests even more bad news for the American Dream: As it turns out, where you live isn't just correlated with how high up the ladder you can climb; it also helps to determine the point at which you fall off altogether.
Multiple studies have confirmed that the rich typically live longer than those in struggling families, and that this gap is growing. A new study from Raj Chetty and his colleagues underscores that this gap is unconscionable, with nearly 15 years' difference in life expectancy between the richest and poorest American men and over 10 years' difference for American women.But the study reveals something new as well: that the gap is place-based, with significant differences in life expectancy among lower-income individuals based on where they live.
Among the top 100 commuting zones, poor individuals had longer life expectancies in wealthier areas with more educated individuals. A poor person in New York City, for example, is expected to live years longer than a person with the same income in Detroit. In other words, there are not just "two Americas" — the rich and the rest of us — but also dozens and dozens of Americas on the bottom rungs of the economic ladder, with policy choices dramatically shaping not just quality of life but also the length of it.
These disturbing findings come out as issues of poverty, inequality, and mobility have taken center stage in the political conversation. Speaker Paul Ryan and Senator Tim Scott recently held a GOP "poverty summit" in South Carolina. Further, the speaker has indicated that later this spring, House Republicans will be releasing a "white paper" synthesizing their ideas to cut poverty.
But if past is prologue, many of the House's recommendations will be a recipe to exacerbate and perpetuate the disparities that Chetty's study unearthed. First, under the Republicans' budget blueprint, struggling families would suffer no matter where they live. The recently proposed House budget protects tax cuts for millionaires while deriving more than three-fifths of its cuts from programs that help low- and moderate-income people — programs that have cut the nation's poverty rate nearly in half.
But it gets worse. The solutions favored by conservatives have typically been to consolidate and flat-fund federal programs that are currently helping struggling families, and to send these programs to the states. There have been many euphemisms for this policy over time: block grants, "empowering local communities," "increased flexibility," and, most recently, Speaker Ryan's "opportunity grants." But new packaging doesn't change the reality. Block-granting and sending low-income programs to the states has historically resulted in deep cuts to core assistance programs, the inability of programs to respond when hardship rises during recessions, and wildly different access to help based on where one lives.
One example is the Temporary Assistance for Needy Families Program, or TANF. In 1996, the federal guarantee of income assistance was sent to the states as a flat-funded block grant. Since that time, the value of the block grant has declined by nearly one-third, and the share of eligible families able to turn to income assistance has dramatically fallen. During the Great Recession, as unemployment and poverty were rising, some states tried to help as many families as possible, whereas other states put up new barriers that resulted in fewer struggling families having access to help.
Now conservatives are proposing to do the same thing to the Supplemental Nutrition Assistance Program, or SNAP, our nation's most important defense against hunger. SNAP not only kept 10 million people from falling into poverty last year, but the program actually boosts long-term outcomes for children, including their health as adults.
Wildly varying programs at the state level isn't limited to TANF. Many states do not have a stellar record when it comes to acting in the best interest of their low-income citizens. Nineteen states have refused to expand Medicaid under the Affordable Care Act, leaving 4 million Americans without health insurance. "Flint" is a one-word reminder of how unresponsive states can be to disadvantaged groups that lack political power. And while conservatives trumpet the importance of flexibility and local control, many conservative states have passed policies to "preempt" more progressive localities from implementing measures that help families, such as raising their cities' minimum wage or passing paid-sick-days legislation so that parents don't lose needed income or their job if the school nurse calls them to come pick up their sick child.
As candidates and lawmakers debate solutions to address poverty and mobility, the last thing we need are policies that replicate and perpetuate the geographic disparities that leave a struggling worker in Texas with no access to health insurance while his counterpart in California can access Medicaid.
Instead, we should build off of the momentum in states and localities that are alleviating poverty and investing in families, which, not coincidentally, can also significantly reduce the chronic stress associated with a wide variety of illness affecting life expectancy. As noted by the Washington Post in its coverage of the Chetty study, "Among the 100 largest commuting zones ranked by the researchers, six of the top eight for low-income life expectancies are in California" — a state that has pursued many policies that mitigate the stresses associated with poverty, such as paid parental leave, a higher minimum wage, and investments in early care and education.
A serious agenda to cut poverty and promote economic opportunity would include these policies and more, investing in job creation, expanding access to high-quality childcare, and increasing opportunities for post-secondary education and training. It would help families manage work and caregiving through paid family leave and fair, flexible, and predictable work schedules; it would protect and strengthen the safety net, which is currently reducing poverty by nearly half. Finally, it would invest in high-poverty neighborhoods, as well as remove barriers to opportunity for Americans with criminal records.
There are many reasons for lawmakers and candidates to embrace these policies, not least of which is that they are very popular with Americans across the political spectrum. But Chetty and his colleagues have now given us one more important reason to reject the failed conservative proposals and instead make needed investments to cut poverty and boost opportunity.
Melissa Boteach is the vice president of the Poverty to Prosperity Program at the Center for American Progress.
Lost in the blur of the presidential campaign is evidence that the Republican replacement for Obamacare will include refundable tax credits. In its purest form, this means that each person who has employer-sponsored benefits or an individual health plan, or is dependent on a welfare program like Medicaid or the Children’s Health Insurance Plan (CHIP), will start with a fixed sum of taxpayer money with which to choose health coverage. The Republican proposal will not likely go that far, but it will go a long way toward making the tax treatment of health benefits fair.
Working-age people dependent on government money for health coverage are caught in a trap that hinders them from seeking higher incomes. Whether they're on Medicaid (the joint state-federal welfare program for low-income people) or receiving coverage through an Obamacare exchange with premiums discounted by tax credits paid to insurers, these people will lose all or much of their subsidies if they get a pay hike. This can significantly increase their health costs and even reduce their take-home pay despite the raise.
Take a family of four whose household income increases by just $1, from $31,720 to $31,721. In an Obamacare exchange, the household is initially liable to pay an estimated $958 for the most common plan. But the extra dollar will make the family ineligible for some subsidy money, and the household's net annual premium will rise by $320 (from $638 to $958) — a net loss of $319.
On the other hand, people with employer-based benefits exclude the value of those benefits from their taxable income. Because the United States has a highly progressive income-tax regime, this exclusion is worth far more to high-income households than middle-income ones.
A universal tax credit would eliminate this tax discrimination. To be sure, the leading Republican presidential contender, Donald Trump, does not have a tax credit in his plan. Senator Ted Cruz and Governor John Kasich, the other two Republican contenders, appear open to reforming the tax treatment of health benefits but are not wedded to any one way. This means that if a Republican president is elected, the initiative for post-Obamacare health reform will fall to Congress.
House Budget chairman Tom Price, R.-Ga., a physician, has already proposed his own Obamacare replacement. Price is one of four committee chairmen whom Speaker Paul Ryan recently appointed to a health-reform task force. A Republican president would likely look to Price’s plan for a tax-credit design.
Price’s bill offers a universal tax credit, adjusted by age, to every American who chooses to buy individual health insurance: $1,200 for those aged 18 through 34, $2,100 for those 35 through 49, $3,000 for those 50 through 54, and $900 per child. Price would allow people to decline employer-based benefits and claim their tax credits in the individual market.
Some conservatives criticize health tax credits because they must be paid for. This is one reason Republican politicians who support tax credits have generally failed to win the support of Republican fiscal hawks. Supporters should emphasize that a universal tax credit would replace, not supplement, current federal spending. For example, Medicaid money would be used to fund the tax credit. According to the Congressional Budget Office, federal spending on Medicaid and the Children’s Health Insurance Plan (CHIP) will amount to $394 billion this year.
Another source of funding is the current exclusion of employer-based health benefits from taxable income. This exclusion will cost $144 billion in tax revenue this year. This so-called "tax expenditure" differs greatly from actual spending on Medicaid and other welfare programs because it imposes no direct cost on other taxpayers. Nevertheless, if the government eliminated this exclusion and substituted a tax credit, it would eliminate the exclusion’s bias favoring high-income households and leave many households with more after-tax dollars.
Using this revenue, plus Obamacare exchange tax credits, would cover $594 billion in tax credits for 232 million people on Medicaid, CHIP, employer-based plans, and individual plans (either on or off Obamacare exchanges). That averages over $2,500 per person.
Although the actual amount would likely be adjusted by age, as in Price’s bill, that would be enough money to overcome political resistance to a universal tax credit, which would be much simpler and vastly superior to the status quo.
John R. Graham is a senior fellow at the Independent Institute and a senior fellow at the National Center for Policy Analysis.
At The Huffington Post, Michael McAuliff has a long and fascinating piece about the trucking industry's lobbying efforts. It's a story with many layers — the industry has succeeded in beating back new regulations, it's trying to remove some existing ones, etc. — but the hook is that things are worse than they used to be on our highways. The headline is "Trucks Are Getting More Dangerous And Drivers Are Falling Asleep At The Wheel. Thank Congress." One early section is titled "Increasing Carnage On Our Highways."
Here's the data to support that:
Truck-related deaths hit an all-time low during the economic doldrums of 2009, when 2,983 truck accidents killed 3,380 people. But as the economy has recovered, the carnage has been on the rise. In 2013, the most recent year for which finalized statistics are available, 3,541 wrecks killed 3,964 people — an increase of 17.3 percent in just four years. In 2014, the number of deaths resulting from truck accidents was down slightly, but the total number of crashes and injuries increased.
McAuliff deserves credit for admitting the 2009 figure is an all-time low, and for noting the role of the economy. But when I followed his link and started digging, I was suprised to find just how dramatic of a low it was. In just two years, fatalities had dropped 30 percent:
The 2013 data point is actually lower than any number recorded before 2009, even without accounting for population growth. (The data go back to 1975.) It's completely unclear how much of this rise we can ascribe to anything but the economy. With some earlier data added to the picture, it can be argued that trucking fatalities are just returning to their previous trend.
On a side note, the data are also available on a per-mile-driven basis, but I hesitate to read much into them. For one thing, the system for counting truck miles changed dramatically between 2006 and 2007. For another, the numbers suggest the per-mile-driven rate of fatalities fell almost as sharply as the total number between 2007 and 2009: 26 percent. This could mean that more dangerous truck trips are the ones canceled first when the economy goes south, or it could indicate a problem with the new system. At any rate, a similar point holds: Measured this way, 2013 was safer than every year on record save the period 2008-2011.
Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen
As Congress considers assisting Puerto Rico through its current fiscal crisis, taxpayers have a legitimate interest in knowing how much government employees on the island are being paid. Unfortunately, we have found that public-sector salary and benefit data is one of the commonwealth's numerous financial secrets.
Understanding Puerto Rico's fiscal situation has been a challenge for citizens, bond investors, and oversight agencies. While all U.S. states released their audited financial statements for the 2014 fiscal year long ago, we are still awaiting the commonwealth's audited financials some 21 months after the fiscal year ended. Congressional leaders are so irritated with the delay that they have made the release of audited financial statements a prerequisite for debt relief under the proposed Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).
Fortunately, Puerto Rico's 78 municipios — which are roughly equivalent to U.S. counties — have been more prompt in filing their financial reports. Our group, ABRE Puerto Rico, has collected financial statements for all of the island's municipios and displays them, together with financial-health rankings, on a new website.
We recently attempted to include detailed information on salaries for municipal employees. Our goal was to provide the level of information available in California, New York, and other states.
In California, the state controller publishes anonymized public-employee salary data online. The site began as a reaction to revelations from the Los Angeles suburb of Bell, where the city manager was receiving close to $800,000 annually.
A private website, Transparent California, goes even further by supplying employee names. Local media frequently reference Transparent California when calling out instances of excessive public employee pay. The site, conceived by the not-for-profit California Policy Center, receives a very large number of daily page views, testimony to its value to both journalists and the general public.
Despite excellent relationships with a number of the agencies responsible for collecting and disseminating government financial information, we have been unable to collect detailed public payroll data like that available on the mainland. Puerto Rico's Office of Government Ethics voluntarily provides a financial summary for some elected officials; however, it provides broad ranges in a non-standardized manner.
Utilizing other resources such as the Annual Register of Government Posts and the Registry of Occupied Positions, it is possible to calculate an average salary for each municipio by dividing its total payroll by its total number of employees. However, this tells us nothing about the distribution of government salaries, which is important for any decisionmaking regarding the use of our limited public resources.
Puerto Rico's government agencies have raised taxes and service fees while delaying payments to vendors. Last August, the commonwealth began defaulting on some of its more junior bond obligations, and it is threatening to default on more senior bonds later this year. It has also sought protections similar to those afforded to municipalities in the 50 states under Chapter 9 of the bankruptcy code.
Before asking more from taxpayers, bondholders, and vendors, the governments of Puerto Rico should muster the political will to provide detailed information about their finances. Public pay transparency is an important step in this direction.
Alvin Quinones is the co-founder of the Center for Integrity in Public Policy in Puerto Rico, which operates ABRE Puerto Rico. Marc Joffe is president of the Center for Municipal Finance, which provides technical support for ABRE's transparency work.
Tax Day is upon us, but the reality is that America's current tax code is a millstone around the necks of families year-round. It punishes employers who choose to open businesses in America. It stacks the deck against middle-class families with children who are trying to make ends meet. It penalizes the poor who enter the workforce with effective marginal rates that would make Karl Marx blush.
No wonder politicians of all stripes say they want tax reform. Yet some tax reform ideas are better than others. In honor of Tax Day, here are three of the best and worst reforms under discussion.
Three Good Tax Reform Ideas
1. Full business expensing. Typically, businesses deduct expenses from their revenue when calculating their taxes. Businesses deduct the wages they pay and the office supplies they buy.
With some exceptions, however, businesses cannot immediately deduct the purchase of business equipment. For example, if a business purchases a computer, it likely cannot write off the full cost against its income. Instead, it must deduct the computer over six calendar years in a process known as "depreciation."
As a result, investing in new equipment becomes more expensive. Businesses buy less equipment, which makes them less efficient and means fewer sales for those who make the equipment.
Policymakers should scrap the current system and instead allow businesses to deduct the full amount of their investments in the first year, also known as full business expensing. A study by the Tax Foundation found that moving to full expensing would raise wages by 4.36 percent and create 885,300 jobs.
2. Unified and expanded child tax credits. The current tax code includes several child tax benefits: the dependent exemption, the child tax credit, the additional child credit, the earned income tax credit, the head-of-household filing status, and others. These well-intentioned provisions interact imperfectly, and consequently, working-poor families experience a high error rate with their tax filings.
We should unify all existing child tax benefits into a single, easy-to-understand child credit. The simplified credit should be more generous to working families with children than the current credit, preferential toward the working poor, and earned only by the middle class and below.
3. Smart payroll-tax reform. The largest tax most Americans pay is the FICA tax — the Social Security and Medicare payroll tax. Withheld from wages and matched by employers, the tax is indiscriminate, hitting young and old, rich and poor, single and married.
Here are two reforms to make the payroll tax more sensible. First, exempt working seniors from the payroll tax. After all, they have spent a lifetime paying FICA taxes, and most are drawing Social Security and Medicare benefits. Not only would over 4 million working seniors — many of them low-income — benefit from this change, but the tax cut would encourage enough seniors to stay in the workforce that income-tax revenue would offset three-quarters of the lost revenue.
Second, exempt the first $10,000 or $15,000 of wages from the FICA tax. This would help the poor transition into the workforce without facing staggering marginal tax rates. It would also encourage businesses to hire, since they would benefit from the lower taxes as well.
Three Bad Tax Reform Ideas
1. Bernie Sanders' high marginal rates. Sanders has proposed what may be the most anti-growth tax plan ever. He would hike the payroll tax, raise marginal income-tax rates all the way to 52 percent, and retain the 3.8 percent surtax, which, in combination with his payroll-tax hike, would result in marginal tax rates approaching 70 percent. He would increase the capital-gains tax to the same stratospheric levels and impose a financial-transactions tax. The Tax Foundation reported that Sanders' tax plan would lead to 6 million fewer full-time equivalent jobs.
2. Tax hike on "carried interest." This tax increase, a favorite of liberals, is in President Obama's budget as well as Clinton's and Sanders' plans. While advertised as a tax on Wall Street fat cats, in reality it punishes the very individuals who help turn around failing companies or generate returns for pensions, colleges, and charities. It would tax the capital gain that a managing investment partner earns at ordinary income tax rates, rather than the current lower capital-gains rate.
For example, say five people come together to save a failing company; four provide the money, and the fifth manages the company. Under this proposed tax increase, if they are successful and sell the company, the four who provided the capital will pay a tax rate that is half the rate of the person who managed the turnaround. Today, they pay the same tax rate.
If implemented, this tax would lead to fewer business turnarounds and lower investment returns, making us all poorer.
3. Global minimum tax. Another liberal darling and bad idea planted in President Obama's budgets, the global minimum tax is simple — tax American-based multinational companies a minimum amount on their worldwide income. Currently, American companies owe taxes on income earned elsewhere only when they bring the money back to the U.S.
The proposal sounds fair, until you realize that the companies have already paid taxes in the other countries where they earn income, and that the U.S. is one of only a few countries to tax businesses' worldwide income. As a result, the tax incentivizes businesses to move out of the U.S. to any of the more than two dozen major economies that don't impose worldwide taxes.
Tax reform won't happen unless policymakers start to separate the good ideas from the bad. A close look at these six proposals would be a good way to start that process.
Ryan Ellis is a senior adviser for tax policy with the Conservative Reform Network.
With taxes on everyone's mind this Tax Day, here's a change in the tax laws that deserves serious consideration: improving the federal Earned Income Tax Credit (EITC) for working childless adults, the lone group the federal tax code taxes into poverty.
For childless workers, the EITC isn't large enough to reward work or offset their federal payroll and income taxes. And childless workers under age 25 are completely ineligible for the credit, so the EITC does nothing for young childless adults trying to get a start in the workforce. As a result, the federal tax code taxes about 7.5 million childless adults ages 21 through 66 into — or deeper into — poverty.
For example, in 2016, a 30-year-old childless adult making $12,494 — roughly the poverty threshold — will incur a federal income- and payroll-tax liability of $986 after subtracting an EITC of just $184. Federal taxes will push her nearly $1,000 into poverty. That's a significant amount for someone with income this low.
The EITC is designed to encourage and reward work, and it does so very effectively for families with children. Extensive research shows that it induces many people who aren't working to take a job. Yet this proven pro-work instrument largely leaves out working childless adults and working non-custodial parents. Labor-force participation has fallen among less-educated young adults who aren't raising children, making them a prime candidate for a more adequate EITC.
Fortunately, leading policymakers from both parties recognize the problem. President Barack Obama and House Speaker Paul Ryan have offered nearly identical proposals to lower the eligibility age for the childless workers' EITC to 21 and boost their maximum credit to about $1,000. These changes would make significant progress toward meeting the core principle that no American worker should be taxed into poverty.
Senator Sherrod Brown, D.-Ohio, and Representative Richard Neal, D.-Mass., have introduced more robust proposals that would essentially ensure that the federal tax code doesn't tax childless wage-earners aged 21 through 64 into poverty.
These proposals would reward the hard work of a broad swath of people in every state — young and older, male and female, and across all races — who do important low-paid jobs in hospitals, in schools, and at construction sites.
Of the 13 million workers who would benefit from the Obama and Ryan proposals, roughly 35 percent are at least 45 years old, and 1.5 million or more are non-custodial parents. About 6 million are women, and some 630,000 are veterans or military service members. Workers in a diverse range of occupations and demographic groups would benefit. An additional 3 million workers — 16.2 million overall — would benefit from the Brown and Neal proposals.
Providing a more adequate EITC to low-income childless workers and lowering the eligibility age would have important benefits beyond raising these workers' incomes and helping offset their federal taxes. Some leading experts believe that an expanded EITC for these workers would also help address some of the challenges that less-educated young people face, including low and falling labor-force participation rates, low marriage rates, and high incarceration rates.
The two parties may not agree on many issues these days, but making work pay for childless adults should be one of them.
Chuck Marr is the director of federal tax policy at the Center on Budget and Policy Priorities.
We recently released a study estimating the impact of federal regulations on each state, called the "Federal Regulation and State Enterprise" (FRASE) index, and as part of this study, we included the heatmap below. The heatmap shows states where the impact of regulation is higher than the national average shaded in "hot" colors — different shades of orange — and states with impacts lower than the national average shaded in "cool" colors — variations of blue.
Keen observers immediately noticed a pattern: Many "red states" — traditional Republican strongholds — are also red (or orangish) on the heatmap. Likewise, many "blue states" are blue on the heatmap. These observers' eyes didn't deceive them: There is a strong correlation (0.62) between the percentage of voters in each state who chose the Republican candidate in the 2012 presidential election and the 2012 score for the FRASE index.
Is this coincidence? Why are red states red in our heatmap, and why are blue states blue? Our index is completely data-driven, and two factors explain much of this pattern: the specialization of a state in one or a few industries and the growing importance of environmental regulations.
The two essential inputs for the FRASE index are estimations of how much federal regulation is applicable to each industry, and the importance of each industry to each state's economy.
The first element — industry regulation levels — comes from the RegData project. RegData is both a methodology and a database, and it involves the use of computer programs to read hundreds of thousands of pages of federal regulations and produce statistics about the text. The two statistics from RegData that we use are the number of regulatory restrictions (words like "shall" or "must") and the probability that those restrictions are relevant to each industry in the economy. This lets us estimate the number of restrictions relevant to each industry in each year. We use this as a measurement of how regulated different industries are.
The second element is the importance of each industry to each state, relative to the industry's importance to the nation overall. For this, using data from the Bureau of Economic Analysis, we calculated the percentage of each state's economy that is produced by each industry, and then divided those numbers by the comparable national figures.
As a result, when a state economy is highly concentrated in one or two industries, changes in regulation on those industries can dramatically affect the state's score on the index. Some trends in the production of regulations — such as the growth of environmental and transportation regulations — play a large role in determining the levels of regulation on specific states.
For example, the Environmental Protection Agency was responsible for about 7 percent of the regulatory restrictions in existence in 1990. By 2013, that number had more than doubled, to about 15 percent. Other regulators, such as the Department of Transportation and the Department of Energy, increasingly address environmental issues as well. This trend is corroborated by trends in regulation by industry: Five of the 10 industries that experienced the largest increases in regulation since 1997 are particularly affected by environmental regulations.
States with high FRASE index scores tend to be relatively specialized in industries that are heavily targeted by regulation — often in the form of environmental regulations. It's not surprising that these states are not randomly distributed throughout the country; economies everywhere often develop around the resources at their geographic disposal. Farming is more likely to be an important industry where there is fertile, flat land. Tourism, and the associated retail trade that goes with it, is more likely to be important where there are sunny beaches or snowy mountains. In general, industries form where inputs of production are cheap relative to the prices of their products. Forces of geology and geography happened to distribute some inputs of production unevenly across the states, and some of those inputs are important to industries covered in regulators' missions.
But why does this correlate with states' political leanings? Do the different impacts of federal regulations on the states affect the political inclinations of voters? It's a plausible hypothesis, but one that is well beyond the scope of our study or this essay. And politics certainly was not a factor in the construction of our data.
For our part, we have made our dataset freely available in the hopes that others might use our measurements of federal regulation to empirically assess their ideas. Over 130 years ago, the Nobel laureate and physicist Heike Kamerlingh Onnes elegantly summed his approach to science: "Through measurement to knowledge." We share the sentiment, as well as our measurements.
A new report from the Government Accountability Office, a nonpartisan government agency tasked with auditing, evaluating, and investigating government affairs for Congress, faults the Internal Revenue Service for failing to properly secure taxpayer data, leaving taxpayers' private information at the mercy of hackers, both domestic and foreign. The report, delivered to IRS chief John Koskinen on March 28, says the IRS has failed to make recommended improvements to its financial and information-technology procedures.
Unfortunately for taxpayers, the IRS has little motivation to protect the sensitive data it collects, because the agency views government, not taxpayers, as its consumer.
According to the report, the IRS "has not always effectively implemented access and other controls, including elements of its information security program, to protect the confidentiality, integrity, and availability of its financial systems and information." Also: "These weaknesses — including both previously reported and newly identified — increase the risk that taxpayer and other sensitive information could be disclosed or modified without authorization."
Other violations of good IT security practices cited in the report include failures to encrypt taxpayers' vital information, weak passwords on servers containing taxpayer data, and easy-to-evade physical security. For example, the report says non-employees could plausibly sneak by security guards in some IRS data centers and gain access to secure systems.
GAO auditors can issue reports until they've run out of printer paper and toner ink, but until lawmakers get tough with the IRS, the taxman will have no incentive to shape up. Living things consume resources, grow, react to stimuli, and reproduce. Government agencies such as the IRS consume taxpayer money, hire more staff, make new rules and regulations, and spin off new divisions and departments on a regular basis.
From the politically motivated "enhanced auditing" of conservative organizations committed by Lois Lerner and her employees to repeated data breaches, the government agency U.S. citizens are forced to deal with every year on April 15 has treated Americans with contempt. Why? Precisely because Americans are forced to "do business" with the IRS, there is little reason for the IRS to provide better customer service, protect private data, or apply tax laws in a neutral, nonpartisan way.
As Bruce Yandle, dean emeritus of Clemson University's College of Business and Behavioral Science, wrote for the Foundation for Economic Education, the solution to poor service from public servants is to reduce the power government has over citizens, so there are fewer opportunities for corruption and inefficiency.
"We must take action to reduce occurrences that corrupt the political process," Yandle wrote. "But how? First, by limiting the domain of government action. Then, when the domain is limited, by requiring transparency and regular agency reports that demonstrate choice neutrality, by encouraging competition from the loyal opposition, and by showing constant vigilance."
Also like living things, the IRS has an instinct for self-preservation, and lawmakers must harness that desire to align the agency's actions with the best interests of taxpayers. By reducing the IRS' size and power, as well as the power of the federal government in general, abuse and corruption become less attractive, and agencies are forced to concentrate on their core competencies.
Just as a trainer disciplines a disobedient animal, Americans need to demand their government start working for them again, instead of the current status quo of Americans constantly working to feed the government leviathan.
Jesse Hathaway is a research fellow with the Heartland Institute.
Today, Democrats are once again using "Equal Pay Day" — when women's earnings supposedly "catch up" to men's earnings from the previous year — to convince American women that society is overwhelmingly sexist and that more government regulation is needed.
In recent years, conservatives have been more aggressive in pushing back on the faulty statistics and flawed logic underlying Equal Pay Day. For example, Democrats claiming women are paid 77 cents on the dollar ignore the differences in industry, hours worked, and years of experience that cause most of the wage gap. But it's time to do more. Conservatives need their own ideas about how to make our society more equitable, make the workplace fairer, and help women and their families achieve more without growing government.
This week, our colleagues at the Independent Women's Forum released "Working for Women: A Modern Agenda for Improving Women's Lives," a report that presents an alternative, positive economic vision. It starts by highlighting the need for job creation and true workplace flexibility. Today, women's labor-force participation rate is at its lowest level since 1988. Many women aren't working because they can't find jobs that pay enough or offer the hours they need.
Costly government policies — from unnecessary state licensing regimes to expensive Obamacare mandates to our complicated tax code — contribute to this problem. While technology is creating new paradigms for combining work and family life, outdated laws and rigid government bureaucracies are impeding innovation.
For example, the Department of Labor recently moved to limit independent contracting. These flexible work arrangements allow women to work when, where, and how they want so they can earn money and retain vital skills, even when taking time away from full-time jobs. Conservatives reject such government meddling and instead want to modernize laws like the Depression-era Fair Labor Standards Act to give workers the freedom to choose more time off, rather than overtime pay, and the flexibility to consider scheduling alternatives to the 40-hour work week.
Similarly, progressives advocate sweeping new paid-leave mandates. New benefits always sound nice, but they would result in lower take-home pay for many workers — particularly those who already have low incomes — and limit economic opportunities for women. At a time when we've all grown used to customizing our lives, it's time to dismiss one-size-fits-all mandates in favor of true flexibility. We want all workers to have the time off they need, but employees should be free to decide what mix of take-home pay and benefits suit their needs.
Instead of more costly mandates that destroy job opportunities, government should make it easier for businesses to offer benefits on their own and for workers to prepare financially for important needs. Just as the public is encouraged to save for college expenses and retirement, conservatives can champion Personal Care Accounts, where people can save pre-tax dollars that can be used to replace income during time off eligible under the Family and Medical Leave Act. Businesses should also be encouraged, through tax benefits, to contribute to these accounts and to offer other paid-leave benefits.
We all understand that child care is a real concern for working parents. Democrats respond to high daycare costs by calling for more government subsidies, which drive up prices and limit options. Conservatives want to help parents, not just daycare providers. That's why we recommend eliminating counterproductive daycare regulations that research shows raise costs without improving quality. We also call for the consolidation of child-related tax benefits and spending programs so those resources can be provided directly to parents, regardless of whether they choose to use a paid daycare provider.
Conservatives should be clear about their commitment to equal pay for equal work. The Equal Pay Act of 1963 outlaws discrimination and gives women the opportunity to sue businesses that mistreat them. Yet conservatives can improve anti-discrimination laws, for example by clarifying that pay differentials between men and women must be attributable to a "business-related factor other than sex" — current law just says a "factor other than sex," with no explicit requirement that the factor be business-related — and that pregnant workers must receive the same accommodations as other workers with similar abilities and limitations. These simple changes eliminate current ambiguities and reaffirm the principle of equal pay for equal work without creating onerous new red tape, encouraging more litigation, or making women less attractive hires.
Of course, the best way to ensure that workers are treated fairly is a growing economy that offers plentiful job opportunities. Conservatives are dedicated to realizing this vision by reducing barriers to job creation, removing complicated rules that prevent innovative, encouraging flexible work arrangements, and returning resources and control to individuals.
Conservatives' vision of less government and more freedom isn't a war on women. Far from it: It's a way to give women and their families more control over the most important parts of their lives so that we can all pursue our own vision of happiness.
Carrie Lukas is the managing director of the Independent Women's Forum, and Sabrina Schaeffer is the executive director of the Independent Women's Forum.
Finally, some minimum-wage advocates are acknowledging the policy's tradeoffs. New School economics professor David Howell recently asked the Washington Post, "Why shouldn't we in fact accept job loss?" He calls for a "living wage" mandate for some, even if it hurts others.
Is that a good trade? Lawmakers should carefully consider this question before following in the footsteps of California, which recently decided to raise its minimum wage to $15 by 2022, or New York State, which is also aiming for $15 (though its timetable is less certain).
It is young people who are disproportionately on the short end of the minimum-wage tradeoff — and whose interests activists often ignore. How bad is it? Largely because of minimum wages, barely a third of teenagers have taken on summer jobs in recent years — and one-fifth of those who want jobs can't find them — even as the nationwide unemployment rate has dropped below 5 percent.
Whether they know it or not, high minimum wages make it difficult or impossible for many young people to land that first job. They lose opportunities to learn skills, from basic work habits like showing up on time to advanced specialized trade skills that can pay handsomely down the road.
The tradeoffs do not end with higher or prolonged unemployment. Higher minimum wages can force employers to cut back or eliminate on-the-job perks such as annual bonuses, paid vacation and sick leave, and complimentary meals and parking. When these non-wage benefits, which are mostly untaxed, are replaced with wages that are taxed, that often means a tax increase for affected workers — adding insult to injury. And there is some evidence that high minimum wages hurt disabled workers and raise crime rates.
The minimum wage also puts small businesses at a competitive disadvantage. Large companies such as Walmart and Costco can absorb minimum-wage increases fairly easily, while the mom-and-pop competitor down the road might have to cut down staff or even shut its doors as a result of increased costs, a prospect that should dismay progressives.
Howell does have a proposal to mitigate minimum-wage tradeoffs: cash assistance for people who lose their jobs. The concept is similar to Trade Adjustment Assistance, which is intended to help workers who lose their jobs to increased international trade. Of course, both TAA and Howell's minimum-wage assistance also come with tradeoffs.
First, it is difficult to tell whether someone loses a job because of a minimum wage hike, or some other cause, such as changing market conditions. This opens up the possibility of people gaming the system. Second, that assistance is not free. It has to come from somewhere — such as taxes from the workers who get raises from the minimum-wage hike, which makes the increase smaller than advertised.
Layering an additional complicated and fraud-prone government program to fix a problem prompted by a government policy is the wrong idea. It is much simpler — and more ethical — to allow workers and employers to agree to employment their own terms, not whatever terms Howell or other professed experts decide.
Ryan Young is a fellow at the Competitive Enterprise Institute.
"You never want a serious crisis to go to waste," said then-White House Chief of Staff Rahm Emanuel, who is now the mayor of Chicago, in 2008. Puerto Rico's current financial situation is just such a crisis, but congressional Republicans' legislation on the issue may put parochial political concerns above the national interest. The current draft would fail to ensure that all state and local governments — not just Puerto Rico's — accurately disclose the unfunded pension debts they have accumulated.
Governments don't go bankrupt for one reason alone. But every financially troubled government in recent years has had a poorly managed pension plan in the background. Detroit's public-employee pensions were essentially looted via bonus benefit payments. The city borrowed to fill the gap, then defaulted on the borrowing. Similarly, the bankrupt California cities of Stockton and San Bernardino granted massive, retroactive pension-benefit increases during the stock-market bubble of the late 1990s.
Emanuel's Chicago is itself in the midst of a pension crisis. Despite layoffs, unpaid furloughs, and budget cuts, Chicago's public schools recently instructed principals to stop spending money to help fund a large pension contribution due June 30. Just last week, the Illinois Supreme Court overturned a Hail Mary Chicago law to reduce pension benefits and raise employee contributions.
As for Puerto Rico, its government-employee plans are practically broke, through a combination of insufficient contributions, excessive investment risk, and sweetheart deals for participants. Indeed, one of the plans' main "assets" today is low-interest loans made to public employees to take overseas vacations.
No federal bankruptcy law applies to Puerto Rico, so Congress and the Obama administration must construct a rescue plan on the fly. Reform-minded members of Congress, including Senate Finance Committee Chairman Orin Hatch, R.-Utah, want any legislation to require all state and local governments to accurately disclose their pension liabilities. But draft legislation from House Republicans would require this of Puerto Rico alone.
This omission is more worrying given the reason: not Democratic opposition, but pressure from state-level Republican lawmakers not to enact stricter pension disclosures.
Under current public-pension accounting rules, established by the Governmental Accounting Standards Board, a plan that takes more risk may assume a higher investment return — and then use that higher assumed return to "discount" its liabilities. This accounting trick immediately reduces governments' contributions, before that riskier portfolio has paid even a penny of higher returns.
It's a gimmick that works only under public pensions' unique accounting rules, and it explains public plans' massive shift in recent years toward risky alternative investments such as hedge funds and private equity, a shift that the Society of Actuaries declares "goes against basic risk management principles."
Almost every other pension system in the world operates instead under "fair market" valuation rules, which, the Congressional Budget Office has stated, "provide a more complete and transparent measure of the costs of pension obligations." To institute these rules, Hatch would draw on the terms of the Public Employee Pension Transparency Act, authored by Rep. Devin Nunes, R.-Calif.
Hatch would only force disclosure, not set funding standards. But the mere disclosure of accurate liability figures would allow municipal bond markets to reward governments that responsibly fund their pensions and punish those that skip contributions. It would also reveal the true size of the pension crisis as a whole: Instead of being underfunded by merely $1 trillion, state and local plans would be shown to face a funding gap of $3 trillion or more.
This is no time to look to parochial interests. Last year, nearly 60 percent of state and local governments failed to make their full pension contributions. With trillions of dollars in public-pension liabilities residing off the ledger books, and increasingly risky investments used to fund those liabilities, failing to address public-pension disclosure would be a huge lost opportunity.
Andrew G. Biggs is a resident scholar at the American Enterprise Institute. From 2008-2009 he was principal deputy commissioner of the Social Security Administration, and in 2013-2014 he served as co-vice chair of the Society of Actuaries Blue Ribbon Panel on Public Pension Funding.