Jeb Bush and Newt Gingrich
Better off Bankrupt (http://articles.latimes.com/2011/jan/27/opinion/la-oe-gingrich-bankruptcy-20110127)
L.A. Times
January 27, 2011
Summary: A proposal to alleviate budget issues by allowing entire states to declare bankruptcy, thereby eliminating their outstanding debts and union contractual obligations. This would directly lead to the loss of pensions for tens of thousands of teachers.
Intended Audience: General Public
Key Points: 1) State budgets are being choked by decades of irresponsible concessions to employee unions, namely in the form of pension plans; 2) A mass of former state employees are cashing in (California owes 12,000 former employees over $100,000 each in pension payments this year); 3) Bankruptcy would provide a mechanism to avoid tax increases and eliminate debt.
Relevance: We are entering this profession at an interesting time. For the last forty-five years teacher unions have deferred better annual salary for the promises of repayment in the form of pensions. This has proved, however, to be unsustainable. During an interview on OPB Radio yesterday, an author (I forgot her name entirely) reported that the annual salary of a first year teacher in 1970 plus inflation would be approximately $70,000 today. First year teachers are lucky to earn half of that. The idea has been that teachers make up for what they are not payed in benefits and pension plans. Now a proposal has been made that would eliminate the carrot. Personally, I am not banking on Social Security or company or state pensions, and feel other young people would be wise to do the same. It is high time that we take an active stake in our own retirements, make our own investments, and save our money in places that draw more than %0.5 APY. I would much rather take a higher salary up front and use an IRA than hope that our government can fulfill its financial obligations.
Wow, there is so much in this article and it is such a complicated issue as it raises discussions on school budgets, teachers' salaries, economics, investing, state fiscal responsibility, financial oversight and many more.
ReplyDeleteThe part that sticks out to me the most is allowing states to declare bankruptcy - especially a state like California whose economy is bigger than most countries. Not only do the states get to renegotiate all sort of union contracts, but there are going to be a lot of entities and indiciduals that will not get paid. I think it would also be a legal quagmire when it comes to when and how states could file bankruptcy.
It seems to me like it would be a better idea to hold people accountable for the investments, make sure budgets are balanced, hold union executives responsible for their decisions and make sure banks and investments are following federal and state laws than to go ahead and allow bankruptcy of states.
Thoughts?
If you step back and look at the state and federal budget numbers, it is no wonder that the expert on ponzi schemes, Bernie Madoff, called it just that this week.
ReplyDeleteWhen an entity like a state makes a promise, whether that be PERS here in OR or SSA on the federal level I think it is a moral imperative to do our best to live up to those commitments. Unfortunately, we have progressed down this path of promising much more than we can deliver on as a state and a country.
Here is a link to some basic budget revenue and spending charts on the federal level.
http://www.businessinsider.com/the-only-chart-you-need-to-see-to-understand-why-the-us-is-screwed-2011-2
1. Imagine if you ran your household budget like this.
2. I'm with Jeff, I am not counting on either PERS or SSA.
That said however, this mess and this profession is a challenge and overcoming impossible odds is the American way right?! It makes no sense waste time worrying.
Sidenote: In my latest edition of "Education Matters" from www.aaeteachers.org I read that the U.S. spends the most on students worldwide per captita except for one country, Switzerland. Makes you wonder what all the countries who beat us regularly in quality of education measures are doing.
Yeah, I debated posting this because it is not specifically about education. However, after debating the issue with a couple of friends, I realized that it is very much a big picture education issue.
ReplyDeleteWisconsin's governor just proposed his budget for the next year. It looks grim to say the least for education funding.
Regardless of our politics, these issues are a reality. We are entering teaching at a pretty bad time and are going to have to be incredibly well qualified, passionate, determined, driven and innovative just to survive the job market, let alone be financially stable.
I honestly believe, however, that if we "do the right thing" we will be exceptional. If we approach education as a career and as a profession, not as a job, we will be employable.
Not only will we simply be employable, but teachers like that will likely be in demand.
Doug, I love the chart! And yes, it is the American way to overcome challenges and though it may not be easy, we can - and have to - do it!
ReplyDeleteJeff, Your last three paragraphs are very true and I totally agree we all can be exceptional and in demand teachers by doing the right thing.
I love that the corporate income tax only makes up %9 of our nation's annual revenue. I understand that we have to keep corporate rates low to encourage economic growth, but that is a little ridiculous.
ReplyDeleteI agree with Doug on the promises unable to live up to point that he made. How did they not see the ballooning of entitlement program spending coming? A whole mess of babies were born in the 1950s and not a whole mess afterward. It seems not so difficult to see. Then again, hind sight is always 20/20.
Perhaps the bankruptcy plan is the only way to reset the government's finances (though I detest the idea on many levels). If that is the case, hundreds of thousands of people will be absolutely furious. I cannot even begin to imagine the social and political turmoil such a move would create.
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ReplyDeleteGood points all. Where some see challenge, we can see opportunity and a chance to improve things with open eyes.
ReplyDeleteThe 9% corporate/business tax...it really does make us either competitive or non-competitive with other country's tax rates so the lower it goes, the better it is for business and the economy. By increasing this tax, it has the opposite effect on revenues. I'll try to articulate:
The knee jerk argument is to raise taxes across the board in that segment but as we have seen from the results of measure 66/67, it hasn't worked out. Remember the promises? Pass this tax and education will be saved cuts? I remember all too clearly the arguments.
Talking to "rich" business owners, what happens when you raise their taxes? They have only a few choices if they want to remain in business. Cut costs (which usually means jobs which results in less people paying taxes), move to a more competitive tax base state (hence growth across the Columbia River which makes for less revenue here) or, raise prices of goods and services. (which only serves as an indirect tax to consumers...or, a backdoor sales tax as the opponents to 66/67 argued.)
It may seem simple, raise taxes and revenues will go up but unfortunately it isn't that simple. Tax rates and tax revenues are not a linear relationship.
Cascade Policy Institute has an actual chart showing a relationship of tax rates to revenues and it forms more of a U shape.