Like Wisconsin and other states that are being forced to deal with large budget deficits caused mostly by sweetheart deals struck in more prosperous times between politicians who need votes and labor unions who deliver them, New Jersey couldn't afford to go on like this.
The new law "will sharply increase what state and local workers must contribute for their health insurance and pensions." And in a major whack at rising costs, will also suspend "cost-of-living increases ... raise retirement ages and curb the unions' contract bargaining rights," writes Richard Perez-Pena in the June 23 issue of The New York Times.
Gov. Chris Christie's administration estimates the deal will save New Jersey $132 billion over the next 30 years. That would be a real saving, unlike the Obama administration's phony prediction of cost reductions with his national health insurance law, which is now being challenged in the courts.
Predictably, labor unions are excoriating Democrats who joined Republicans to pass the law, but even "tax and spend" Democrats are beginning to realize we can't go on like this and the future of the country is more important than seeking short-term partisan political advantage.
A new study co-authored by Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester, both finance professors, has concluded that without a change in their pension systems, federal, state and local governments "will need to raise taxes by $1,398 per household every year for the next 30 years if they are to fully fund their pension systems." The study also found that New Jersey "will need to increase its revenue by the largest margin, requiring $2,475 more from each household per year." That's if the new law hadn't passed.
Last week, the nonpartisan Congressional Budget Office (CBO) released a frightening report that concluded the ratio of debt to gross domestic product (GDP) this year would be 69 percent. That's 7 percentage points higher than last year. By 2021, the CBO predicts that without a serious recalibration in Social Security, Medicare and other spending, debt will quickly reach 76 percent of GDP and "the public debt will be 101 percent of GDP 10 years from now." Interest on the debt is now more than the entire GDP of some nations.