Ugh! $2 Trillion

Not good, but not really a surprise:

The estimate by Orin Kramer will fuel investors' concerns over the deteriorating financial health of US states after the recession. "State and local governments are correctly perceived to be in serious difficulty," Mr Kramer told the Financial Times.

"If you factor in the reality of these unfunded promises, their deficits will rise exponentially."

Estimates of aggregate funding requirement of the US pension system have ranged between $400bn and $500bn, but Mr Kramer's analysis concluded that public funds would need to find more than $2,000bn to meet future pension obligations.

Kenneth Anderson asks:

Two trillion dollars?  One question about these obligations is whether taxpayers will stick around to pay them, or instead will vote with their feet.  ("Vote with their feet" is something that has been discussed in various ways at VC "” as an aspect of a federal system and states with their own laws.)  Many of these pension obligations have been incurred by municipalities and others by states, and in some cases the obligations are intertwined.  But what happens if voters-taxpayers move out?

The assumption has long been that taxpayers are stuck, on account of jobs and other circumstance.  But query whether that is necessarily true as the baby boom generation retires.  In that case, it might find itself far more mobile, in circumstances where rising taxes at every level make relocation a more valuable decision at the margin.  For that matter, if otherwise desirable locales manage to tax their businesses away, will the baby boomers' kids and grandkids have reason ever to locate in places that lack jobs?  They might have been raised there "” but would they go back?

Would people leave California? They are leaving now, true, but would they leave in the future specifically for this reason or generally on account of the tax burden, particularly as retirees?  Or New Jersey?  What about the city of Oakland?  Or even smaller cities, such as the towns in California "” not large at all, small towns, that have already declared bankruptcy over pension obligations?  It's easy to move out of those towns.

My guess is that the Feds are going to pick up a lot of these state and local obligations, making it effectively impossible for taxpayers to escape them short of leaving the country (and creating the mother of all moral hazards, by the way).  After all, if the current administration will bail out Wall Street banks with whom they have little ideological sympathy, they certainly will do so to keep SEIU-represented government employees in jobs.


  1. rox_publius:

    don't underestimate the possibility of leaving the country. my wife is from an often-overlooked european country where disastrous economic and political decisions have caused mass exodus, to the point where more than half of her graduating class from university no longer resides there.

    we can say this could never happen in america, but i can tell you that extrapolating the recent assault on liberty and economic freedom of the last 16 months or so over an extended period of time would likely have me looking to relocate. i love america, but mostly because i love the idea of america - and the more america looks like just another socialist nanny state, the more my options appear to be open.

  2. frankania:

    I voted with my feet 20 years ago and have been happily living & working in Mexico ever since. The mountainous areas of Mexico have 3 main advantages:

    Low cost of living-especially medical, dental, servants

    Great climate without A/C or heating

    Ineffective govt that doesn't intrude, give welfare, or even effectively collect taxes that exist.

  3. Brugle:

    "if the current administration will bail out Wall Street banks with whom they have little ideological sympathy,"

    I don't mean to pick nits, but Goldman Sachs was a major donor to Obama. Does it matter if the sympathy (many billion $ worth) wasn't ideological?

  4. roger the shrubber:

    how 'bout the cartels, frank? are they intruding? in juarez, they're down to kidnapping and killing guys who own small upholstery shops, or manage restaurants. and their families. and anyone else who happens to get in the way.

  5. Mark:

    California has been trying to tax retirees who move out of the state for years. They work in Ca, then when they retire, go to say Nevada where taxes are lower, or other states with no income tax.

    Ca claims that since the original $ were earned in CA, CA should be able to tax it (at least for the difference between the new states tax rate, and what the person would have paid in CA.)

  6. frankania:

    Roger, Good question. The cartels are figments of over-dramatic news shows (except in Juarez, which you referred to). These useless "drug wars" take place near the US border and in certain areas, but the rest of Mexico, especially in the mountains are calm. Crime happens everywhere, but nobody here worries about the cartels (which would not exist without the US "drug-prohibition")unless they are in the drug trade.

    I stay away from Juarez, Mexico City and the US border whenever possible. We have built several houses here and life is great.

  7. perlhaqr:

    Yay! The Californians drove California into the ground, and when the consequences of their voting come back to bite them, they'll flee in droves to poison the rest of the country, never having learned their lesson.

    I wonder if the NM legislature could require a basic economics course for people from California before they're allowed to register to vote. We already make people take a drunk driving awareness class before we let them have a driver's license...

  8. california borg:



    the US has done the same thing to those retiring and leaving the country for years. they would tax the next 10 years of income even if you renounced citizenship. it's actually a bit simpler now as they just tax everything you own on an as if sold mark to market basis, but they will still tie you up for ages and fine/tax you punitively if they deem you to be doing it for tax avoidance, which seems amazing as tax avoidance is legal in the US...