Wisconsin Pension Cuts Are Actually About Reducing Union 'Cash Wages': David Cay Johnston

Who really contributes to Wisconsin's public employees' pension funds?

On Friday morning, the Wisconsin state assembly passed a bill that would, as the Associated Press put it, "require public workers to contribute more to their pensions and health insurance and strip them of their right to collectively bargain benefits and work conditions."

But David Cay Johnston, who won a Pulitzer Prize for his reporting on inequities in the corporate tax code, says the AP's description of Walker's bill is critically misleading. The problem lies with the claim initiated by the Governor, that under the proposed plan state workers would "contribute more" to their pension plan. This distorts the issue at hand because, Johnston writes at Tax.com, it leads to a certain implicit impression:

"Somehow the workers are getting something extra, a gift from taxpayers. They are not.

Out of every dollar that funds Wisconsin' s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages -- as pensions when they retire -- rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

The AP is not alone in this, Johnston points out. This claim has been frequently echoed in nearly all the press coverage of Wisconsin's protest, including some stories produced by this publication.

Pension funds, like paid vacation days and salaries are a negotiated part of public workers' total compensation. In Johnston's view, when Governor Walker says that he wants workers to "contribute more" to pension funds, one correct way to put this would be that the governor "wants to further reduce the cash wages that state workers currently take home in their paychecks."

It is well worth reading Johnston's full explanation of one of the central aspects of the battle in Wisconsin -- and other states where public sector employees are under pressure from Governors to "contribute more" for the sake of looming deficits.

Earlier this week, the Huffington Post's Zach Carter, pointing to a Pew report, noted that Wisconsin's pension fund was among the nation's healthiest.

The Pew report, issued last year, concluded that Wisconsin is a "national leader in managing its long-term liabilities for both pension and retiree health care." Walker has cited the fund's lack of sustainability as grounds for his plan to revoke collective bargaining rights for state employees, but that proposal has sparked outrage among state employees and drawn tens of thousands of protesters to the state's capitol.

As Carter writes, "the Wisconsin pension fund is simply not in fiscal trouble."

Comments

[mathpol]

11:59 AM on 03/10/2011

In Johnston's post at tax.com he states:
"Out of every dollar that funds Wisconsin's pension and health insurance plans for state workers, 100 cents comes from the state workers. How can that be? Because the 'contributions' consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. "
This is not the case.
"Contributing on behalf of the employee" does not mean the money is coming out of the employee's compensation. That is true for defined contributions, but it need not be true for defined benefits. In Michigan the (defined benefits) pension was totally state funded before 1997. It was part of the compensation package, but nothing was taken out of the employee's pay, as would be the case with 401(k)'s. (Since 1997 there has been some contributing by the employee.)
Indeed, one of the big problems some states are having these days is with underfunded state pension plans. State employees are promised a certain amount when they retire, and it is up to the state to see that the money is there. That is why there is a move away from "defined benefit" plans to "defined contribution" plans.
My wife is a state employee; twenty or so years ago, a colleague dropped dead a week before retiring, and there were no pension benefits for anyone. This would not have been so if the employee had been making contributions to a pension plan.

oldpoliticaljunkie.com

[mugwump67]

07:43 PM on 03/02/2011

SR5 passed in Ohio, teachers are getting paycuts as high as 35%.

Thought it'd take longer than this to 'steal from future generations'...

[madame48]

07:39 PM on 02/28/2011

people forget that it is ILLEGAL for public employees to strike...they need collective representation

[the-lexicon]

06:14 PM on 02/27/2011

When you talk about whether there should be unions in the public sphere...in government jobs, to be exact, you have to REMEMBER why unions exist in the first place.

Unions don't exist because workers are greedy and want more money.

Unions came to be, because the corporate task masters wouldn't let workers have any kind of quality of life, they deliberately set workers against one another, they divided and conquered.

Those who remember, remember a time when a boss would fire a worker who complained, as an example to the others to keep their mouths shut and stop complaining about working 70 hours for 40 hours pay, stop complaining about the dangerous machinery.

Divide and conquer. It was the hallmark of the gilded age.

And when you stop and think about it, the PUBLIC is probably the worst boss in the world, wanting more and more work for less and less benefits.

It isn't about greed, it's about being able to be a government worker AND have a decent, normal life.

[GaryNMaine]

06:35 PM on 02/27/2011

Bravo!

[mercedes1947]

12:30 AM on 02/28/2011

It was worse than people remember. Seven day work weeks - no breaks - no heat - no medical care if you were injured on the job. No safety net if the injury prevented you from working. Subsistence wages no child labor laws, workers were little more than slaves greedy masters exploited.

There was no moral imperative. Industry was a heartless creature that cared nothing for waves of immigrants who sailed for America and worked and died in the factories of the east.When labor began organizing Industry would not budge. Their preference was to shoot to kill demonstrators rather than bargain. And they did. Walker is the archetype for this attitude. People mean nothing to him and he is projecting his own self serving interests on the Wisconsin public workers who are NOT breaking any budget and who HAVE made concessions in the interest of budget shortfalls.

Is this what we want: http://www.historyplace.com/unitedstates/childlabor/

[bluepond]

11:37 AM on 02/28/2011

Good summary, fanned.

[Sergeantfreedom]

04:44 PM on 02/27/2011

Does anyone remember Republican Party outrage when many HUNDREDS OF BILLIONS of our tax dollars were used to prop up and bail-out Wall Street Investment firms and banks? What I remember is Lefties complaining that the Execs and Traders in the Bailed Out Corporations were still getting multi-million dollar CHRISTMAS BONUSES, that Millions and Millions in PAY for one person in a bailed-out Corporation was too much... and the general Republican response?

** "YOU CAN'T TELL SOMEONE WHAT THEY CAN MAKE!" **

Seems this applies only to rich CEO's and Execs in GOP world, not hard working average working men and women.

[Rodger leMonde]

02:27 PM on 03/01/2011

It wasn't too long ago that complaining about taxing the greedy wealthy was "envy".
Now it is the workers who keep our nation functioning that are characterized as "greedy" the nation is supposed to envy them.

[mistykane]

03:40 PM on 02/27/2011

This article is so misleading. The money for retirement is invested and any shortfall is paid by the taxpayer. It's not true that there are no tax dollars involved and it's no excuse not to expect teachers to contribute 6%. That's much less than what most people have to contribute to their pensions.

[Bernique]

08:18 PM on 02/27/2011

kane --Read David Cay Johnson's background papers. This economist is dead serious, and backs up his assertions with solid, irrefutable arguments. If we didn't have a media culture of "bleeds/leads" his ideas would be seriously debated and would change the course of economic history.

Right now we are being fed the most elementary Rovian & reptilian arguments to vilify workers who honestly and earnestly played by the rules, until a dishonest elected official used them to try to impose an ideological template that would return this country to the ignoble working conditions that were tolerated in this country until the 1920s.

I can tell you were not on the barricades at your State House on Saturday, at noon.

[mercedes1947]

12:39 AM on 02/28/2011

Fanned Bernique

mistykane, you are misty mistaken. Teachers contribute 100% into their pension fund.

"Out of every dollar that funds Wisconsin' s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so, a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply "contribute more" to Wisconsin' s retirement system (or as the argument goes, "pay their fair share" of retirement costs as do employees in Wisconsin' s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin."

www.tax.com

[Rodger leMonde]

02:32 PM on 03/01/2011

Never mind that they also pay taxes on income.

[SofaKing22]

05:50 PM on 03/08/2011

And pay property taxes.

[NHGranite]

03:27 PM on 02/27/2011

Unions started for manufacturing jobs. How many of those jobs do we have left in this country? We give huge tax breaks to foreign car companies to open plants here, but were willing to let our own tank. Now only municipal workers are unionized. Typically, from what I can see, lower pay for guaranteed health care and pensions. Take those away, raise salaries. Interesting that we say they have high pay. Now, yes, but traditionally, no.

[the-lexicon]

06:00 PM on 02/27/2011

High pay compared to what? kids mowing lawns on saturdays?

[mercedes1947]

12:43 AM on 02/28/2011

Granite is pro union. re-read.

[eschenk718]

02:34 PM on 02/27/2011

Let's keep this moving. Wait until the weather gets a little warmer and the snow melts. We will make the tea party look like a bunch of pikers.
I would like to know what the Wisconsin legislalture gets in pension and healthcare. Someone said they are part time employees. In most places that I worked if you were parttime there were no benefits.

[OlskoolDem]

10:45 AM on 02/27/2011

this should be the headline plus there were OVER 100,000 Union Protestors
why is Huff post burring this pon page 6

[ran6110]

10:13 AM on 02/28/2011

Right, like this story is more important that the oscars or Natalie Portman's "baby bump"!

Page views my friend, page views...

God post though, F&F

[BocaMom]

10:11 AM on 02/27/2011

What a political PR story. This is about cutting state budgets like every non-government company and every family has to do. Most of the U.S. state governments are broke. And this calls for cuts in spending. And yes, even union folks are included. Welcome to the world that we ALL live in.

[OlskoolDem]

10:47 AM on 02/27/2011

in that case why don't you just put the other $22,000 on the check ?
is it because you loke the GOP's fuzzy math better.

[humanitytakesavacation]

02:35 PM on 02/27/2011

Facts are funny things:
There is a kernel of truth in Wisconsin Gov. Scott Walker’s claim of a “budget shortfall” of $137 million. But Walker, a Republican, failed to tell the state that less than two weeks into his term as governor, he, with his swollen Republican majorities in the Wisconsin Legislature, pushed through $117 million in tax breaks for business allies of the GOP. There is your crisis.

The state Legislature’s Legislative Fiscal Bureau—Wisconsin’s equivalent of the Congressional Budget Office and a refuge for professional expertise and nonpartisanship—warned Walker and the Legislature that the measure would create a budget gap. There is your shortfall—and not one resulting from established public employee benefits. Before the tax giveaways, the fiscal agency predicted a surplus for the state.

[Don Clanton]

03:03 AM on 02/28/2011

A unionized public employee, a member of the Tea Party and a CEO are sitting at a table. In the middle of the table is a plate with a dozen cookies on it. The CEO reaches across and takes 11 cookies, looks at the Tea Partier and says, "watch out for that union guy, he wants a piece of your cookie."

[maybealittlecommonsense]

11:45 AM on 02/28/2011

The tax breaks do not take place until the 2011-2012 budget which starts July 2011.

The current short fall is in the budget Walker inherited that expires this July.

http://politifact.com/wisconsin/statements/2011/feb/18/rachel-maddow/rachel-maddow-says-wisconsin-track-have-budget-sur/

[Carl Caroli]

07:39 AM on 02/27/2011

More republican trickery. Their goal is obviously a two tier society. Us and them, just the way they like it.

[G52]

02:01 AM on 02/27/2011

This is absolutely spot - on true!

These are already wage negotiations that have been passed on to the worker in the form of having them take cuts to pay more into health premiums and pensions......

This has been going on since the 80s in both private and public unions..........Same thing with GM.

Workers have endured give-aways, cutbacks, forgone pension increases, and re-negotiated contracts for years. It was a big point of contention among union members to do so because of what we are seeing today.

[mercedes1947]

12:54 AM on 02/28/2011

How many ways can they squeeze us? Out of control health care costs, pay cuts, 10 trillion dollar slide of property values from the sub prime mortgage mess, illegal foreclosures, outsourcing jobs, corporate bailouts, (Of those were repaid with interest), tax cut extensions for the rich,pension funds wiped out during the crash of 2007-08, 30 million dollar a day war in Afghanistan...phew I'm out of breath.

It is time for us to form our own version of the Tea Party, minus the vitriol.

[G52]

02:53 AM on 02/28/2011

The winds of change are shifting.....

That is a result of unchecked greed.

[billjmcdaniel]

03:20 AM on 02/28/2011

I hear Russ Feingold is starting a group called progressivesunited - It might be what we're looking for.

[Bwheel]

12:27 AM on 02/27/2011

If it comes down to a choice between cuts in wages and benefits or layoffs, I think it would be wise to opt for layoffs. This is the third year in a row that public workers have taken pay concessions. Walker will just create another fake budget crisis next year and ask for more, it will be never ending. If you opt for layoffs, at least it will come to an end at some point. When there are no teachers to teach, and no drivers for the snowplows, people will finally realize that these services aren't free. When you give up pay concessions, your telling people that you're not worth what you're getting paid and you'll never get that money back.

[Cheryl2]

10:58 AM on 02/27/2011

There is no choice at all, the reason Walker needs to be rid of collective bargaining is because he plans to replace them all. It is called privatization, and even though Walker is fully aware it costs the taxpayers more in the end, it is his goal because that is a new frontier for profits for a few. Get ready to be fleeced.

[kwoodgr]

12:23 PM on 02/27/2011

privatize the politicians, especially the governorship.

[lettyb]

12:44 AM on 03/01/2011

This is the GOP agenda and it is just starting here big time. They would rather defeat Obama than help the majority of the Amercan workers. GOP hopes if the economy is bad enough voters will vote in someone else. And that would have to be a Republican. If that nightmare were to happen, this scenario in Wisconsin will be played all over the country. Bust the unions, undermine public education, destroy Planned Parenthood, get rid of public radio, and continue to be the only non 3rd world country in the world without universal health care. By that time we will be a 3rd world country.

[firstcougar1]

12:09 PM on 02/27/2011

spot on - fanned