Pension reform has to be linked to tax reform -- or else it won't work
EDITORIAL Mayor Ed Lee has released a draft set of proposals for pension reform, and union leaders continue to meet with financier Warren Hellman to try to craft an alternative. Meanwhile, Public Defender Jeff Adachi is narrowing his options and appears ready to move forward to put his own plan on the ballot.
Everyone involved claims to be interested in a compromise, in some proposal that would reduce the city's burden of paying $350 million this year (and potentially as much as $790 million in five years) into the employee pension fund. We support that idea, too — there are plenty of necessary, progressive moves to fix the city's pension system and free up more cash for local programs.
But so far, none of the proposals on the table include any new revenue sources — which means, in effect, that the mayor, Hellman, and Adachi all want city workers to bear the entire brunt of the impact of a Wall Street-driven recession. The message: only city employees should share the pain; the wealthiest San Franciscans and biggest, richest businesses don't have to contribute at all.
It's a dangerous part of the tax mythology that Pulitzer Prize-winning reporter David Cay Johnston discusses in his article in the Guardian this week. He notes that the argument in favor of tax cuts for the rich — that lower taxes will lead to more investment and thus more jobs — has been tested in this country for 30 years. And it hasn't worked.
Most San Franciscans probably realize that. Most city officials vote for Democrats, opposed the Bush-era tax cuts on the rich, and argue for more federal aid to cities. This is a progressive town.
But when it comes to something as fundamental as local economic policy — who pays for city services and who gets the benefits — the story becomes completely different.
The mayor and eight of the 11 supervisors are celebrating a broad-based tax cut as a way to create jobs in the Tenderloin and mid-Market (although the evidence that tax cuts don't create jobs is overwhelming). The mayor is looking at the equivalent of a cuts-only budget (although everyone at City Hall opposes the notion of a cuts-only budget in Sacramento). And while it's almost certain that some sort of pension reform will be on the November ballot, none of the players involved in the negotiations have openly taken what seems to us to be the only logical position:
Pension reform has to be linked to tax reform — a commercial rent tax, a progressive gross receipts tax, a city income tax, an increase in the Pacific Gas and Electric Co. franchise fee or something else that hits those who can afford to pay. Otherwise, we can't support it.
Even the city employee unions are being awfully quiet about the need for a deal that includes new taxes. They ought to be leading the charge here, telling everyone that a cuts-only pension deal isn't going to be acceptable. (The tax measures could hold until the November 2012 budget, when they'll be easier to pass — if there's a firm assurance that the mayor, Hellman, Adachi, the supervisors, and all the other players will support them.)
City employees are being asked to take what amount to pay cuts — which will reduce their purchasing power and have a depressing impact on the local economy. Taxing the wealthy (who spend a much smaller percentage of their income) has no such depressing impact. Those are hard, cold facts. They need to be part of the discussion.
Robert Reich, the former labor secretary who now teaches at the University of California, Berkeley, has an interesting essay on his blog April 9 that discusses Obama's budget capitulations. The president, he notes, "is losing the war of ideas because he won't tell the American public the truth: that we need more government spending now — not less — in order to get out of the gravitational pull of the Great Recession. That we got into the Great Recession because Wall Street went bonkers and government failed to do its job at regulating financial markets ... That the only ways to deal with the long-term budget problem is to demand that the rich pay their fair share of taxes.
"And that, at a deeper level, the increasingly lopsided distribution of income and wealth has robbed the vast working middle class of the purchasing power they need to keep the economy going at full capacity."
That's as true here as it is in Washington. And if city officials want progressive support for pension reform, they need to acknowledge it.