• 397 days Will The ECB Continue To Hike Rates?
  • 397 days Forbes: Aramco Remains Largest Company In The Middle East
  • 399 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 798 days Could Crypto Overtake Traditional Investment?
  • 803 days Americans Still Quitting Jobs At Record Pace
  • 805 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 808 days Is The Dollar Too Strong?
  • 808 days Big Tech Disappoints Investors on Earnings Calls
  • 809 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 811 days China Is Quietly Trying To Distance Itself From Russia
  • 811 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 815 days Crypto Investors Won Big In 2021
  • 816 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 816 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 819 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 819 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 822 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 823 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 823 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 825 days Are NFTs About To Take Over Gaming?
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Are Teachers 'Special'? Is Anyone? Why?

In response to New York Mayor Seeks Pension Overhaul; New Jersey Governor Tells Unions "Sue Me" Over Pension Cuts I received yet another email stating a line I frequently hear, that some occupations are "special" and need protection.

Here is the exact statement: "I think that teachers are special and must be separated out in this debate and protected."

Ironically, if anyone is "special" in the student-teacher relationship, it is the students (and those who cannot protect themselves), not the teachers!

With no disrespect to teachers or any other profession, no one is "more special" than anyone else.

People who believe they are special are a huge part of the problem. Everyone wants their group protected at the expense of everyone else. Every group has their own excuse why they are special. It's one of the reasons we are in this mess.

The person who emailed me has decidedly biased opinion (his wife is a teacher). I also hear it from police think they are special because their lives are on the line.

However, stats show that agricultural work is far more dangerous than police work. Fishing and roofing are of the most dangerous professions of all. Should fisherman, roofers, and agricultural workers get "special" pension benefits?

It is time to stop kidding ourselves and admit that no working class is more special than any other class.

Correcting Outrageous Pensions

Having laid sound rationale that no one is special, I recognize there are many teachers and others whose pensions are not that large. It is generally police, fire, administrators, and politicians whose pensions are most outrageous.

I have already proposed a solution to that problem: Tax pension benefits above a certain level, take the money out upfront, and put it back into the pension plans to make them solvent.

Many police, fire, school administrators, now collect $75,000 pensions and up. Worse yet, many retire at age 55. There are many who receive well in excess of $100,000 a year annually, then continue to work as contractors. This is preposterous.

First, the retirement age needs to increase to some realistic level, preferably pegged to the same level as the SS retirement age, but certainly no sooner than age 62.

Next, we should tax excessive pensions heavily. I do not know what the precise point, but it should be set at a level that will make the pension plans solvent in a reasonable period of time, say 10 years, with a reasonable discount rate of the lower of 5% or the long-bond yield.

As a side note, from this starting point in Case-Shiller PE ratios, 5% is actually far too generous.

Higher Taxes Will Not Fly

The alternative to my proposal is bankruptcy or default. Higher taxes will not fly.

People have had enough of higher taxes that go to ungrateful union members who think they are entitled to "special" benefits the average person can only dream about. It is very important for unions to see that.

Bankruptcy vs. Default

In bankruptcy, a judge may very well smack everyone equally. In a default, (Pritchard, Alabama is a good example) no one may get anything at all.

In case you missed it, please consider Alabama Town Defaults on Pensions, Breaks State Law; Renewed Calls For San Diego Bankruptcy; "Prichard is the Future"

The dubious honor of being the first city in the nation to completely default on pension obligations goes to Prichard, Alabama. The city has sought bankruptcy protection twice and is flat broke. It faces a choice of paying to keep city services like police and garbage running or pay pensions. It selected the former.

Vallejo Wins Right to Unilaterally Change Contracts

Vallejo, California went bankrupt and won the right to unilaterally change contracts. I discussed that situation in Vallejo Bankruptcy Plan Offers Unsecured Creditors 5-20%; JPMorgan CEO Forecasts More Municipal Bankruptcies; Bernanke Will Not Rescue Cities

Benefit Haircuts Coming

Here's the deal. Like it or not, benefit haircuts are coming in one of four ways.

  1. Haircuts can be realistically negotiated now
  2. Haircuts can be painfully renegotiated over time in multiple contentious negotiations
  3. Haircuts can be settled via default
  4. Haircuts can be settled in bankruptcy court.

Those are the options. The status quo does not work.

In terms of fairness, (assuming fairness is one of the goals), those with the most outrageous benefits should be the ones to bear the brunt of the reform. Think that will happen in bankruptcy court, when the judge has his benefits to protect?

A properly set tax level on excessive benefits combined with changes in retirement age and contribution levels should be sufficient to protect the benefits of most of the members.

If unions stopped insisting on what they cannot get and instead focused on something viable, union members should endorse the above proposals (alternatively, any other proposals that fix the problem with raising taxes or putting the public at risk).


Back to homepage

Leave a comment

Leave a comment