According to the Reuters headline, crippling taxes are ahead to pay into public pensions that were never funded sufficiently.
It is no surprise that Illinois is going to have to face crippling taxes, but it is telling that the mainstream media is now openly admitting it.
Potential action this week by Illinois’ biggest public pension fund could put a big dent in the state’s already fragile finances, Governor Bruce Rauner’s administration warned.
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“If the (TRS) board were to approve a lower assumed rate of return taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services,” Michael Mahoney, Rauner’s senior advisor for revenue and pensions, wrote to the governor’s chief of staff, Richard Goldberg.
When TRS lowered the investment return rate to 7.5 percent from 8 percent in 2014 the state’s pension payment increased by more than $200 million, according to the memo.
Illinois’ fiscal 2017 pension payment to its five retirement systems was estimated at $7.9 billion, up from $7.617 billion in fiscal 2016 and $6.9 billion in fiscal 2015, according to a March report by a bipartisan legislative commission.
The idea that they were going to average 7.5 percent returns on investments is ludicrous. The “recovery” under Obama never reached thee percent growth. By all historical precedent, we’re due for another recession!
Yet that inflated figure is enough to mean what Reuters calls, “crippling” payment.
ZeroHedge explains the crime that is taking place:
Defined Benefit Pension Plans are, almost by definition, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities: classic Ponzi. But unlike wall street and corporate Ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo – public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.
Since ZeroHedge has an edgy reputation, let me give you a more establishment source, the Bill Gates-funded Khan Academy. Here’s the video analyzing Illinois’ pension disaster almost four years ago.
The major problem with Khan’s analysis is he portrays public education as an “investment.” To believe that, you have to assume that children are mostly getting educated. They aren’t. The system doesn’t exist for the children; the children are used to justify the corrupt system. A local radio show brings this out:
I mentioned that elites are going to use fear to justify the next bailouts. Keep in mind that the next bailouts that are pushed may be for states that are facing the crippling consequences of their financial policies.