Public Pensions Face $2 Trillion Deficit
It would be convenient to believe that states and cities can raise taxes enough to make up for deficit in the pension funds. It would be nice if the federal government would come up with money to lend to public pension funds under a program similar to TARP. And it would be even better if the federal government would wash away the red ink with direct grants instead of loans.
But none of that will happen; economic expansion is likely to be slow and unemployment is likely to stay high. Higher tax rates at the local level would combine with increases in federal taxes due in 2011. Consumer spending would be undermined as the percentage of people's earnings going to support government activity ballooned. At some point, the tax burden would overwhelm the recovery by killing consumption.
The federal government will not be a source of funds as it already faces trillions in deficits, a call for increased stimulus spending, and more than $12 trillion and growing.
Working for the government was never a way to become rich, but it has always offered stable benefits, and now the retirement portion of those benefits is about to fall substantially.