by | BUSINESS, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
Well, now we know something that has been long suspected for the past four years: the IRS and the White House are sharing taxpayer information.
That has certainly been the suspicion since at least 2010, when a senior White House official, Austan Goolsbee, made a comment about the Koch Brother’s business practices in August 2010. The Weekly Standard was one of the first to cover this indiscretion as part of an article about the growing practice of attacking the Koch Brothers by liberals. From TWS back then:
“While the attention is unwanted for the Kochs, if somewhat expected, a lawyer for Koch Industries now tells THE WEEKLY STANDARD that the administration may have crossed a line by revealing tax information about Koch Industries. According to Mark Holden, senior vice president and general counsel of Koch Industries, a senior Obama administration official told reporters at an August 27 on-the-record background briefing on corporate taxes:
“So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax. They point out [in the report] you could review the boundary between corporate and non-corporate taxation as a way to broaden the base.”
Holden tells THE WEEKLY STANDARD that this quotation from a senior administration official “came to our attention from different avenues. We are very concerned about why this would be said about us, particularly in this setting. We are concerned where this information would have been obtained from. We also are concerned in light of recent events that we have been singled out by the government and others as a campaign against us because of our political views.“
Additionally, Austan Goolsbee further this very line of thought on an interview shortly thereafter on September 12, 2010 with Chris Wallace.
During that fall of 2010 right before midterms, the Obama Administration started targeting small businesses and the way they pay taxes, as part a push for higher individual rate margins/repeal of the Bush Tax Cuts. The Administration began specifically trying to discredit Koch Industries and a plethora of small businesses by implying that not paying corporate taxes is somehow wrong or underhanded — while omitting that fact many businesses structure themselves as non-corporate entities to avoid the scourge known as double taxation. The White House used the Koch Brothers’ tax structure in an attacking anecdote, and openly discussed tax information that was not publicly available, in order to bolster their own talking points.
This has come back to light now four years later. Last week, TIGTA acknowledged the existence of about 2500 documents that fit the FOIA request, from a group called “Cause of Action”, asking for communication between the IRS and the White House.
Then on Tuesday, TIGTA retreated from its openness by withholding the bulk of the documents. A letter from TIGTA counsel to the group suing for the information, noted that there were 2,509 pages of documents “potentially responsive to your request”, and of those, 2,043 were in fact responsive. However, TIGTA cited tax code and privacy as the reason not to disclose those documents, saying “All of the 2,043 pages of documents we have determined to be responsive were collected by the Secretary of the Treasury with respect to the determination of possible liability under Title 26 of the United States Code. These pages consist of return information protected by 26 U.S.C. § 6103 and may not be disclosed absent an express statutory exception.”
Clearly, even without knowing the substance of the information, we do now know that the IRS and White House have shared some taxpayer information (roughly 2500 documents worth), which is a stunning breach of impropriety. The Koch Brothers were definitely in the crossfire back in 2010, and have been a concerted target of liberals ever since. Everyone questioned how the White House could know about their confidential taxpayer information. Now we know how. We just don’t know how deeply. Or who else.
The act of the IRS sharing the information is in itself a violation of federal law 26 U.S.C. § 6103, which is the very same law they are using to shield themselves from releasing the information now, citing “privacy”. The fact that the IRS and White House teamed up to share taxpayer information, and in at least one instance, used it to target American business owners while pushing their own economic agenda is thoroughly atrocious.
Update: Washington Free Beacon corroborates the Austan Goolsbee link, as the original FOIA request from “Change of Action” was specifically related to how the White House appeared to possess private taxpayer information of the Koch Brothers.
by | ARTICLES, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
Last week, TIGTA revealed the existence of around 2500 documents “relating to investigations of the improper disclosure of confidential taxpayer information by the IRS to the White House.” December 1st was the deadline for the Department of Justice’s tax department to turn over those documents, as ordered by a judge. You can read more of that background story here.
The group involved in the FOIA request for documents is called “Cause of Action”, and they consider themselves a government watchdog of sorts. In an email last week from TIGTA on the matter, the department asked for more time (from Dec 1 to Dec 15) to go through the remaining 500 of the 2500 documents to determine if they were pertinent. This acknowledgment of the documents seemed promising that TIGTA would be forthcoming on the matter, as they have been pretty above board during the IRS Scandal in general.
However, yesterday TIGTA appeared to retreat from its openness by withholding the bulk of the documents. A letter from TIGTA counsel to the group noted that there were 2,509 pages of documents “potentially responsive to your request”, and of those, 2,043 were in fact responsive. However, TIGTA cited tax code and privacy as the reason not to disclose those documents, saying “All of the 2,043 pages of documents we have determined to be responsive were collected by the Secretary of the Treasury with respect to the determination of possible liability under Title 26 of the United States Code. These pages consist of return information protected by 26 U.S.C. § 6103 and may not be disclosed absent an express statutory exception.”
The group will receive 466 documents on December 15 that apparently aren’t protected information. However, the sheer number of documents being withheld, which are acknowledged to a) be correspondence between the White House and IRS, and b) to contain protected “return information” reveal a stunning breach of propriety. The letter also contained a fairly lame notation that “Treasury Secretary Jack Lew is now looking into ‘potential liability’ that his tax aides broke laws in sharing taxpayer information with the White House.”
Forbes raised some interesting points on the matter: “A key question is whether any officials at the White House have ever asked anyone over at the IRS to transmit private taxpayer information to the White House in violation of law. Another question, regardless of whether the White House asked for any taxpayer information, is whether the IRS ever transmitted any.”
So is there a pattern of targeting from the White House? And will the hard drive containing the withheld documents suddenly crash?
Forbes sullenly concluded that “the data may seem unimportant, and hopefully it will turn out to be. Still, the privacy protections for taxpayer data held by the IRS are among the most sensitive parts of the tax law. That makes any alleged transgressions of these rules serious. It makes this topic arguably the worst part of the IRS scandal so far.”
Indeed. 2000+ documents linking the IRS and the White House, yet unavailable for review. Is there still “no smidgen of corruption”?
by | ARTICLES, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
As part of the IRS Scandal over the last 18 months, people have questions if, and how deeply, the ties exist between the IRS and White House. A group named “Cause of Action” sued to get access to any documents that show such communication.
Last week, the Justice Department apparently sent an email over the matter, asking for more time to finish the request made by Cause of Action, due to a potentially large number of documents that fit the request. Here is the available text of the email from the Justice Department’s tax office:
“My client wants to know if you would consent to a motion pushing back (in part) TIGTA’s response date by two weeks to December 15, 2014. The agency has located 2,500 potentially responsive documents and anticipates being able to finish processing 2,000 of these pages by the December 1 date. It needs the additional two weeks to deal with the last 500 pages to determine if they are responsive and make any necessary withholdings. We would therefore like to ask the court to permit the agency to issue a response (including production) on December 1 as to any documents it has completed processing by that date, and do the same as to the remaining documents by December 15. I note that the court’s remand was for a “determin[ation],” which the D.C. Circuit has recently explained can precede actual production by “days or a few weeks,” but we would prefer to simply agree on a date for turning over any of the remaining 500 documents that may be responsive.”
Here we have the admission that potentially 2500 documents exist which show taxpayer information being shared with the White House. This is a pretty large number; what information that is and in what context remains to be seen. So far, TIGTA has been a help, not a hindrance, in the IRS scandal. Will that continue with this latest revelation?
by | ARTICLES, BLOG, CONSTITUTION, FREEDOM, GOVERNMENT, OBAMA, TAXES
The White House released its latest regulatory agenda for the fall. This current amount contains 3,415 items for consideration. Did you miss the list? Most people did; the White House released the massive agenda on the eve of Thanksgiving. The Daily Caller notes that this latest document dump marked “the fifth time the Obama administration has released its regulatory road map on the eve of a major holiday”. It follows the footsteps of last spring’s agenda, when it was released right before Memorial Day.
The 3,415 regulations “includes 189 rules that cost more than $100 million.” These include several controversial EPA rules and regs, such as the redefinition of the “Waters of the United States” under the Clean Water Act. Likewise, several educational proposals, which seem to expand federal reach into education, have raised eyebrows.
Center for Progressive Reform Executive Director Matt Shudtz remarked that “it’s a shame that the Obama administration goes about intentionally releasing such important agendas in stealth at times when Americans are the most distracted, especially when its wide range of rules and regulations touch virtually every American both here and abroad.”
To view the entire list, called the “Unified Agenda for Fall 2014” go here.
by | ARTICLES, FREEDOM, GOVERNMENT, OBAMA, TAXES
Though Thomas Perez no longer looks like Obama’s pick for Attorney General to replace Eric Holder, it is necessary to keep a critical eye on his activities as Labor Secretary. In particular, Thomas Perez is the leading crusader of a notion called “disparate impact”, a concept which allows for charges of discrimination even when none has actually occurred.
Though the idea of “disparate impact” has been around in the business world for at least a couple of decades , it has been vigorously pushed into other sectors as well, particularly during Obama’s administration. This idea holds that “a defendant can be held liable for discrimination for a race-neutral policy that statistically disadvantages a specific minority group even if that negative “impact” was neither purposeful, foreseen, nor intended. In such cases, defendants can be forced to pay for harm caused not by their own actions, but by economic and statistical realities, even if beyond their control.”
Thomas Perez was particularly lucrative with disparate impact while serving as the Assistant Attorney General for the Civil Rights Division of the United States Department of Justice, his position prior to joining Obama’s cabinet. National Review Online (NRO) covered some of Perez’s cases in recent years , noting that Perez “has applied that theory vigorously to force large settlements from financial companies even in cases where there was no evidence of actual racial discrimination”. In other words, employers can be sought after for violating the law, whether or not they actually did.
The White House in general, and Perez in particular, like disparate impact theory because it “sets a very low bar for proving discrimination. Under it, prosecutors need not prove intent, merely that minorities have suffered a disparate impact from some action”.
Perez also got involved directly in a court case which challenged “disparate impact” policy in housing, which had been accepted for review by the Supreme Court. While still in his role as Assistant AG, Perez personally flew to Minneapolis to negotiate a settlement, a move noted by the Weekly Standard, as Perez, “made a Supreme Court case disappear”.
Perhaps Obama passed on Perez to become the next Attorney General because he needed Perez’s talent for disparate impact to become more pervasive in labor law. As Labor Secretary, he has the ability to oversee all hiring and regulatory practices. Perez has already been charged with funding “union front groups known as work centers as an example of his bias”. As a “leader of the George Soros-funded Casa de Maryland illegal alien advocacy group, Perez lobbied for in-state tuition discounts for illegal alien students, driver’s licenses and tax-subsidized day labor centers.”
Perez successfully used disparate impact in the financial and housing sectors and now seems keen to expand its use in the labor world as well. He has indicated a key goal of “leveling the playing field” in labor, though it can certainly be argued-after 6 years of Obama – that the playing field is already tipped in favor of labor. Perez will certainly try to achieve his “leveling” through the use of disparate impact, because the burden to show lack of discrimination falls on the employer – meaning guilty until proven innocent. Perez has the ability to do significant damage in his role as Labor Secretary, which is perhaps why Obama wanted to keep him exactly where he is.
by | ARTICLES, FREEDOM, GOVERNMENT, OBAMA, POLITICS, TAXES
Tens of thousands of Lerner emails have been found by the U.S. Treasury Inspector General for Tax Administration (TIGTA). This past Friday, TIGTA announced to congressional staffers that they were located “among hundreds of “disaster recovery tapes” that were used to back up the IRS email system.”, and that it “took them several weeks and some forensic effort to get these emails off these tapes”. TIGTA has estimated it could contain nearly 30,000 emails.
The emails date back to 2009 – 2011, an important time frame for the IRS scandal. This covers specifically the era during which Lois Lerner, as head of the IRS exempt-organizations division, engaged in targeting of conservative and Tea Party organizations which sought tax-exempt status ahead of the 2012 Presidential elections. Lerner claimed her computer crashed in Spring 2011, and the IRS declared those emails “lost”.
Washington Examiner noted that this past June, IRS Commissioner John Koskinen testified before Congress that the disaster recovery tapes — the ones recovered — only hold data for about six months, and “even if the IRS had sought the emails within the six-month period, it would have been a complicated and difficult process to produce them from the tapes.”
On the contrary, TIGTA has examined 744 tapes so far, and they are not finished, but have found an estimated 250 emails on the various tapes. Besides the estimated 30,000 of Lerner’s emails, TIGTA surmised that it is likely more missing emails will be recovered from the slew of other IRS workers who also experienced computer crashes.
The IRS issued a statement as a response to the TIGTA find, stating, “the IRS welcomes TIGTA’s independent review and expert forensic analysis. Commissioner Koskinen has said for some time he would be pleased if additional Lois Lerner emails from this time frame could be found.”
This is a ridiculous statement, as it was revealed just a couple of weeks ago from court documents pertaining to an IRS lawsuit over the matter, that the IRS hadn’t even bothered to look for the emails. In the document, the IRS wrote that they have not searched IRS servers because “the servers would not result in the recovery of any information.” The IRS further claimed no search was performed on the back-up tapes, because there was “no reason to believe that the tapes are a potential source of recovering” any lost emails.
Rep. Darrell Issa, who is overseeing the process, spoke about the IRS’s behavior upon hearing of the TIGTA find. “This discovery also underscores the lack of cooperation Congress has received from the IRS. The agency first failed to disclose the loss to Congress and then tried to declare Lerner’s emails gone and lost forever. Once again it appears the IRS hasn’t been straight with Congress and the American people.”
Issa also stated that the “The Oversight Committee will be looking for information about her mindset and who she was communicating with outside the IRS during a critical period of time when the IRS was targeting conservative groups”, once the emails have gone through the proper redacting process by TIGTA to make sure taxpayer information remains protected. It is expected to take several more weeks before the tapes are ready for presentation to Congress.
It appears that the IRS was playing a huge game of chicken and just lost. They were betting that the public and Congress and TIGTA would not expend the time and money to bother combing through the disaster recovery tapes, and that we would just take their word for it that the emails were lost. More obfuscation from the “most transparent Administration ever”.
by | ARTICLES, BLOG, CONSTITUTION, ELECTIONS, FREEDOM, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
Is Executive Amnesty is inexplicably tied to Obamacare?
On Monday of last week, the New York Times reported that Health and Human Secretary, Sylvia Burwell, projected 9.1 million enrollees in Obamacare by the end of the year. This is in stark contrast to the original projections by the Congressional Budget Office, which “had estimated that 13 million people would be enrolled next year, with the total rising to 24 million in 2016”.
The New York Times also noted that, “in the past, the White House has used the budget office numbers as a benchmark for success under the Affordable Care Act.”
Currently, enrollment stands at 7.1 million, down from the 8 million touted last year by Obama. This reduction stems from persons who failed to pay premiums or could not prove their identity and therefore considered ineligible.
Additionally, HHS curiously forecasted that “most of the new marketplace enrollment for 2015 is likely to come from the ranks of the uninsured,” and less likely from persons who had already been paying for their own insurance without the marketplace.
If enrollment is lagging so badly behind expectations, how could Obama possibly salvage numbers for Obamacare so that it could show a modicum of “success under the Affordable Care Act”?
Answer: Executive Amnesty.
Early estimates have put those who might benefit from Obama’s amnesty plan to be 3-5 million, a number that would neatly fit the amount necessary to bolster the fledgling Obamacare, which was Obama’s signature policy.
Now, if one goes to the healthcare.gov website, and hovers over the “Get Answers” tab, it opens up a tab which includes the section, “Coverage For…” Guess who is first on the list? Immigrants. Immigrants are listed ahead of “Young adults, Self-employed people, Unemployed people, People with disabilities, People with job-based coverage, Military veterans, American Indians & Alaska Natives, Pregnant women, Same-sex married couples, Retirees, and Incarcerated people.” (in that order). So if a immigrant was granted amnesty, the government made it very easy for him or her to get started.
Within the section under “Immigrants”, the website lists 17 types of immigrant status that makes one eligible for Obamacare. Furthermore, six more types of status are eligible if one has applied for a particular immigrant program, and yet another five more status types are able to enroll in Obamacare if they are coupled with employment authorization. That makes 28 types of immigrants who are eligible for an Obamacare plan already.
Now, to be fair, the website explicitly states at the bottom of the page: “Undocumented immigrants aren’t eligible to buy health coverage through the Marketplace. They’re not eligible for premium tax credits or other savings on Marketplace plans.”
However, that’s where Obama’s 10-point Executive Amnesty plan comes in. Under this plan, “President Barack Obama is on the verge of granting executive amnesty and work permits to five million illegal immigrants, including the illegal immigrant parents of children who are American citizens OR previously received executive amnesty under the Deferred Action for Childhood Arrivals (DACA) program in 2012.”
Now, the first thing to note about the relationship between amnesty and Obamacare is the part about DACA. On healthcare.gov, it states that “Deferred Action Status” is eligible for Obamacare, but also notes specifically on that same bullet point that “Deferred Action for Childhood Arrivals (DACA) is not an eligible immigration status for applying for health insurance”. Now, if Obama implements his Executive Amnesty plan, those currently claiming DACA status will be able to suddenly attain Obamacare — allowing potentially many, many new subscribers here.
Another analysis from HotAir goes further in depth:
“One key piece of the order, officials said, will allow many parents of children who are American citizens or legal residents to obtain legal work documents and no longer worry about being discovered, separated from their families and sent away.
That part of Mr. Obama’s plan alone could affect as many as 3.3 million people who have been living in the United States illegally for at least five years, according to an analysis by the Migration Policy Institute, an immigration research organization in Washington. But the White House is also considering a stricter policy that would limit the benefits to people who have lived in the country for at least 10 years, or about 2.5 million people.
Extending protections to more undocumented immigrants who came to the United States as children, and to their parents, could affect an additional one million or more if they are included in the final plan that the president announces.”
Hence, if Executive Amnesty goes through, the warning on the healthcare.gov website regarding undocumented immigrants is no longer applicable to those who would receive protections; thus, they would be eligible to purchase an Obamacare plan.
As it stands now, a large number of legal immigrants are already using Obamacare’s Medicaid expansion. In a report released just this past week from the Center for Immigration Studies, “immigrants have accounted for 42 percent of the growth in Medicaid enrollment since Obamacare began being implemented in 2011”. Furthermore, “The high rate and significant growth in Medicaid associated with immigrants is mainly the result of a legal immigration system that admits large numbers of immigrants with relatively low-levels of education, many of whom end up poor and uninsured.”
2011-2013 have proven to be successful for immigrant-related Obamacare signups; therefore, the likelihood for immigrants who receive amnesty to sign up for an Obamacare plan or product seems relatively high. As a very rough estimate number, if Obama was to grant amnesty to 5 million immigrants, (a middle estimate figure) and assuming the signup rate for Obamacare just among those immigrants is 42% (to stay on trend), then 2.1 million immigrants would sign up.
If HHS is predicting 9.1 million enrolled by the end of the year, and then potentially another 2.1 million can be also factored in, the White House is getting closer to the originally projected figures. Remember, “in the past, the White House has used the budget office numbers as a benchmark for success under the Affordable Care Act”, and the CBO had predicted 13 million by the end of this year, so adding immigrants newly eligible through Executive Amnesty will certainly help to salvage Obamacare numbers.
With the news this morning that Obama will announce Executive Action on immigration this coming Friday, it seems all the more likely that Executive Amnesty is tied to Obamacare. The White House has been mum about how many people have enrolled in the past few days of open enrollment season, suggesting that the number is low. An independent site, acasignups.net, back this assertion.
At this point, no one in the Administration even cares about the cost anymore. It’s all about saving the legislation from abomination, no matter the pricetag or method. That’s probably why the CBO has not even bothered to score the impact of Obamacare on the deficit since 2012 — before Obamacare even began to be fully implemented! Of course, it’s not like anyone really believes either by now that Obamacare won’t add to the deficit.
Therefore, if the numbers so far this year are not meeting even lowered expectations for enrollment, then it is imperative to get the numbers up NOW. That is why Obama has decided to act on Amnesty so soon after Obamacare signups just began again — so stay tuned for Friday, and pay attention to how the Executive action affects immigration and Obamacare.
by | ARTICLES, BLOG, FREEDOM, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
In case anyone wasn’t sure about the White House denials regarding its ties to Jonathan Gruber, here we have video of Obama heaping praise upon him:
“You have already drawn some of the brightest minds from academia and policy circles, many of them I have stolen ideas from liberally, people ranging from Robert Gordon to Austan Goolsbee; Jon Gruber; my dear friend, Jim Wallis here, who can inform what are sometimes dry policy debates with a prophetic voice.”
This seems to directly contrast Obama’s statement to Ed Henry yesterday, where he “just learned” about Jonathan Gruber (probably from the TV), like every other major story. President Obama said, “I just heard about this. I get well briefed before I come out here. The fact that some adviser who never worked on our staff expressed an opinion that I’ve completely disagreed with in terms of the voters, is no reflection on the actual process that was run. We had a year-long debate, Ed, I mean, go back and look at your stories. The one thing we can’t say is that we did not have a lengthy debate about health care in the United States of America. or that it was not adequately covered. I think it is fair to say that there was not a provision in the health care laws that was not extensively debated and was fully transparent.”
Gruber was also not merely “some advisor who never worked on our staff”. We know now there was a cozy relationship with Gruber. Gruber “visited the White House more than a dozen times, according to official visitor logs. One of those meetings took place in the Oval Office with Obama. Additionally, according to contracts issued by the Department of Health and Human Services, Gruber was paid $400,000 for his work on the president’s signature health care law.”
Additionally, Gruber was paid large sums of taxpayer money, totaling nearly $4 million of the last several years — half of it directly related to Obamacare work. Though he wasn’t paid directly by the White House (probably how Obama technically justified the “staff” comment to himself), he was paid by Health and Human Services as well as 8 states so far to work on Obamacare and, prior to, by HHS for other consulting work
Though Obama continues to try to distance himself from Gruber and his remarks, the ties just keep surfacing.
by | ARTICLES, FREEDOM, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
With all the revelations surrounding Jonathan Gruber and the behind-the-scenes Obamacare manoeuvring, Charles Krauthammer weighs in with a solid, sobering analysis. Krauthammer explains, “It’s refreshing that “the most transparent administration in history,” as this administration fancies itself, should finally display candor about its signature act of social change. Inadvertently, of course. But now we know what lay behind Obama’s smooth reassurances — the arrogance of an academic liberalism, so perfectly embodied in the Gruber Confession, that rules in the name of a citizenry it mocks, disdains and deliberately, contemptuously deceives.
The whole piece should be read in its entirety. And you know that Gruber’s remarks have hit a nerve with the White House, as they and the Democrats continue to try to run from their ties to him. Gruber exposed their thought process and tactics.
by | ARTICLES, BLOG, BUSINESS, CONSTITUTION, ECONOMY, GOVERNMENT, POLITICS, RETIREMENT, TAXES
Many states continue to bamboozle their citizens by obfuscating the true depth of their debt that is occurring in the form of unfunded liabilities. Those liabilities are mainly state public pension plans, and they continue to routinely promise pie-in-the-sky returns, even after years of bleak economic growth and investment.
A group called State Budget Solutions analyzes the problem of underfunding each year. Its annual report “reveals that state public pension plans are underfunded by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans’ funded status has dipped three percentage points to 36%. Split among all Americans, the unfunded liability is over $15,000 per person.”
Many people might think, “I don’t work for my state government, so it doesn’t affect me”. It most certainly does. We are facing a generation of Baby Boomers who are getting ready to retire, and expect to have the pension that has been promised to them. Those promises are the unfunded liabilities which must be paid out. Pension costs come from state budgets — you and me — and in order to cover the costs, adjustments must be made. Expect tax increases and/or reduced government services in the coming years because a greater portion of the state budget will need to be dedicated to meeting these obligations.
How did we get here? The most damning factor is that of generous promises.
Ultimately, negotiators — be it union heads, lawmakers, or other bureaucrats — have had a fiduciary responsibility not to pay more than fair compensation, thereby restricting compensation and benefits to amounts no greater than what those skills would command in the private sector. Unfortunately, there are really no such competitive inhibitions in the public sector and therefore the negotiation routine lacks the incentive for restraint. In most cases, the self-interest of the public sector negotiator is more directly aligned with the leader that can get him elected rather than the taxpayer whom he is representing.
Lofty and mythical promises have been made for years now without a care about how it will be paid for — because the negotiator will likely be long gone when obligations come due. This is a true case of the fox in charge of the hen house. Thus runaway financial promises have deeply accumulated in state governments for which it cannot properly budget, while binding future governments not yet in office.
The Great Recession has made the problem more acute in recent years. “As the economy struggles to get back on track, states’ fiscal health also suffers, making it more difficult for state officials to make up for the shortfalls with greater contributions. As bond yields have suffered due to interest rates being held at historic lows, the fair market valuation of public pension liabilities also took a hit.”
Furthermore, most, if not all states, have hidden the vast problem by using accounting tricks — probably hoping the economy or investment will bounce back, or else just passing the buck year after year so it becomes someone else’s problem.
For instance, “state pension funds use a high discount rate. Discounting liabilities is a necessary part of fund management. Fund managers must assume that the current assets will be worth more in the future due to a number of factors, notably the return on investing those current assets. The problem arises because the discount rate is not based on the nature of the assets held by the pension plan, but is rather based on the assumed rate of return.”
The assumed rate of return — herein lies the problem. By continuing to perpetuate and promise rates of return of 5-8% for pensions, state governments show on paper that their liabilities are much smaller than they are. However, for years now, returns have been much closer to 2-3%. Yet state governments fail to make those realistic adjustments because it sounds neither glamorous nor generous to the employee.
What’s more, some states are facing such enormous financial pressures and shortfalls in all sectors of the state budget that they have reduced or skipped the yearly contribution to the pension funds altogether — thereby making the gulf that much wider. New Jersey balanced its budget (again) this year by reducing (again) the payment by $2.4 billion; Virginia skipped its payment back altogether in 2010 — although it did implement a repayment plan over subsequent 5 years to make up for that choice.
In fact, a cursory glance back at these practices reveal that the games have been ongoing for several years now. A Wall Street Journal article on this subject from Spring of 2010 — nearly 5 years ago — discusses how states were reducing and skipping payments and delaying the “day of reckoning”. New Jersey, California, and Illinois were some of the worse offenders then.
Is it any wonder that these three states are in the top ten for the amount of unfunded liabilities? California has the worst, $754 billion. In terms of funding ratios, Illinois leads the list with only 22% of its obligations funded. You can look at the full and various lists here.
The crisis will only continue to worsen unless changes are made. The outlook is gloomy for state governments and, based on past performance, is not likely to get better anytime soon. For most states, the “kick the can” approach allows them to coast while the liabilities fester, letting it become the problem of other future governments at some undefined point in the future. That is reprehensible.
