The Public Sector and the Tax Base

Posted by PITHOCRATES - June 3rd, 2013

Economics 101

All Government Bureaucracies Grow Bigger and Pay their People Very Well

Big cities throughout the United States are suffering financially.  They are drowning under the costs of their public sector employees.  For when the Great Recession hit tax revenues fell.  People lost jobs and paid less income taxes.  People out of work spent less in the local stores causing a fall in sales taxes.  People drove less and paid less gas taxes.  Home values plummeted, reducing property taxes.  Tax revenue fell at all levels of government.  Leaving the big cities unable to pay their bills.  With less help from the governments above them.  While their infrastructures crumbled.  And they struggled to furnish basic city services.

Governments don’t make anything.  They just have people doing things.  So there are little economies of scale.  Just a lot of people.  The public sector includes every worker in the city paid by tax revenue.  The mayor, city council, school teachers, police officers, firefighters, garbage collectors, boiler operators, electricians, janitors, building inspectors, meter readers, bus drivers, etc.   And all the civil servants and bureaucrats that push paper.  Requiring a huge payroll.  And lots of benefits.  In a large city with a population of 1.5 million those costs can look like this:

Public Sector Costs 1

All government bureaucracies have two things in common.  They always grow bigger.  And pay their people very well.  So the above table has three columns.  Showing the growth of the public sector.  (Assuming a constant population to simplify our math).  From 1% of the city population to 2% then to 3%.  So the number of city employees goes from 15,000 to 30,000 to 45,000.  By the time you add in pay, holiday pay, vacation pay, sick days and health insurance the active employee costs are huge.  Going from $1 billion to $2 billion to $3 billion.  Today it is not uncommon for a big city with a population of 1.5 million to have 45,000 public sector workers.  So we will build on that figure.  And add in retiree costs.

As City’s Population Declines so does its Tax Base

Another big perk of working in the public sector are the great pensions.  Something that has long since disappeared in the private sector.  While most of us have to put money away in a 401(k) public sector workers can count on a generous pension during a long retirement.  Perhaps getting as much as 80% of their base pay.  Plus they keep their health insurance.  Which is unlike the health insurance most of us get in the private sector.  For it covers everything.  With few co-pays.  And only the best name-brand pharmaceutical prescriptions.  This is why people want to work in the public sector.  And why they want to retire from the public sector.  Because no one else pays as well.

Public Sector Costs 2

Public sector workers retire long before their counterparts in the private sector.  Allowing them to live a long retirement.  And because they live so long into retirement the city ends up paying for almost as many retirees as they do active workers.  Putting great cost pressures on these cities as more of their workers retire.  Within as few as 2 decades the cost of retired workers can go from $648 million to $1.9 billion.   When we add this cost to the cost of their active workers we get the total cost of the public sector.

Public Sector Costs 3

As time passes and more people retire from the public sector we can see how the cost of the public sector (active and retired) rises from $3.7 billion to $4.4 billion to $5 billion.  Which, of course, the people living in the city have to pay.  The taxpayers.  They pay income taxes, property taxes, sales taxes and a variety of other taxes and fees.  Who by the time the number of retirees reach 40,500 must pay $3,336 per year.  Or $278 per month.  Or $64.15 per week.  Or $9.16 each day.  Just to get a true feel of how much this is do the following exercise.  Each day take a $10 bill out of your wallet or purse and throw it away.  This will approximate the cost of the public sector you pay for.  Until the people start leaving the city.  And as the population declines so does the tax base.  Requiring each person to pay a larger share of the public sector cost.

To pay for an Expanding Government you need a Growing Population

If a city starts losing population it doesn’t reduce the need to pay the bloated public sector.  Both active and retired.  So the fewer people remaining in the city have to pay a larger share of the public sector cost.  Because the public sector union isn’t going to allow the city to lay off any workers.  So it’s up to the taxpayers.  But as the population shrinks it becomes more painful to do.

Public Sector Costs 4

By the time the population falls to 500,000 the amount of taxes a person must pay to support the public sector amounts to a house payment.  Or $192.46 per week.  Or $27.49 each day.  Can you imagine taking three $10 bills out of your wallet or purse every day just to throw them away?  Probably not.  Because no one would.  Cities just can’t keep increasing the tax burden on their people.  For there is a limit.  And when a city reaches it they start borrowing.  Which is how cities go into debt.  And flirt with bankruptcy.  Because of these bloated public sectors.  That grew when the cities grew.  But they didn’t shrink as their populations shrank.

We have ignored corporations in our exercise.  Which increase the tax base.  But we have also excluded additional costs.  Buildings, vehicles, equipment, housing assistance, food assistance, fuel for city vehicles, car insurance, property insurance, liability insurance, lawsuits, etc.  If we factor these things in the numbers will only look worse.  As the cost of the active and retired workers increases there’s less money to pay for the basic city services.  So they deteriorate.  Which when added to the higher taxes chase even more people out of the city.  Reducing the tax base further.  Leaving even less money for the basic city services.

When the population declines so does the city.  As the public sector workers consume a greater percentage of the shrinking tax base cities suffer increasing urban decay.  As there is little money for anything but the public sector workers and their benefits.  For when it comes to paying for government population is key.  You need a growing population to pay for expanding government.  To spread the costs of a bloated public sector over as many people as possible.  And you can’t do that with a declining population.  Which is why big cities flirt with bankruptcy during bad economic times.  For they can pay for their bloated public sectors only during the best of economic times.  And only during the best of economic times.

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Big Government is Bankrupting and Oppressing Us

Posted by PITHOCRATES - November 21st, 2010

Rich Democrats Profit from Big Government

Do you know what the problem with the idle rich is?  They sometimes use their idle time to think (see Millionaires to Obama: Tax us by Rachel Rose Hartman posted 11/19/2010 on Yahoo! News blog The Ticket).

More than 40 of the nation’s millionaires have joined Patriotic Millionaires for Fiscal Strength to ask President Obama to discontinue the tax breaks established for them during the Bush administration, as Salon reports.

And who are these millionaires?

The group includes many big-time Democratic donors such as Gail Furman, trial lawyer Guy Saperstein and Ben Cohen of Ben & Jerry’s ice cream (pictured). The list remains open to millionaires who want to sign on.

One thing we’ve learned from government.  The rich never pay their fair share of taxes.  Neither will these Democrat supporters.  I mean, if you’re so patriotic and loyal then just give your money to the government without the tax law forcing you.  Like J.P. Morgan did during the Panic of 1907.  (He used his own wealth to help shore up the banking system during a liquidity crisis).  But they don’t.  Why?  (That’s not a rhetorical ‘why’.  I would really love to hear them answer that question.)

But the key here is that they’re Democrat supporters.  Supporters of Big Government.  Who either profit from government (by preventing any tort reform so lawyers can continue to enrich themselves with frivolous lawsuits brought against corporate America (News Flash:  McDonald’s hot coffee is hot)).  Or are a bunch of rich coots that get off on telling other people how to live.

A Bankrupt City Pleads for Churches, Schools and a Hospital to Help Pay their Union Costs

And speaking of charitable contributions to the government, here’s a city government asking for just that (see Debt Rising, a City Seeks Donations in Michigan by Nick Bunkley posted 11/19/2010 on The New York Times). 

A Michigan city is pleading with churches, schools and a hospital for donations to help cover its staggering budget deficit.

Gail Furman, Guy Saperstein and Ben Cohen ought to throw some of their wealth over to Mount Clemens.  They could feel patriotic and loyal.  And the city could really use their help.  For they’ve done everything they can already.

[The Mount Clemens mayor] said the city has already drastically cut its expenses, having disbanded the police department six years ago, but still faces a $960,000 deficit that is projected to reach $1.5 million next year.

It’s always the police and fire departments that get chopped first.  Not the real things bankrupting the city.  Which, interestingly, they note (probably unintentionally) in the last paragraph.

The city asked its retirees to increase their health insurance deductibles, [the mayor] said, and 8 or 10 did so or switched to their spouse’s plan, saving $192,000.

It’s the same thing that’s bankrupting cities in all of ‘blue’ America.  Fat union payrolls and fat union benefits for city employees.  But they get rid of cops and fire fighters first because it’s a good scare tactic that usually works at the polls when trying to renew or increase a millage.

High Union Pay and Benefits do not Make NYC’s Trains any Safer

But we have to provide those fat pay and fat benefits to attract quality people to these jobs.  Don’t we?  You decide.  Here’s yet another example of what we get for these high pay and benefits (see Subway Signal Inspections Found to Be Falsified by Michael M. Grynbaum posted 11/19/2010 on The New York Times).

Safety workers at New York City Transit falsified thousands of inspections of the track signals that direct trains in the subway system, deeming the signals safe even though those inspections had never taken place, according to an investigation by the inspector general of the Metropolitan Transportation Authority.

Train tracks are broken down into ‘blocks’.  These signals are green when a block is empty.  They’re red when a train is in that block.  These block signals are what keep trains from crashing into each other.  So they’re kind of important.  For safety.

Real railroad personnel would never do this.  They take their work too seriously and have far too much pride to endanger people on their tracks.  But unionized city workers are another story.  It’s not about the love of railroading.  But living better than other people. 

Is this only an isolated incident?

It is not the first time that safety workers in the subway have been found to have falsified such inspections. A nearly identical situation was revealed by the inspector general in 2000.

Apparently not.

The TSA:  Submit to Our Awesome Powers or We Will Destroy You

So government employees are bankrupting our nation with their fat pay and fat benefits.  And they’re endangering our lives with their poor work ethic.  Can it get worse?  Yes.  If we give them unfettered power over us (see $11,000 fine, arrest possible for some who refuse airport scans and pat downs by John Lantigua, Palm Beach Post, posted 11/20/2010 on the Sun Sentinel). 

The Transportation Security Administration (TSA) is warning that any would-be commercial airline passenger who enters an airport checkpoint and then refuses to undergo the method of inspection designated by TSA will not be allowed to fly and also will not be permitted to simply leave the airport.

Welcome to airport security.  By entering our line you forfeit all Fourth Amendment rights.  Please remove your shoes, your belts and lift up your dresses and drop your panties.  It’s all in the name of national security.  Yeah, it’s good to be an ineffective bloated government bureaucracy.  Power to the state, baby.  The state rules!

No wonder the Nazis went from state socialism to maniacal oppressive dictatorship.  It’s a rush for the corrupt in power.  No doubt that if some TSA gropers are brought up on criminal charges for ‘crossing the line’ they will follow suit.  I can hear them now.  “I was just following orders.”

Absolute Power Corrupts Absolutely.  And Brings Down Superpowers

Those rich Democrat millionaires got it wrong.  We shouldn’t be giving government more money.  Or more power.  That wasn’t the formula we used to become a superpower.  But it is the formula that has brought down every superpower to date.

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