Class Warfare Blog

March 24, 2011

A Contract Is. . . ?

There was a time when Republicans argued that a “contract was sacred.” This is obvious, because the Republican Party is the “party of big business” and contracts are the lifeblood of business. But in the most recent round of their attacks on the middle class, not a single Republican can be found muttering that phrase let alone thundering it from a podium.

You see, in order to blame public employee unions for our current state budgetary woes (all evidence to the contrary) they are claiming that state employee retirement contracts are bankrupting the states. The scenario is that venal state government officials negotiated contracts with public employee unions that “gave away the store,” as it were (in order to buy votes). Those bad state officials (Democrats!) have given way to good state officials (Republicans!) who will set things right.

Let’s look at the facts. (I know that politicians are impervious to facts but you and I are not.) The average annual retirement benefit for the 101 major government pension systems tracked by the National Association of State Retirement Administrators is $24,738 per year. (Sarcasm Alert! Sarcasm Alert!) Obviously state employees are getting rich at the government’s expense! (Return Sarcasm Alert state to Green.) But those teachers, they are getting rich, right? The average for just teachers (remember they are all college graduates) is $30,624. (Sarcasm Alert, etc. etc.). You should also note that these payments are not really state money (see below).

So what is the real problem, not the made up one the Republicans are trumpeting? The real problem is that in many states, the schools (funded by the states) are not keeping up their side of the bargain. Typically a teacher’s pension system goes like this (I will use my California State Teachers Retirement System (CalSTRS) as the example): when hired the teacher is automatically put into the system; one is not allowed to “opt out.” In my case, roughly 8% of my earnings were put into a retirement account. (I say roughly 8% because the rate was adjusted a number of times to make sure there was enough money to meet obligations.) This was matched (by contract) by my employer (the school district) creating a retirement plan as a fringe benefit. Please realize that people with my credentials (Master’s Degree in Chemistry) earned roughly 50% more than I did throughout my career (according to the American Chemical Society’s salary surveys). The nice pension plan was described as an offset to the lower salaries. (This was not some secret. It was touted as such over and over.) Now, if you consult a retirement counselor and ask them if you will be okay in retirement if you invest 16% of your salary (8% out of my pocket, 8% as a fringe benefit) wisely for your entire working career (mine was 34 years), they will give you a big “thumbs up” and a half dozen “Attaboys!”. This is what Cal STRS did for me, they invested that money wisely. By the way the average CalSTRS pension is $38,795 per year, which ranks #9 on the list of the 101 plans mentioned above. (Please also realize that California is a very expensive state to live in. When I moved from the boonies in California to Chicago, my living expenses went down!)

The CalSTRS people invested wisely and their plan is solvent for at least the next 25 years (yes, including all of the Baby Boomers currently retiring). The problem with a great many of the other state plans is that the employers have been reneging on their contributions. The teachers have dutifully put in their own share (they have no choice) but the states have been only partially funding their part. And they have been doing this for years! Now that the Great Recession has worsened every budget picture, the states find themselves in crisis. But the fault is all theirs, not the teachers. The contracts were negotiated in good faith. The teachers kept up their end; the Party of the Second Part did not. So, the solution? According to Republican Governors it is to take away public employee bargaining rights and once they are gone, fix the problems unilaterally. Now you can be sure that the burden of the “fix” will be on the workers and not the states. Essentially they are voiding the retirement contracts by turning one party into a non-person. Big Brother has arrived and, surprise, surprise, he has a Republican face!

The same game is being played on Social Security. Republicans say Social Security needs fixing because, as we all know, it is seriously underfunded, right? We know this, right? Wrong. Social Security has been running a surplus for decades. More Social Security taxes have been collected than have been dispersed for many a year. This is because Republicans and Democrats got together and fixed things in the 1980s. The “problem” is that Congress passed a law stating that any such funds not spent in a fiscal year must be used to buy Government Bonds. In other words, the money was given to the government and the Government spent it. All the Government did in issuing a bond is promise to repay the amount at a later date with a bit of interest. So our Government has blithely spent all of the Social Security surpluses and now comes the time to repay them and . . . lo and behold, the Great Recession has put a great many people out of work. The unemployed pay no taxes. And recent tax cuts has created the situation where half of American citizens and two-thirds of American corporations pay no tax. So, just when we need the money, Congress has said “We don’t need the money, you keep it.” This is followed with Republicans running around screaming “Crisis, crisis, we have to do something; Social Security is broke!” Social Security is not broke, the Government just doesn’t want to repay the money lent to it (by the taxpayers, by the way) so they are making those payments sound like there is something wrong with the Social Security System, which there is not. In other words, “You paid too much tax, we borrowed it, we don’t want to repay you; it is your fault!”

This seems to be a consistent game plan for Republicans. In Wisconsin, a $140 million tax break bill for businesses was passed just before there was a $137 million budget shortfall crisis necessitating the stripping of public employee’s collective bargaining rights because, well, they caused it you see. In Florida the new Republican Governor has proposed $1.6 billion dollars in tax cuts for businesses and a $1.75 billion reduction in education funding. Apparently, since Republicans would rather ship our jobs overseas, they don’t believe we should waste money educating Americans who won’t have jobs anyway.

If you have been reading this blog, you will know that businesses do not need tax cuts (two thirds don’t pay taxes, so we are really talking about subsidies here); they need customers, which they will not have if Republicans get their way in driving down middle class wages and reducing the number of jobs even more than the Wall Street caused recession has done.

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