Senate Majority Leader Mitch McConnell sparked a political firestorm last week when he said U.S. states should file for bankruptcy, if need be, rather than taking federal aid, which could amount to states scaling back or pulling the plug on their pension obligations.
“There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations,” McConnell told conservative talk show host Hugh Hewitt last week. “I would certainly be in favor of allowing states to use the bankruptcy route,” he added.
So, the big retirement news of the moment is that the top Republican in Congress would prefer that public pensions default on their obligations to retirees. What’s more, he made the remarks on exactly the same day that Social Security and Medicare trustees warned their funds are going to be depleted before most middle-aged people ever see a nickel.
But the state pension systems are small potatoes compared with the real retirement story: Social Security and Medicare.
And McConnell was speaking just as the trustees of those two systems warned that they, too, are running out of money and will need a lot of extra cash. Just don’t call it a “bailout.”
Either taxes will have to be raised, the money will have to be borrowed, or Social Security and Medicare benefits will have to be cut. Without additional funds, the cuts to monthly Social Security checks would come to around 25% per person, the trustees warn. The average Social Security benefit is $1,400 a month. Cutting that by 25% would take it down to $1,150.
Even before the coronavirus crisis, the federal budget was a sea of red ink, The Trump administration was already forecasting about $5 trillion in extra deficit spending between 2020 and 2025. The Congressional Budget Office was warning in January it expected the national debt to exceed $30 trillion by 2030. In 2016 it was $13 trillion.
McConnell’s office could not immediately be reached for comment.
The senate majority leader is already on record calling for ”adjustments” to Social Security and Medicare.
“I make no apologies,” he has said. “These very, very popular entitlement programs at some point are gonna have to be adjusted.”
If McConnell is re-elected this fall, his next senate term will last until 2026. If the GOP retains its majority he would in position to continue as majority leader at a time when the funding crisis over Social Security and Medicare may come to a head.
McConnell may paint federal spending in California, Illinois and New York as a “bailout” or “aid.” But those states make huge contributions to the federal budget every year. According to the Internal Revenue Service, Californians paid $457 billion in federal taxes in 2018, New Yorkers $281 billion and Illinoisans $161 billion.
The figure from Kentucky, McConnell’s state: Just $35 billion.
The average resident of Illinois paid 63% more in federal taxes than the average resident of Kentucky.
The Rockfeller Institute says Kentucky is the third biggest moocher off the federal taxpayer, getting back $2.40 in federal spending for every $1 it pays in taxes. The only states that get back more are Virginia and Maryland—in other words, suburbs of Washington, D.C.
McConnell’s campaign is currently boasting about all the federal aid he’s getting for the state.
“ICYMI: Kentucky Receives Billions To Combat Coronavirus,” his re-election site says. “Thanks To Sen. McConnell, Billions In Relief Lifts Every Corner Of Kentucky,” it adds. And it continues:
“As our nation grapples with the impacts of the coronavirus pandemic, Sen. Mitch McConnell has worked to ensure Kentucky has the resources necessary to fight against this terrible disease…He recently announced that Kentucky families, workers, hospitals, and businesses will receive more than $2.7 billion in relief funds to combat this virus with even more to come for states and local communities across the U.S..”
Critics note that pension systems in states such as Illinois are subject to abuse, fraud, waste and worse.
Yet as the Utility Workers’ Union of America points out, pensions are not “gifts” from employers or taxpayers. “[T]hey are deferred compensation won at the bargaining table.”
A spokesman for the Illinois State Employees’ Retirement System admits that 2.5% of beneficiaries, or just under 2,000 out of around 75,000, collect more than $100,000 a year. But most of the recipients are teachers, police officers, firefighters and other middle-class individuals. While teachers’ have their own system, the average pension paid by SERS to everyone else is $38,826.
And if politicians are going to try and squeeze retirees making that, they’ll squeeze pretty much anybody.
Originally Published on MarketWatch