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Who 'Contributes' to Public Workers' Pensions?
When it comes to improving public understanding of tax policy, nothing has been more troubling than the deeply flawed coverage of the Wisconsin state employees’ fight over collective bargaining.
Economic nonsense is being reported as fact in most of the news reports on the Wisconsin dispute, the product of a breakdown of skepticism among journalists multiplied by their lack of understanding of basic economic principles.
Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to “contribute more” to their pension and health insurance plans.
Accepting Walker’s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.
Out of every dollar that funds Wisconsin’s pension and health insurance plans for state workers, 100 cents comes from the state workers.
How can that be? Because the “contributions” consist of money that employees chose to take as deferred wages -- as pensions when they retire -- rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.
Thus, state workers are not being asked to simply “contribute more” to Wisconsin’ s retirement system (or as the argument goes, “pay their fair share” of retirement costs as do employees in Wisconsin’s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.
The labor agreements show that the pension plan money is part of the total negotiated compensation. The key phrase, in those agreements I read, is: “The employer shall contribute on behalf of the employee.” This shows that this is just divvying up the total compensation package, so much for cash wages, so much for paid vacations, so much for retirement, etc.
Coverage of the controversy in Wisconsin over unions’ collective bargaining, and in particular pension plan contributions, contains repeated references to the phrase “contribute more.”
The key problem is that journalists are assuming that statements by Gov. Walker have basis in fact. Journalists should never accept the premise of a political statement, but often they do, which explains why so much of our public policy is at odds with well-established principles.
The question journalists should be asking is “who contributes” to the state of Wisconsin’s pension and health care plans.
The fact is that all of the money going into these plans belongs to the workers because it is part of the compensation of the state workers. The fact is that the state workers negotiate their total compensation, which they then divvy up between cash wages, paid vacations, health insurance and, yes, pensions. Since the Wisconsin government workers collectively bargained for their compensation, all of the compensation they have bargained for is part of their pay and thus only the workers contribute to the pension plan. This is an indisputable fact.
Not every news report gets it wrong, but the narrative of the journalistic herd has now been set and is slowly hardening into a concrete falsehood that will distort public understanding of the issue for years to come unless journalists en masse correct their mistakes.
Among the reports that failed to scrutinize Walker’s assertions about state workers’ contributions and thus got it wrong is one by A.G. Sulzberger, the presumed future publisher of The New York Times, who is now a national correspondent. He wrote that the governor “would raise the amount government workers pay into their pension to 5.8 percent of their pay, from less than 1 percent now.”
Wrong. The workers currently pay 100 percent from their compensation package, but a portion of it is deducted from their paychecks and a portion of it goes directly to the pension plan.
One correct way to describe this is that the governor “wants to further reduce the cash wages that state workers currently take home in their paychecks.”
Politifact.com has a Wisconsin operation and it was also among those that got it wrong -- 100 percent dead wrong -- because it assumed the facts as stated by Walker and failed to question the underlying premise. Further, contrived assumptions make it is easy for the perpetrators of the misrepresentation to point to data that support a false claim, something Politifact missed entirely, on at least two occasions, in proclaiming false statements to be true.
Given how many journalists rely on Politifact to check political assertions, instead of doing their own research, this is, by far, the inaccuracy likely to have the greatest (or most damaging effect) on subsequent reporting.
Again, the money the state “contributes” is actually part of the compensation that has been negotiated with state workers in advance so it is their money that they choose to take as pension payments in the future rather than cash wages or other benefits today.