We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are

Life, Liberty and the pursuit of Happiness.

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,

Wednesday, April 25, 2012

Why Pensions for Public Workers Bankrupt the States

My neighbors are a teacher and a fireman and they are up in arms because the state of Wisconsin passed a law that forced them (actually the teacher, not the fireman) to start contributing to their pensions and toward the cost of their health insurance policies.

One day their younger daughter asked me to explain what was going on and so I gave her this explanation.

"Let's pretend that your father hires me to cut his lawn every week for $20 and that for the next 10 years I perform this service for him at a rate that is in line with inflation.  Now at the end of those 10 years I inform him that I am going to retire, but that my nephew will be taking over the business and continue to perform that duty.  Now at the time I retire, I'm charging him $25 per week. 

The first time my nephew cuts his lawn, he gives your father the bill and it is for $45.  When your father asks why he is charging so much, my nephew explains that according to my agreement with him, I am to receive 80% of what I was charging as a pension for the rest of my life and 80% of $25 is $20.  Plus, my nephew has to make a living and there is a cost to providing this service so he still needs $25 per week, so the cost is now $45.

This is exactly what is going on in the private sector, a teacher or fireman or whoever is retiring (early) and getting a high % of their highest earning years as a pension, plus getting their health insurance paid for as well.  But the municipality has to still provide the service and under their contract, the replacement will come in with a just slightly lower cost (initially).  So the municipality must cover the cost of the retired public worker plus the cost of the replacement.  Since municipalities derive their revenue from taxes and fees, they naturally must raise them to stay solvent. 

So the private citizens have to pay an ever-expanding pool of current and retired public workers, while they themselves are trying to put away money for their own retirement which won't be covered by public money.  The math simply does not work (I must add here that I believe this is why schools focus more on teaching "fairness" and "need" instead of basic math)."

She asked me why her parents didn't understand this and I told her that I could not answer that question, but given the voting patterns of the country, they were not the only ones who didn't understand....

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