Observations on life

Just another example-Chicago Faces Tax Increase, Rise in Fees

It’s just classic. Another case of years of the Democratic/public Union alliance milking taxpayers with unaffordable pensions and benefits and amazingly a crisis appears out of nowhere. It’s magic, how did this happen (and happen all over the Country)?

IMG_3032To solve the problem the same culprits want higher taxes and fees and have the nerve to say in the same breath they plan to “grow our economy, create jobs and attract families and business to Chicago.” Soooo, who can afford to live and run a business in Chicago?

Never fear, they have the same populist answer, “We must ask the very wealthy and big corporations to pay their fair share in taxes so we can finally fix our structural deficit and get on track to fiscal sanity…”

Do you want to bet the wealthy and corporations already pay their fair share and more? No matter; our new definition of fair is that years of irresponsible fiscal behavior, outright greed by public unions and ignoring both is somebody else’s  responsibility rather than the citizens who supported those actions and held no politicians accountable. Don’t be surprised, that appears to be the philosophy of our leaders these days and one accepted by all too many Americans.

CHICAGO—Mayor Rahm Emanuel is proposing a historic property tax increase, while expanding fees on trash collection and taxi rides under a plan to confront a growing fiscal crisis in the nation’s third largest city.

The proposal comes months into the second term of Mr. Emanuel, a former congressman and chief of staff to President Barack Obama, as he runs out of options to address ballooning pension costs that are coming due. During his first term, the mayor focused on trying to gain concessions from city workers and retirees, but was stymied by the courts and organized labor. Mr. Emanuel’s plan would raise an additional $544 million from property taxes alone phased in over four years under what is being described as the largest tax rise in city history.

He also proposes raising additional revenue by taxing e-cigarettes, expanding fees on garbage pickup, and adding fees on taxi and ride-sharing services. “As we continue to grow our economy, create jobs and attract families and business to Chicago, our fiscal challenges are blocking our path,” Mr. Emanuel said in a statement.

Many have voiced concerns about the cost to working families. “We must ask the very wealthy and big corporations to pay their fair share in taxes so we can finally fix our structural deficit and get on track to fiscal sanity,” said Alderman Leslie Hairston, who is among the council members pushing for tax rebates for working families and changes in how commercial buildings are taxed.

Source: Chicago Faces Tax Increase, Rise in Fees – WSJ

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Categories: Observations on life

2 replies »

  1. So, the solution to the pension issue for public employees is easy. First, announce a “default” position – the same default that applies to Social Security – once the money runs out, the current provisions call for a cut to benefits of ~25% to match available current day funding. That is, since the Illinois Supreme Court has decided that you cannot reduce the rate of accrual under existing pension plans for current employees, fine – no reductions in accrued benefits or rates of accrual. However, the Illinois Supreme Court does not have the authority to mandate new taxes to fund those pension promises.

    In an article recently included in a Chicago newspaper, one wag suggested that employees be given a choice:
    – Give up the compounded 3% annual cost-of;-living increase guaranteed in your pension and accept a lower annual increase, or
    – Keep the COLA but agree that any future raises you receive will not count towards the salary upon which your pension will be based.

    Obviously, such a proposal would only put a minor dent in the rate of future accruals, and, it would probably violate the Illinois constitution as well.

    I offered the following alternatives in response – each would bring funding and promises into short, intermediate and long term balance:
    1. Best, amend the Illinois Constitution,
    2. 2nd Best, negotiate a reduction in direct compensation (wages) so that total rewards, including pension and retiree medical promises, are at a sustainable level,
    3. 3rd Best, terminate everyone (staggered, starting with most recent hires) because you cannot pay the current staffing levels AND fund the pensions, then, offer lower wages to all new hires and rehires with total rewards at a sustainable level at employment levels that allow for the provisions of city services.
    4. Negotiate no pay increases for existing employees, and, for all future new hires, eliminate pensions and retiree medical until total rewards are at a sustainable level (using a bond issue to advance the money to the current budget, where interest payments to retire the debt come from depressing wages and wages and benefits for future hires).
    5. Negotiate a reduction in active medical coverage to PPACA’s minimum, “affordable”, “minimum essential coverage” of “minimum value” – they are going to have to move in that direction anyway as a result of the looming Cadillac Tax.

    His responses:
    1. Politically impossible. Plus the changes might not be ruled to be retroactive.
    2. You’d drive many of our best employees right out of state government if you brought wages down that much.
    3. The transition costs of that are staggering and the courts have thrown the flag on efforts to fire then re-hire people as a way to breaking unions or contracts.
    4. See my answer to No. 2
    5. That would save money but probably not enough to make a serious dent in the pension debt. It would amount to a pay cut….always hard to negotiate.

    I responded:
    1. In terms of # 1, it is much more feasible than raising the necessary taxes. Remember, these employees have higher wag Certainly, there is no study that shows/proves, empirically, that those broad-based lucrative pension and retiree medical benefits were needed to attract and retain “the best” public employees … As pension and retiree medical benefits are structured so that there is NO differentiation based on actual job performance. Generally, a complete failure gets the same pension and retiree medical benefits as a star performer if they have the same wage and accumulated service.es than the taxpayers who fund their salaries. Add onto that the fact that they have pensions and retiree medical … Most of the taxpayers don’t. Finally, they have better health coverage as active employees.
    2. In terms of #2, won’t happen. Even after the reductions, the public employees would still be paid much more than their private sector counterparts (pay and benefits combined). Your comment suggests there are great jobs available out there for people skilled in the ways of government, but I think not… And, of course, if they went to another public entity, they would be a new hire. You dismiss this, but, that suggests that illinois and chicago should try to continue rewards that have been determined to be unsustainable? Won’t they simply end up like Detroit, hopefully sooner than later…?
    Certainly, there is no study that shows/proves, empirically, that those broad-based lucrative pension and retiree medical benefits were needed to attract and retain “the best” public employees … As pension and retiree medical benefits are structured so that there is NO differentiation based on actual job performance. Generally, a complete failure gets the same pension and retiree medical benefits as a star performer if they have the same wage and accumulated service.
    3. For #3, there is no transition cost at all if you take 3 percent per month and spread across all departments… Takes 3 years. Turnover is probably 3 percent or more a year today anyway … It will hardly be noticed. In terms of the courts, no one is breaking the union contract, it remains in place … It is just as lee Iacocca once said at Chrysler, I have lots of jobs at $25 an hour and no jobs at $35 an hour (paraphrase). The union would remain in place – the termination and rehire / transition has no effect on the union status on behalf of the represented employees. Those hired and rehired would still become union members as it is a closed shop process in Chicago and Illinois.
    # 5 – You would be amazed at the savings because it would also prompt a significant increase in turnover – and the changes would apply to both active and retiree coverage.

    In response, he responded that the city and state should first consider new taxes – broadening the tax base or changing the tax rates to a progressive system.

    I responded:
    All of these alternatives presuppose that the fiscal crisis is real and that the status quo is not sustainable.

    However, assuming there are no viable alternatives, as your responses suggest, then simply fund to the extent you can based on current tax revenues… When the trust runs dry, it runs dry. A la social security in 2036, that will lower benefits to match incoming funding. You can’t pay what you don’t have. The promise is worthless – the courts can say you can’t reduce benefits, but the courts can’t mandate a tax increase.

    Let’s see, are tax rates higher or lower than they were five years ago? Sure, raise taxes… And watch taxpayers and employers leave the state (assuming the politicians don’t worsen the situation by offering to buy off the corporations with crony capitalism scams like Scott Walker in Wisconsin and the Milwaukee Bucks arena). See California, Massachusetts, New York and Connecticut, etc. for current day examples of the exodus caused by high tax rates, including graduated marginal tax rates.

    Again, it is not as if taxpayers, in Illinois or elsewhere, are flush with cash. Most have wages that are less, in inflation-adjusted real dollars, after taxes, than their wages in 2007, even if they haven’t changed jobs/employers … Due to new taxes, minimal pay increases, higher contributions for medical coverage, frozen/terminated pensions, and for a while, many even saw employer matching contributions to their savings plans suspended.

    It is those workers, again who have lower wages, and much less in benefits compared to their public counterparts, who they want to burden with a tax increase to fund commitments mostly made to buy votes and secure political contributions …

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  2. The term “we need to tax the wealthy” is a relative term. When you earn – note to operative term earn – $100,000 a year – the wealthy means those who make a million a year. But as incomes shrink due to inflation, suddenly $100,000 starts falling into the class known as upper middle class.

    Now take the person making $50,000, they too begin to fall into the middle class. Soon, those making $25,000 will begin to fall into that cherished middle class wage earner.

    Who will be left to tax.

    Like

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