Daily Deduction

from the Tax Policy Center

Pensions and Tax Bases: Realities and Hopes

By :: July 10th, 2014

The thing about pension smoothing: The bumps always come back. Neither the Committee for a Responsible Federal Budget nor TPC’s Len Burman will suspend disbelief when it comes to the latest gimmick to patch the Highway Trust Fund. Maybe “stupid tax tricks” work politically but “pretending to raise revenue, while adding to our long-run fiscal woes and undermining the retirement security of American workers” is a real wrong turn. The House Ways & Means Committee votes on this today, and expect a full vote on the House floor next week. Sources say members of the Senate Finance Committee have reached a tentative deal on a similar measure.

Public pension obligations in Flint may put the city on Detroit’s path. The former auto-industry boomtown in Michigan has a severely eroded tax base, and wants to cut its retirees' health benefits to avoid bankruptcy. A judge will soon decide if Flint can. Flint’s budget deficit is $12.9 million, and wants to find $5 million this fiscal year by increasing retiree contributions to health insurance and requiring higher deductibles and co-pays.

The fiscal state of states includes a public pension report card. The latest State Economic Monitor from TPC’s State and Local Finance Initiative notes trends in employment, state government finances, housing, and economic conditions. Overall, nearly all states enjoyed economic growth in 2013, but tax revenues are down this year and may fall further. Its report card on public pensions, in a special supplement from the Urban Institute’s Program on Retirement Policy, evaluates pension financing, the level of retirement security offered to short- and long- term employees, and workforce incentives. The message: There’s room for improvement.

India’s financial report card shows room for improvement, too. Asia’s third largest economy collects taxes totaling less than 9 per cent of GDP, a quarter of the average in the OECD group of developed nations. Its Finance Ministry yesterday called for lower spending on food and fertilizer subsidies and broadening the tax base. But tax reform would be no easy task.

How about a common corporate tax base for the European Union? The future European Union Commission President Jean-Claude Juncker would like one. That way, corporate taxes would be paid where profit is made, removing unfair competition among EU states over tax rates.

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1Comment

  1. Michael Bindner  ::  4:15 pm on July 10th, 2014:

    Smooting simply shows why pension holdings should be consolidated into one fund that is run by the affected employees, rather than trustees – with the employees running the company – and picking the CEO. Nothing less stops abuse.

    Flint and much of Michigan will likely follow the path of Detroit. This is going to cost some money, as it should.

    States were not immune from the revenue bubble of FY2013 and are certainly not immune from its flattening in the current year. It was a one time thing in ancipation of higher capital gains and dividend tax rates. If they want to stay on track their rates must also go up. Blue states will, Red states won’t. Southern and Western poverty spreads although Geergia beenfits from a demigration, Texas from oil and Louisiana from being in such bad shape – having nowhere to go but up.

    I would not touch India’s situation. It is growing and will do so in fits and starts. If economics beats caste, revenue will follow.

    As for the EU, I was waiting for a Hamilton to appear. Seems like they have one coming in their incoming Economic Commission President. Corporate Taxes are a start, but I hope they continue. Of course, if they do, the US is going to have to look at Income Tax increases at the igh income end.