Posts Tagged ‘taxes’

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Pensions

Illinois has the most underfunded retirement system of any state in the country and the largest pension burden relative to state revenue. It also has the highest number of public-pension funds close to insolvency, such as the one for Chicago’s police and firefighters.

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Like many states, the funding of the retirement system in Illinois suffered from the decline in asset values following on from the financial crash of 2007-08. But the situation is even more dire in Illinois because lawmakers have repeatedly failed to fix the state’s revenues, especially the single-rate income tax.* This has made a bad situation even worse, with growing inequality in the state. Illinois now has the nation’s ninth-highest level of income inequality.

The only solution to the funding problem, at least in the short term, will come from increased revenues based on a progressive income tax. But the new governor of the state, Republican Bruce Rauner, has other plans. He has decided to attack public-sector unions, by issuing an executive order that allows state employees not to pay “fair share” fees related to collective bargaining and contract negotiations.

 

*A constitutional amendment that would have enabled Illinois to impose different rates on different levels of income is now sine die.

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I didn’t attend the most recent American Economic Association/Allied Social Sciences Association meetings in Boston. But, according to Chuck Collins, several sessions focused on the sensation of French economist Thomas Piketty and his 2014 book on inequality, Capital in the Twenty-First Century.

As an outsider to academic economics, I was struck by just how compartmentalized and smug the field appears. At one point, [Gregory] Mankiw even put up a slide, “Is Wealth Inequality a Problem?” Any economist who ventures across the disciplinary ramparts will, of course, find a veritable genre of research on the dangerous impacts of extreme inequality.

We now have over two decades of powerful evidence that details how these inequalities are making us sick, undermining our democracy, slowing traditional measures of economic growth, and turning our political system into a plutocracy.

Mankiw, at another point in his presentation, had still more embarrassing comments to make. Piketty, he intoned, must “hate the rich.” Piketty’s financial success with his best-selling book, Mankiw added, just might lead to self-loathing.

These clearly well-rehearsed quips, aimed at knee-capping the humble French economist, fell flat. Mankiw’s presentation, entitled “R > G, so what?,” came across as little more than an apologia for concentrated wealth.

And Piketty’s response?

Piketty’s one poke back at the nitpickers came in response to their unanimous support for a progressive consumption tax as an alternative to any other progressive income or wealth tax. “We know something about billionaire consumption,” Piketty observed, “but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics.”

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Death and taxes are pretty certain. So is the fact that employers complain they can’t find workers with the appropriate skills. Always. Now as in the past.

The problem is, the data on wages don’t reflect any kind of shortage. Real wages are not going up, which is what would happen if there actually were a shortage of workers with the skills employers want to hire. What the chart above shows is that nominal wages have been increasing about 2 percent per year, and real wages have been mostly unchanged.

Even today, with the official unemployment rate falling to 5.6 percent, the Bureau of Labor Statistics reports that average hourly earnings for all employees on private nonfarm payrolls decreased in December by 5 cents to $24.57.

So, no, there’s no skills shortage. If employers want to back up their complaint, they should start increasing wages. Which they’re simply not willing to do.

And that, too, is as certain as death and taxes.

 

*With apologies to Daniel Defoe.