The Revenue Demands of Public Employee Pension Promises (SSRN)
Robert Novy-Marx, University of Rochester – Simon Graduate School of Business; National Bureau of Economic Research (NBER);
Joshua D. Rauh, Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
We calculate increases in contributions required to achieve full funding of state and local pension systems in the U.S. over 30 years. Without policy changes, contributions would have to increase by 2.5 times, reaching 14.1% of the total own-revenue generated by state and local governments. This represents a tax increase of $1,385 per household per year, around half of which goes to pay down legacy liabilities while half funds the cost of new promises. We examine sensitivity to asset return assumptions, wage correlations, the treatment of workers not currently in Social Security, and endogenous geographical shifts in the tax base.
Keywords: pensions, state and local government, public finance