June 17, 2005

Rhode Island Politics & Taxation, Part XX: Defining a Core Problem in Rhode Island

Solving a problem first requires acknowledgement of the problem's existence followed by having the will to fix it.

Rhode Island resident Thomas Wigand offers a compelling view of what is structurally wrong in our state in his editorial entitled Public-sector lords, Social-Security serfs:

Czarist Russia was inhabited by a subservient class, called serfs, the fruits of whose labor -- beyond that necessary for a meager subsistence -- were taken to enrich aristocrats. In 1861 Czar Alexander II issued an emancipation proclamation, ending this feudal system and freeing the serfs.

Although less draconian than Russia's serfdom, the Rhode Island General Assembly has imposed a stealth form of serfdom upon a group of Rhode Island citizens.

Our "serfs" are not necessarily poor or working-class individuals exploited for the benefit of the rich. In today's Rhode Island, serfdom encompasses the private sector: ditch diggers and doctors; union and non-union workers; and senior-citizen retirees.

And who are the new "aristocrats"? Public-sector employees and their public-sector-union bosses.

In the private sector, compensation is determined by the free market, so, over time, it reflects what a particular occupation is actually worth, as based on skills and supply and demand. Therefore, to be balanced and fair for all workers, the average compensation of public- and private-sector workers should be roughly equal.

Such is not the case in Rhode Island, where average public-sector compensation far exceeds average private-sector earnings -- meaning that on average, public-sector workers are overpaid...

...no matter how high our appreciation, public-sector workers' compensation should be comparable to that of the private-sector workers who ultimately pay them.

U.S. Bureau of Labor Statistics data for 2001 showed that average salaries in the public sector were nearly 25 percent higher than in the private sector ($41,880, against $33,871). The higher pay also accompanied a shorter workweek: 35 hours, instead of 40 (about 14 percent shorter).

But that is just the edge of the compensation chasm separating the public and private sectors. The really big money in public-sector compensation resides in the state-pension system.

Public-sector employees may receive far more taxpayer money in retirement than they did during their working years. Meanwhile, most of the private-sector workers, who pay for the state pensions, will not receive any pension; they will merely get Social Security.

Let's compare the "serfs" on Social Security with one group of "aristocrats": public-school teachers, who, instead of Social Security benefits, receive taxpayer-funded pension benefits:

Private-sector employees contribute 6.2 percent of their pay to Social Security; public-school teachers contribute 9.5 percent of their pay to their pensions. So the contributions are comparable. The benefits, however, are not.

Rhode Island teachers need work only 28 years to get a full pension, with no minimum age at which to start collecting. So teachers can retire at 50-ish and, given current life expectancies, their pension checks may well cover more years than they worked!

Meanwhile, private-sector workers must typically labor for 40-plus years, until they reach 60-something, before becoming eligible to collect Social Security -- by which time our comparably aged retired teachers will have been lolling on the beaches of Florida for a good 15 years.

And while the average Social Security benefit is only about $14,000 a year (the maximum being $23,268), teachers' pensions are calculated according to three consecutive years of their highest pay. So the typical Rhode Island teacher can retire at 50-ish with a pension of well over $50,000 a year -- or about 3 1/2 times the average Social Security benefit, and more than twice the maximum Social Security benefit.

State pensions are legally protected; once a participant's benefits "vest," they cannot be reduced. Social Security benefits are not legally protected; they do not "vest." At its whim, Congress can reduce Social Security benefits, even for those already collecting...

Little wonder that the favorite currency of the realm at the General Assembly is "aristocratic titles" bestowed upon friends and family -- i.e., state jobs!

Why is public-sector compensation so out of whack? The answer lies in the General Assembly's power to tax.

In the private sector, revenues are generated and incomes derived from a voluntary exchange of goods or services. Conversely, in the public sector, revenues are generated and incomes derived from compulsory taxation.

The Democratic Party, which has controlled the General Assembly for some 70 years, is itself to a large extent composed of members of the public-sector "aristocracy."

Meanwhile, the Democrats in the General Assembly -- many of whom intend later to be employed in a state job -- prostrate themselves before the public-sector-union bosses, who are also their de-facto party bosses.

At election time, this party claims to be the one representing "working families." If that were ever true, it is true no longer.

The Democratic General Assembly has enacted a panoply of income, sales, excise, estate, and property taxes, ensuring that everyone in the private sector -- rich and poor alike -- suffers a burdensome extraction of his or her wealth...

(Public-sector beneficiaries would have you believe that they are taxpayers, too. Nonsense. The money they receive from taxes far exceeds the money they pay in taxes -- so on a net basis, they are not taxpayers, but tax consumers.)

Ultimately, excessively taxing working families reduces their standard of living. The current state-pension system faces a severe shortfall and, absent major reforms during this legislative session, will require a bailout comprising enormous infusions of working-family taxpayer dollars.

The General Assembly has the power to avoid this. It can thoroughly restructure the state retirement system so as to bring back into balance the overall average compensation between public- and private-sector workers.

The extent to which the Democratic General Assembly levels the compensation field, or declines to do so, will for us "serfs" provide an acid-test demonstration of whom it represents: the working families or the public-sector unions.

Now, do we have the will as working families and retirees across the state to do something about this problem?


A URI professor responds to Wigand. Anyone who starts their argument by suggesting questioning teachers' unions is unreasonable and ends their argument by implying private sector pension problems are more serious than either public sector pension problems and Social Security funding problems can only be a leftist who willfully insists on selective use of empirical data. Tom Coyne has a similar take on the response, as found in his June 25 edition of OnTheRadar, where he says:

Unfortunately, as we have shown in this analysis, the story of why Rhode Island has the nation's highest ratio of average public sector to average private sector pay is more complicated than he cares to admit. And not flattering to the public sector unions he's implicitly trying to defend...

This posting continues a periodic series on Rhode Island politics and taxation, building on nineteen previous postings:

I - Guiding Principles for Sound Public Policy
II - The Outrageous Tax Burden in Rhode Island
III - 2004: The Year in Review
IV - The NEA's Disinformation Campaign
V - Governor Carcieri's State of the State Address
VI - "Citizens for Representative Government's" Deceitful Manipulation of the Constitutional Convention Vote
VII - The Extreme Tax Burden in the City of Providence
VIII - Rhode Island Gets a C+ on its Report Card
IX - How Speaker Murphy's Changing of the Rules of the House Reduces Your Freedom
X - East Greenwich Teachers' Salary and Benefits Data
XI - What Was Rep. Fox Doing in Portsmouth?
XII - Why Do RI Citizens Passively Consent to Governmental Control by Powerful Interests?
XIII - RI House Leaders Show No Respect for Rule of Law by Undermining Separations of Powers, Part I
XIV - More Bad Faith Behavior by the NEA
XV - RI House Leaders Show No Respect for Rule of Law by Undermining Separations of Powers, Part II
XVI - Tom Coyne - RI Schools: Big Bucks Have Not Brought Good Results
XVII - RI Public Pension Problems
XVIII - Union Doublespeak, Again
XIX - Another Stab at Killing Off Future Economic Growth

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

Keep up the good work! How about a Web site that citizens of R.I. can post their reaction to the latest General Assembly caper. Yea or Nay!
It's difficult to understand why we put up with it! The silent majority needs an outlet and maybe the internet is the answer.

Posted by: Ralph Cote at June 18, 2005 7:40 PM