Fleecing Taxpayers Won't Fix The Pension Crisis

Tyler Durden's picture

Authored by Nick Giambruno via InternationalMan.com,

Public pensions are a financial time bomb... and I see two ways to profit from the explosion.

In the US, unfunded public pension liabilities have surpassed $5 trillion. And that’s during an epic stock and bond market bubble.

Predictably, the government’s go-to “solution” is already making matters worse.

At first, distressed states simply increase taxes.

The state comptroller of Illinois—the most financially troubled state thanks to its pension crisis—summed it up well. He said: “We can’t go bankrupt and we can’t print money. Taxpayers are going to have to pay this bill.”

State governments always squeeze property owners the hardest.

Last year, Americans paid over $300 billion in property taxes. In Illinois and other states, property tax bills exceeding $10,000 per year are not uncommon.

Most governments continually raise property tax rates, especially governments in bad financial health. It’s easy to simply ratchet up property taxes to bring in more revenue.

Case in point: Greece, where the country’s bankrupt government has made owning property a burden.

The following excerpt from The Guardian shows just how far Greece’s government has gone (emphasis mine):

The joke now doing the rounds is: if you want to punish your child, you threaten to pass on property to them… Greeks traditionally have always regarded property as a secure investment. But now it has become a huge millstone, given that the tax burden has increased sevenfold in the past two years alone.

It’s happened in Greece. It’s happened in Illinois, which has some of the highest property taxes in the US (and rising). And it will happen elsewhere, especially in states struggling to meet pension obligations.

Here’s an excerpt from a local Chicago news outlet. The telling headline reads “Cook County property tax bills cause outrage”:

“Our taxes increased fivefold,” said William Phillips of Rogers Park. “I was expecting it to go up maybe twice as much but not four to five times as much.”

“My tax bill increased almost $1,200 dollars,” said Cornes King of Chatham.

“More than tripled. The city’s piece more than tripled,” said Logan Square resident Janelle Squire.

Fleecing Taxpayers Won’t Fix This Crisis

Politicians don’t seem to realize (or care) that it’s mathematically impossible—and counterproductive—to try to solve the pension crisis by raising taxes.

Even if tax rates double in places like Illinois, it still won’t solve the problem. And that’s assuming the overall tax collected stays the same—which it wouldn’t.

Higher taxes would make more people leave the state and actually decrease the amount collected.

This trend is already underway. More than half a million people have left Illinois over the past decade. That includes over 3,000 millionaires who’ve fled Chicago in recent months.

Many left for a simple reason: rising taxes.

Nonetheless, raising taxes is exactly what politicians are doing. And they’ll continue to do it, even though they’re long past the point of diminishing returns.

The Other Easy “Solution”

Ultimately, the Federal Reserve will paper over the pension crisis by printing more currency.

Politically, it seems impossible that the government would default outright on its promises to millions of its own employees when the Fed can simply print more currency.

Ultimately, this will turn a local debt crisis into a national currency crisis. And many states will effectively default on their pension obligations anyway, since those payouts will be made with depreciated currency.

The pension crisis has clear investment implications for gold.

When the government tries to “solve” the pension crisis with the printing press, I expect investors to rush into gold.

Gold has been a reliable safe-haven asset for thousands of years. Unlike paper money, it has intrinsic value. That value does not depend on a politician’s promise.

I think gold will reach not just multiyear highs, but all-time highs.

That’s why you should position yourself now.

I think everyone should own some physical gold. Gold is the ultimate form of wealth insurance. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.

Gold Isn’t the Only Way to Profit

The pension crisis is making states desperate for every penny they can get.

That desperation is making them open to new ideas. Necessity has a way of quickly changing people’s minds.

Because of that, I expect many states to further soften their marijuana laws as they look for more sources of revenue.

In many of the states that have or will legalize cannabis, the tax revenue will exceed that of alcohol and tobacco. That’s not something a cash-strapped state can turn away from.

Just look at what’s happened in Colorado, which legalized recreational use in 2012. Last year, its marijuana industry generated $1.3 billion in sales and $200 million in tax revenue.

A decade ago, Colorado was receiving zero in marijuana taxes.

The industry has also generated over $250 million in taxes for Washington state already.

In California, a recent study estimated that cannabis taxes would bring in at least $1.4 billion dollars each year.

Soon, cannabis tax revenue will become a permanent part of many state budgets. This will encourage other states to follow suit.

Cannabis taxes will generate a lot of money. Still, legalizing and taxing marijuana won’t solve the multitrillion-dollar pension crisis. However, for our purposes as investors, it doesn’t have to.

We’re betting that the pension crisis will boost the US marijuana industry.

It’s already forcing states to look for new sources of revenue. Inevitably (and probably soon), they’ll find the economic benefits of legalized marijuana too good to pass up.

Legalized medical marijuana has already been approved in 29 states, plus Washington, DC. And eight states (plus DC) have approved recreational use.

It’s only a matter of time before other states start cashing in on this trend, too.

And the best way for investors to cash in on the coming US legal marijuana boom is through select publicly traded cannabis companies.

Those who get into these companies stand to make a fortune in the months ahead.

That’s why we recently released a new exclusive video. It has all the details on how you can get in ahead of the herd. Click here to watch it now.

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Budnacho's picture

buy gold AND weed?.....go on....

NoDebt's picture

Oh, God dammit!  Fucker got me.  Thought we were going to get an article about dying pensions across the country (a legit financial topic) and we get..... an infomercial for gold.  I want the last 2 minutes of my life back.

 

 

greenskeeper carl's picture

Ha, the place it came from should have clued you in.

 

He does miss an obvious point though. 'Fleecing taxpayers' may not be a permanent solution, but we gave up on those a long time ago. Its all about can kicking, now. Fleecing the taxpayers will allow them to kick the can and survive another election or two, which is why thats exactly what will happen.

 

NoDebt's picture

You're right.  I should have known better.  

BTW- those drawing from bankrupt public pensions should have known better, too.

 

Eeyores Enigma's picture

Especially since the vast majority of taxes ( panama is a drop in the bucket) that tax payers owe ( we are talking trillions not payed) are not payed due to a hand full of dodges.

DaveA's picture

That's why they concentrate on property taxes. You can't hide property, but you can abandon it if the taxes get too high.

Or you can sell your property to a Section 8 landlord. His tenants will never pay a dime of tax in their lives, and when the property tax rates go even higher, he'll just pass the cost on to Uncle Sucker.

greenskeeper carl's picture

I dunno, I think the ones drawing from it NOW are the only ones who are going to come out ahead. Especially the old ones who had the sense to move out of the high tax state, to somewhere cheap like FL, so they aren't even spending any of their pension dollars in that state. THose paying into it are the ones who should know better, especially the ones under about 50 years old.

Anon2017's picture

Does ZH get paid to run these informercials?

illuminatus's picture

At this point and for quite some time TPTB know that this can't be fixed and they are just sucking the rest of the blood out of whatever is left.

serotonindumptruck's picture

Perhaps that's why Trump is strongly in favor of increased asset forfeiture regulations.

Those pensions have to be paid somehow.

unrulian's picture

Is this what counts as an article on the Hedge these days? it's almost as bad as "I made 7k this week click on this link"

aloha_snakbar's picture

Fuck you, Uncle Scam... your problem, not mine. Pretty soon you are going to have a SHITLOAD of pissed off pensioners who can only afford to eat cat food once a day, and it is going to SUCK to be you...LOL...

swmnguy's picture

How do you consider that to not be your problem, or ours in general?  Perhaps 50,000,000 Americans (maybe 100,000,000) took less income their entire working lives in return for what were said to be legally ironclad guarantees, only to find out they've been given an enormous retroactive pay cut right when they can't work anymore.

That's the Federal Government's problem?

No, I think that's my problem, and yours.  Those people aren't going to go away.  Their becoming completely insolvent is going to have severe ripple effects.  What's going to happen to real estate if, for instance, retirees' best option is reverse mortgages?  Nothing good for you or me.  The retirees will collapse the teetering healthcare finance clusterfuck.  How would you suppose that won't be your problem and mine?

Even if you won't have to end up moving your aged parents into your house and supporting them out of your own pocket, that's going to happen to enough of is that the ripple-effects will be devastating, even to you.

Squid Viscous's picture

fed.gov will just print more toilet paper and give it to the states,

Illinois first, can't let the Land of Lincoln take a dump,

N2OJoe's picture

You mean give it to the BANKS who may or may not have a branch in the state(s) because, uh, how else am I going to nail that six figure no-show board membership?

fattail's picture

The state and local governments will raise taxes until there is a tax revolt and they can raise them no more. Once the writing is on the wall that the state and local governments have run out of other people's money, there will be clawbacks and or reductions in benefits, then the run on the pensions will begin in earnest.  The cash outs and early retirement parties will be the tipping point in which there will be no return.  As the unfunded liability holes get bigger and bigger the race for the exits will accelerate.   The Dallas police pension and Puerto Rico bond default are just the warm up acts.

grasha87's picture

I have created a free market currency that helps alleviate unemployment and recessions that the Fed creates, and it's based on Say's law: https://bunky1787.wordpress.com/2017/09/06/the-wallark-neo-scrip/

Clock Crasher's picture

All the money has been expatriated overseas and is never coming back.  And I'm not talking about Apple and company.

We need military tribunals, reclaim as much fiat from the NWO (w/e you want to call em) as possible, use the proceeds to invest in precious metals mining, debt jubilee in combination with return to gold/silver bi metallic standard. 

The EBT communites will be burnt to the ground and the surrounding areas.  I didn't say it was going to be clean.

GubbermintWorker's picture

What? Another infomercial for gold??

 

G-R-U-N-T's picture

Politicians making promises for votes they knew they couldn't keep. Their own public servant bureaucracy may have a desire to string them up after they get their final notice, 'pension denied' cause we're broke! Good thing Trump is sending the illegals back and building the wall, they'll need private sector jobs to survive!

wisehiney's picture

Who is John Galt?

Atomizer's picture

NGO'S have to bring in new slave labor. Under the falsehoods of immigration. It's a riot to watch. Really, it's funny to watch. 

Pulp Culture's picture

A big thanks to JFK for ALL the public pension frauds. Executive order 10988  jan 1962.

venturen's picture

easy solution stop voting DEMOCRAT

10mm's picture

Really. So tell me. What have the Monkeys on the R side done lately? Especially down in DC. 2 party monkey thinking.

Lost in translation's picture

easy solution stop voting!

FIFY

10mm's picture

Self Imploding. Good night muthafuckers.

venturen's picture

in the state of CT...they are pushing that Teachers receive their pension tax free!

roddy6667's picture

Your request for information is like somebody with an open dictionary in their hand asking what a word means. You are sitting at the keyboard of the largest encyclopedia ever made. Just type in "CT teachers pension tax free"  without the quotes into the search window on your browser.

Press Enter.

Read the answer.

HRH Feant2's picture

Guess what the mayor of Houston proposed today? You got it. 9% tax increase due to the hurricane.

What happens when there is no one left to suck dry?

G-R-U-N-T's picture

As more and more freely smoke 'loco' weed while governments feed off them like leeches, the more they will become self induced psychoactive drugged useful idiots, dumbing themselves down even more on an already dumbed down digital imaging populace. 

Yeah, the best way to handle reality is to be in a constant state of alternate reality unconsciousness, brilliant! So much the better for the tyrants to manage your ass, because they know your out of your fucking mind and can be shaped, molded into any image their heart desires as long as your under the influence, ergo: google, facebook, amazon all under the auspices of colluding government. Sorry, but massive population mind programming residual effects is what Hitler's Germany became.

GoldHermit's picture

It's simple, they raise taxes on those getting pension money. It's going to be one big shell game.

Korprit_Phlunkie's picture

They are the ones with all the money, boats, RV's and vacations. Private pensioners are taking a bus to the clinic fror their HPV vaccines.

bescobar's picture

Soylent geen anyone?!?

Shpedly's picture

Not to far fetched. If you buy into the entire climate change mantra, you know the problem is people.

Omen IV's picture

There isn't a good reason to educate anyone beyond the 6th grade to work at McDonalds

If someone wants to educate a kid beyond that it should be at their expense - children for most of the humans is a product of their interest in FUN- no third party gave permission nor license for the FUN- no third party participates in the FUN

So why would a third party have any responsibility for the product of the FUN?

If the FUN yields recreation or procreation it is the responsibility of those engaged in the FUN--- no one else

Property taxes should not be related in any form to SEX!!!!

Shpedly's picture

Really wishing your parents didn't have any "fun" 9 months before you.

DEMIZEN's picture

Fleecing Taxpayers Won't Fix The Pension Crisis. I am not interested in listening to more unproductive nonsense and don't care to know what will not fix it.

What will fix it? Can you lay out a plan?

Anteater's picture

Property taxes go up in lockstep with property values.

The whiners complaining are wealth-signaling that

they have fat stacks vaulted in their Mar-a-Squirage.

Pensions will go underfunded until the Great Class-

Action, whence all capital development funds will

disappear into the bowels of Pensionim, and taxes

then will accrue entirely to Mil.Gov and their lawyers.

"We won, you lost. It's just bureaucracy, get over it."

DEMIZEN's picture

it was a rhetorical question, but yes. 

True Blue's picture

Woodchippers and an absolute end to all Gov't employee unions.

These people fleece us daily and live higher on the hog than they ever could have in the private sector. then continue to do so after they are finally retired from their positions of raping the Citizens aka "authority"; so my sympathy for them is somewhere near 0 degrees Kelvin.

And as for Illinois; maybe they should claw back some of the $7,500 Jesse Jackson Jr. gets every month from the taxpayers via his Ill State pension and his 'disablilty' payments.

DEMIZEN's picture

I almost lost my life blowing the whistle on .gov with shit dragging for decades in the courts. Good luck with that one.

hairball48's picture

The only "fix" is a vastly reduced standard of living after the currency crises work themselves out in what Mises called "The Great Reconsiliation".

In the beginning, people will be forced to choose between giving up shit like cable TV, smoking, $5 lattes, food for pets, tatooes, iphones for kids, all that crap that's just mindless "consumption"....choose between that stuff and:

Paying RENT, Fuel cost, FOOD(human food) clothes...stuff we used to call "necessities.

A LOT of these service sector jobs will disappear. People will mow their own lawns--and not use a lawn service---on and on like that.

How far a particular individual's living standard will drop varies greatly because we all will begin at different points, have different "standards" etc. It'll be like a 21st century version of the 1930's.

Bet on it.

And last, don't you dare TOUCH my Social Security when you fix this fucking fiasco :)

/sarc

hairball :)

 

PS: I'm a 100% in Gold and Silver

DEMIZEN's picture

:)  me I wake up in the morning and get out of my beach chair to elevate my standard of living. I am not sure about you, or of others approving your plan

pound the vix's picture

I dont think investors will ever "rush" into Gold.  The printing and spending happen 2 to 3 percent at a time.  Gold will keep rising as it has, but to think you can pick the exact time to get into Gold and see a quick return on investment I think is wrong.  If you buy Gold, Silver, Rental property and pay down all your own debt you can keep pace with the money printing and over time accumulate wealth thru hard assets that either appreciate or you can increase rent collect more of that depreciating paper currency.  Gold vs the US Dollar has gone from $500 in 1980 to $1300 today.  A slow steady increase due mostly to money printing.  Check out the price of Gold in Venezuelan Bolivars

Montana Cowboy's picture

Fleecing real property owners will absolutely continue and expand. People and business can easily flee a high-tax state. But real estate is inescapable because its a tax on immovable property and not on the property owner. It is senior to any bank's lien, meaning that property tax has first priority to any foreclosure proceeds, leaving lenders and owners to fight over any leftover proceeds. So merely assessing the tax against real estate guarantees it will eventually get paid.

If government tries to keep their hands off of the real estate, the only remaining option is to file bankruptcy. No state has ever done this, so some speculation is required. Is a state really bankrupt because they CHOOSE not to raise real estate taxes when they clearly have unlimited authority to do so? I contend a bankruptcy judge will throw out the case. The bankruptcy petitioner can't voluntarily refuse to exploit an account receivable and cry bankruptcy. How high must a state raise the property tax before it is maximized? They would need to strip all value out of the property by issuing an annual property tax bill equal to the annual rental value of the property leaving no value to the property's ownership. Then the state is bankrupt.

California, you are not protected by your Prop13. That law contains a death provision with a super-majority of legislators. Because it can be killed, failing to do so is a voluntary act. No pension bankruptcy for you either.

I hold a California Broker's license. I was on the ground floor with Jarvis/Gann on Prop13. I have had these discussions with federal lawyers in California. Most agree that bankruptcy courts will not permit a state to bankrupt pensions until property taxes are maximized. And maximized means increased until there is no value left to ownership.

Now for the real Twilight Zone episode. What prevents a state from assigning their property tax account receivables to Wall Street banksters in exchange for a pension bailout? Nothing at all! You could be paying future tax bills to Wall Street.