A huge political drama is playing out in the state of Wisconsin, where 70,000 protesters filled the streets on Saturday to oppose Governor Scott Walker’s plan to end collective bargaining rights for public employees.
A day earlier, Republicans in the lower house had voted to virtually eliminate the right to collective bargaining. Meanwhile, the 14 Democrats in the Senate have left the state of Wisconsin and are in exile in Illinois, preventing the state Senate from having the three-fifths quorum required to take a vote on the budget. The senators have vowed to stay in Illinois until Walker agrees to negotiate on his budget bill.
How did we get to such a farcical situation?
If you read most mainstream media accounts of the showdown in Wisconsin, the story goes something like this: Wisconsin has a huge budget deficit, mainly because of unsustainable promises made to state government employees, including the pension and health care obligations of public servants and teachers. These public servants are overpaid and enjoy better benefits than their counterparts in the private sector. Walker is trying to get the budget back on track by taking on the unions and bringing these costs back into line.
This Wall Street Journal report is a typical account:
Mr. Walker’s proposals are hardly revolutionary. Facing a $137 million budget deficit, he has decided to try to avoid laying off 5,500 state workers by proposing that they contribute 5.8% of their income towards their pensions and 12.6% towards health insurance.
That’s roughly the national average for public pension payments, and it is less than half the national average of what government workers contribute to health care. Mr. Walker also wants to limit the power of public-employee unions to negotiate contracts and work rules—something that 24 states already limit or ban.
Now, this may all sound very reasonable, and unions are an easy target. In any kind of solution to the states’ fiscal problems, the pain is going to have to be shared. But this is an extremely one-sided portrayal of what is really happening.
The reality is that Governor Walker’s first priority upon assuming office was to cut business taxes. He did this even though there is already a massive hole in the state budget. As a result, Wisconsin’s tax revenues are forecast to fall by $55 million in 2011/12.
And that’s not all. Walker also passed a law that made it very difficult for legislators to raise taxes to cut the deficit in the future. Lee Shephard of Forbes explains:
Walker just won legislative approval for the centerpiece of his tax cut plan, a supermajority requirement for sales or income tax rate increases…This is a dangerous restriction on legislative action in the long run, if for no other reason than it would be difficult to repeal…
Walker’s enacted tax cut plan is punching Swiss cheese holes in the state budget for the benefit smaller businesses in terms of gross receipts… Although the true cost of the tax rate supermajority requirement is unknowable, the Walker-instituted changes that can be priced add up to $100 million over two years already.
So the first point to make is that the big effective wage cuts for public servants that Walker is proposing are not inevitable, they are partly a result of the Republican obsession with cutting taxes.
And now we come to the topic of the “fat cat” teachers and public servants that are supposedly bankrupting the state.
Here is a typical piece of hyperbole in the mainstream media, this time from the New York Times. In a column titled “Make Everybody Hurt”, David Brooks wrote this week:
Walker’s critics are amusingly Orwellian … Still, let’s try to put aside the hyperventilation. Everybody now seems to agree that Governor Walker was right to ask state workers to pay more for their benefits. Even if he gets everything he asks for, Wisconsin state workers would still be contributing less to their benefits than the average state worker nationwide and would be contributing far, far less than private sector workers.
But this is nonsense. As David Cay Johnston at Tax.com says:
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 Gov. 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 table below from a recent study shows that Wisconsin public servants make less than their private sector counterparts. They may have slightly more generous benefits, but the point is, they pay for this through lower wages.
I found this data in 30 seconds with a Google search. Is it too much to ask that reporters in the mainstream media, who are actually paid to write about this stuff, do a bit of research themselves instead of merely regurgitating politicians’ talking points?
Finally, apart from some local media in Wisconsin, the big media outlets have totally ignored some very troubling elements of Walker’s plan.
The bill allows the Walker administration, without approval of the Public Service Commission and without a competitive bidding process, to sell off or lease the state’s several dozen energy plants to private companies.
The state can sell the energy plants “with or without the solicitation of bids, for any amount that the department determines to be in the best interest of the state,” according to the rather circular wording of this clause, which then concludes that “any such purchase is considered to be in the public interest.”…
Two of Walker’s biggest backers are the secretive conservative billionaire brothers Charles and David Koch, owners of Koch Industries, the largest privately owned company in the U.S. with 70,000 employees and annual sales of $100 billion in the fiscal year 2008. Among their holdings in Wisconsin are significant lumber and coal interests, a network of gasoline supply terminals, and a toilet paper factory.
So Walker comes in, slashes business taxes, claims that because of the fiscal emergency that he is partly responsible for causing, the unions need to be crushed and state workers have to pay; he then passes a law that allows him to sell off state assets without competitive bidding, state assets which, by the way, might be of interest to Koch Industries, which, by the way, happened to fund Walker’s political campaign.
Wall Street Journal? CNN? The Economist?