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Saturday, February 28, 2009

High Taxes And Union Pensions Are Killing Rhode Island. Duh!

The New York Times has run a story on the travails of my home state, Rhode Island. The Times pays homage to the good things about Rhode Island, which is a quirky state with beautiful landscapes and beaches, in which everyone seems to know everyone else, or at least knows someone who knows someone. Rhode Island should be the jewel in this country's economy, but Rhode Island is in an economic death-spiral. If you want to see this country's economic future under high-tax, punish-the-rich, union-giveaway policies, come to Rhode Island.

While The Times beats around the bush on the cause of Rhode Island's economic problems, The Times finally gets to a point I have made before - high taxes and union pensions are killing Rhode Island's economy:
Organized labor remains a powerful force, and the state’s unfunded pension liability, $7 billion, is among the worst in the country....

[RI has a] tax structure, which is generally considered uncompetitive with those of neighboring states. State leaders cringed last fall when Jack Welch, the former chairman of General Electric, said on Fox News that Rhode Island’s tax structure made it “the 48th-most-acceptable state for business.”

In fact, a study last fall by the Tax Foundation, a nonpartisan group in Washington, ranked Rhode Island’s business climate the fifth-worst in the nation.

Union pensions for state employees are the single biggest problem, as a 2006 study showed. For decades, policies allowed state union employees to retire on full pensions with cost of living adjustments after 30 years regardless of age, based on a formula from the last three years of work. This system has saddled the state with ever-increasing payments with a shrinking work force paying into the system.

By way of example, a unionized public employee who started working for the state out of college, say age 23, could retire at age 53 on a full pension for life, and could increase the amount of the pension by working overtime in the last three years. Other perks, such as getting retirement "credits" for taking classes, or buying credits, allowed employees to game the system. After "retirement" the state employee could simply get another job while collecting a state pension. It is likely that this person would spend almost as much of his or her life on a state pension as working for the state.

Such a system was great for the individual employee, and made state employment a coveted goal. Handing out state jobs was an important means of political patronage, mostly for the Democrats who control the state legislature. The system, however, was not sustainable. Attempts to change the system were opposed by the unions, which fought tooth-and-nail, with the overwhelmingly Democratic state legislature siding with the unions.

Is it union-bashing to point out that what is good for the unions may be destroying the state? Do the unions even know or care that they have created a house of cards which looks great to their members, but is on the verge of falling down? High taxes are a reflection, in part, of the need to fund these ever-increasing costs. This is an economic death-spiral which is picking up steam as it falls.

There are other problems, such as public corruption, but high taxes and unsustainable union pensions dwarf all other issues. Sounds like Obama's plan for the United States. We have seen in Rhode Island a microcosm of how these big-government, punish the rich, class warfare policies play out, and it is not good.

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