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Bankrupt Pension Plans Drive Businesses Out of the State – A Lesson for Wyoming

Companies were talking about leaving the state of Illinois. Chicago Mercantile Exchange and Sears’ corporate headquarters were among the companies looking to head to states farther away -- from fiscal collapse that is. Indiana governor Mitch Daniels is busy promoting his state as a place with an attractive business climate. Wyoming is likely doing the same. However, Wyoming suffers from the same problem that is tanking the Illinois state budget – an unsustainable pension plan for bureaucrats.

Wyoming’s bureaucrats have it made – for now. When they retire, they’ve been promised a pension most people in the private sector can only dream about. Bureaucrats get a defined-benefit pension plan, one that pays a sum of money defined by the bureaucrat’s last five-year-average salary and the length of time in government, whether there is enough money in the pension fund or not.

Neither the Illinois nor the Wyoming pension plans have enough money to pay their promised benefits. Wyoming’s public sector pension plan is 84 per cent funded. That means, should it close down today, the government would have enough money to pay for 84 per cent of its promised benefits.

Technically, these types of funds are considered beyond recovery when they fall below 71 per cent funded. Illinois’ public sector pension plans are 51 per cent funded. Illinois’s pension plans do not have enough money to pay the promised benefits and are too far gone to recover.

The Illinois government is in a state of denial. Instead of reforming its pension plan it hiked corporate income tax rates from 7.3 per cent to 9.5 per cent and personal income tax rates from three per cent to five per cent to try to Band-Aid over the problem. These tax hikes were sold to businesses and individuals as a temporary tax measure, but with an aging bureaucrat population, the drag on the state’s budget will only get worse.

Businesses, not wanting to get stuck paying for politician’s unaffordable promises, responded by looking for greener pastures until the governor backed off and cut the tax hike. Of course, none of this changes the reality that Illinois’ pension plan is bankrupt so these cuts will likely only keep business in the state until the next budget crisis. 

Wyoming has no corporate or personal income tax so would be a good place for these companies to relocate to, on the surface. That’s because Wyoming’s bureaucrats enjoy the same type of pension plan as those in Illinois. Some Wyoming legislators have faced reality and a bill is heading to the Wyoming legislature to reform the Wyoming bureaucrat pension plan before the state has the same problems now sinking Illinois. But will enough Wyoming legislators take the necessary steps to reform the plan? All Wyoming legislators must face reality now and reform this pension plan.

These defined benefit pension plans are a relic of bygone times. That’s why almost all companies in the private sector have moved employees to the type of plan outlined in the new Wyoming bill -- a defined contribution pension plan. In this type of plan, retirees’ pensions are determined by how well their investments did over time. The money is in an account a person owns and controls. People don’t depend on false promises and taxpayers aren’t on the hook to support pensions far grander than anything they could ever hope for.

Businesses and private-sector taxpayers, many who do not even have a pension, cannot be expected to fund the retirement bliss, even if illusory, of bureaucrats. As defined benefit plans become a bigger ball and chain on the economy, they drive taxes up which drives business out of the state. By empowering all people to control their own retirement future, Wyoming can avoid this fate.

Let’s not be Illinoyed.

Cat view

My latest painting. I'm working in pastel on paper.

30x22 inches
$400

Big government and big business conspire to restrain Internet sales

Adam Smith, the father of modern capitalism, loved the free market system but distrusted businessmen. Back in 1776 he said, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Although this no doubt still happens, a more modern version of this phenomenon is big government politicians and big business executives conspiring against small business and the public to destroy competition and raise prices.

As recently as September 2011, Amazon, the giant online retailer, prevented state governments such a California from collecting sales taxes from online retail sales.

That was then.

In November 2011, Sen. Mike Enzi (R-Wyo) introduced The Marketplace Fairness Act, to allow states to collect sales taxes from out-of-state Internet sellers but exempted businesses making less than $500,000 in annual sales.

According to Amazon vice president Paul Misener, only one percent of online sellers sell more than $150,000 annually.

So Sen. Enzi’s bill would exempt 99 per cent of Internet retailers, pretty much everybody except Amazon, and that would be bad for Amazon. But with threats come opportunity and now instead of combatting the Internet retail sales tax, Amazon has jumped onto its bandwagon.

In his testimony to congress Mr. Misener said congress “should authorize the states to require collection, with the great objects of … leveling the playing field for all sellers.” By this he meant congress should not exempt small online businesses from collecting sales taxes in all states. Is that because he really cares about big government’s need to feed its spending addiction with more tax revenue?

Oh no.

Amazon is a big company with lots of lawyers and accountants so can easily absorb the added cost of collecting the spider’s web of sales taxes in 50 different states. Small mom and pop shops, on the other hand, would be forced out of business if they had to take on that additional cost.

Jim Estabrook, a small business owner near Gillette, Wyoming says, “I have had multiple small businesses that have mainly me doing all the work. I do not believe he [Sen. Enzi] understands the nightmare that would be created for dealing with sales tax collected for 49 states. Personally, I would have to spend a lot of time taking care of those requirements for about a month or two. Then I would be out of business because I wouldn't have had any time to sell products or services.”

Destroying competition will certainly help Amazon, but it will hurt small business, hurt the economy and as usual, hurt the consumer.

Turbines in pastel

It's true, I do more than cycle around and write about politics. I must say, though, it is amazing the things you see when you cycle around army bases that you would never see if you were sitting inside a car.

These are the three latest installments in my Windmills of Doom series.

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Not us

Windmills of Doom