October 28, 2012
We dont let small children play with sharp knives, loaded guns, or near the top banks of cliffs. They havent learned the consequences of their actions. They arent responsible. Yet.
You might think that politicians, who are adults, shouldnt be treated the same way. But power tends to corrupt, and we know even more about that, today, than our Founding Fathers did. And they knew enough not to let politicians do just anything they wanted. They put constitutions in place, to limit politicians purview and power.
Arguably, todays politicians need more checks, for they have been playing near cliffs . . . and are set to drive us over the embankment.
Or, I should say, embankments. Plural. Youve heard talk about the fiscal cliff. But that definite article is misleading. Were headed towards more than one such cliff.
This coming January, if Congress and the president fail to take action, every American who pays income taxes will pay more. Also set to increase? Payroll taxes, which every worker pays.
And an increase in taxes is the very opposite of a stimulus to the economy. Hence the cliff metaphor.
But even if we can avoid falling off those cliffs, another threatens.
It has been identified by finance professors Robert Novy-Marx at the University of Rochester and Joshua Rauh at the Stanford Graduate School of Business, who summarized for The Washington Post their recent research paper, The Revenue Demands of Public Employee Pension Promises, in which they essayed to determine
how much additional money would have to be devoted annually to state and local pension systems to achieve full funding in 30 years, a standard period over which governments target fully funded pensions. . . . How much will your taxes have to increase?
We found that, on average, a tax increase of $1,385 per U.S. household per year would be required, starting immediately and growing with the size of the public sector. An alternative would be public-sector budget cuts of a similar magnitude, or a combination of tax increases and cuts adding up to this amount.