I read an article recently that I think many others will find interesting (see source below). I have said for some time now that the future cost of public pension and healthcare plans would eventually overwhelm governments at most if not every level. This article addressed that very real possibility.
The U.S. Federal Government has one advantage that local and state governments don’t have – the federal government can just print more money to cover these costs. State and local governments have limited choices; they can borrow money by issuing debt or they can raise taxes or some combination of the two.
The article lists 31 states with accumulated deficits greater than the budgets of other countries. I believe a better comparison would be to show the deficit as a percent of the state’s annual budget or, perhaps, its annual tax receipts. In any case, the point is clear – these pension and healthcare benefit costs (often referred to as legacy costs) are accumulating at a rapid rate with no solution as to how to pay them. The tax burden created by increasing state and local levies is getting so steep in some states that many who live there are leaving because they cannot afford to stay. States such as New York, California and Connecticut lead the list but they have a lot of company on that list.
Another complication is the impact on business recruitment and retention. As taxes go up in the North and West, businesses find it more cost effective to relocate in states with lower tax burdens in the Southeast and South. Business relocations reduce corporate tax collections, leaving individual taxpayers to shoulder a larger share of the increased taxes – a vicious cycle to say the least.
What is the solution? The best solution, although difficult to achieve politically, would be to replace these plans with lower cost alternatives, much as private industry has done over the years. Current employees could be exempted from those changes but all new employees would be in the new plans. It will take a considerable period before such a gradual transition produces significant savings, but it’s a start. Otherwise, I see no alternative to ever-increasing state and local taxes for much of the country, creating population and business dislocations that do not serve our collective best interest.
In the meantime, be sure to adjust your financial and retirement planning with this situation in mind. Just another reason to plan early and often so you don’t get caught in the “tax trap” in the future.
Article source & site: www.msn.com/en-us/money/markets/us-states-with-shocking-debts-bigger-than-some-countries/ss-AAIAirX#imagine=1
Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President and founder of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association. Ric Schilling is a Certified Financial Fiduciary (CFF). You may contact Ric at 904-371-3302 or 888-891-3381 Please visit: www.seniorguardian.com
This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc. (CSS), a registered Broker-Dealer & member FINRA & SIPC. Investment Advisory Services offered through Center Street Advisors, Inc. (CSA), a SEC Registered Investment Advisor. Schilling and Associates (d/b/a Senior Guardians of America) and CSA are independent of CSS.
