More context on the state and local tax deduction

I mentioned in a recent posting the financial difficulties faced by a number of Democratically controlled high tax states. Just to get some perspective on the problems they face, here are the current estimated unfunded state and local future pension obligations for these states:

California is by far in the worst condition, with $241.3 BILLION in future pension obligations as of 2014. The state’s total future liabilities are estimated at $366 BILLION.  In 1999 Democratic lawmakers in California passed a new law (SB 400), under which than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived. This year the state will pay out $5.4 BILLION in pensions, which is about 30 times more than it was paying out in 2000.

New York City has a future pension obligation estimated this year at about $142 BILLION, and currently spends 17% of its annual budget on pensions.  In the early 2000s a new rule exempted most city employees from having to contribute towards their own retirement, which has made the problem even worse.

New York State is doing somewhat better, but New York State and local debt currently stands at $352 BILLION, and New York State and local pensions cost $34.4 BILLION this year.

Connecticut’s estimated unfunded pension liabilities stand at about $20.4 BILLION as of 2017

Illinois has more than $250 BILLION in unfunded future pension liabilities, and  Moody’s Investors Service has downgraded the state of Illinois’ credit rating to Baa3, just one notch above a noninvestment-grade, or “junk,” rating.

New Jersey’s pension debt now stands at around $49.1 BILLION. The state’s total unfunded liabilities stood at about $66.2 BILLION at the end of 2016.

Notice again we are talking BILLIONS here – thousands of millions! These are big numbers..

There is, of course, no way in hell that these states will ever manage to cover these future pension obligations, especially since their high tax rates are driving businesses and wealthy individuals to leave these states and hence reduce their future tax revenues, so a painful reckoning is coming.