The Cost of Government Workers

[U]nless state and local government plans for their employees’ pensions are reined in, households will face state and local tax increases of almost $1,400 per year forever.

NBER Working Paper highlight:

In twelve states, the necessary immediate increase is more than $1,500 per household per year, and in five states it is at least $2,000 per household per year. A key feature of this analysis is that it accounts for the cost of new DB [defined benefit] accruals, for both current and future workers, not just the cost of unfunded legacy liabilities. Decomposing the results into these two components reveals that 49% of the increased contributions would be required to pay only the present value of new service accruals.

HT: David Henderson.

Comments (10)

Trackback URL | Comments RSS Feed

  1. Cindy says:

    Wow — you know, it’s interesting to see how this all adds up. I will say that there needs to be a better national conversation re: educating people about how to save for their own retirement. I think part of the fear around dialing this down is that a lot of financial strategies are just incredibly obtuse to a lot of people.

    This should be taught in high school and underscored again and again.

  2. Ken says:

    This is going to be a nightmare in California.

  3. seyyed says:

    sadly, there isn’t much to be done at this point other than increasing taxes or cutting pensions for government workers. maybe states can take a page from rhode island’s book and mix a defined-benefit with a defined-contribution plan. they were able to cut their unfunded liability by almost 40 percent.

  4. Robert says:

    There’s a lot of basic life skills that could/should be taught in high school, but let’s face it – the education system isn’t that great.

  5. Peterson says:

    I dont think tax increases to maintain lofty pension promises are the answer.

  6. Jim says:

    Not surprised that taxes are going to rise. The money has to come from some where…

  7. Buster says:

    I don’t mind if workers prefer to forgo current pay in return for future beneifts. However, states should be required to fully fund benefits in the year they are acrued. Future taxpayers should not be saddled with the cost. Moreover, workers should not be able to game the system by using overtime hours as part of the calculation to increase pension benefits.

  8. August says:

    This is one of the largest failures of government in the last 50 years; almost every single level has fallen prey to it. Not good.

  9. Erik says:

    THis is not suprising

  10. Theresa Chambers says:


    They are definitely not the answer, but after seeing the pattern of actions of this government, we can only expect all those numbers to be added to our taxes…one way or another they have to get this money, and it won’t come from their pockets, i’ll tell you that.