Letter to a State Worker

It must be tough for a California state worker to deal with the rising resentment of private sector workers. It must be easy to consider all of this some sort of plot by big business and billionaires to smack down the public sector workers, now that they’ve finished their nefarious beat-down of the private sector workers. There may be comfort in these notions, but little accuracy. Here are some thoughts for our state worker brethren to consider:

The average CalSTRS pension in 2010 for retirees leaving with 30+ years of service was $68,000 per year (ref. Government Worker Understates Average Pension). This benefit is extremely out of line with what is financially feasible. In the competitive, globalized private sector, the ability to retire before age 60 with an income of $68,000 per year requires amassing a huge amount of wealth. When savings accounts are paying interest of less than 1.0%, and the stock markets have been down for over a decade, might you not want to question the assumption that CalSTRS can earn 7.75% per year, long-term?

A self employed person in the private sector who manages to earn over $80K per year pays 53.25% tax on every extra dollar they make – 15% for employer and employee FICA and medicare, 28% federal, and 10.25% state. That doesn’t include property taxes or sales taxes, or the many taxes embedded in the typical utility and telecom bills. And, of course, if they don’t work, they don’t get paid. They are responsible for finding and paying for 100% of any benefits they enjoy including health insurance. And often, even if they are willing and able to pay the premium, they can’t find an insurance company who will cover them.

It is fine if you public sector workers need some time to accept the fact that your benefits are unsustainable. But to call those of us who have been coping with the impact of globalization and the collapse of the asset bubble for several years (if not decades) “haters,” or to encourage us to villainize big business and billionaires, does nothing to advance this discussion. Think about this:

1 – It is true that Wall Street special interests are to blame for much of our economic challenges, but your public sector pension funds are the biggest players on Wall Street.

2 – It is also true that monopolistic huge corporations are hurting the economic prospects for the rest of us, but you may not appreciate the difference between gigantic corporations who squelch competition and those emerging companies who disrupt the big corporations with faster, better and cheaper products who make our lives easier. And again, the presence of regulations tend to favor the monopolies more than the emerging companies – as do your pension funds.

3 – YOU are not bailing out Wall Street. Private sector taxpayers are footing that bill. When Wall Street conned the entire U.S. population and political leadership (it was totally bipartisan) into thinking we could drown ourselves in debt and hide that debt behind a bubble of phony, over-inflated assets as collateral, you benefited because your pension funds rode the wave of unsustainable growth that the debt created. Now the taxes paid by private sector workers pay for your pension, because Wall Street’s promises of high rates of return for your pension funds turned out to be false. And yes, you pay taxes. But for you to say that you pay taxes is sort of like the guy who stood inside a bucket and pulled on a rope hooked to the handle of the bucket, and wondered why he wasn’t able to levitate.

4 – Yes, in the old days everyone had a better pension. Are you kidding? Go back to pre-1999 payscales and pension formulas, retroactively, and you can keep your pension. It would not be insolvent.

5 – You do NOT pay for most of your retirement. If, for example, you are getting 50% of your salary after 25 years in the form of a pension, that suggests you will spend at least one year retired for every year you worked. How much was withheld from your salary for your pension? 5%? 10%? To accrue at a rate of 2.0% per year, which is what you get in this example, even at CalPERS (and CalSTRS) increasingly preposterous claim that they can earn 7.75% per year over the long term, you would have to contribute 20% of your salary (ref. What Percent of Payroll Will Keep Pensions Solvent). Did you? And if that projected rate earned by CalPERS goes down only two points, to 5.75% per year (ref. CalPERS Projected Returns vs. Reality), you would have to contribute 36% of your salary – again, to get a 50% pension for 25 years after 25 years of work. Have you made these calculations? Have you contributed 36% of your salary into your pension fund?

What you really should think about, beyond these calculations which apparently escape most everyone except the Wall Street puppeteers who are laughing their heads off that they can gamble with taxpayer’s money as long as they buy off the public employees (who set policy through their unions who control the politicians in league with Wall Street lobbyists) with pensions that exceed social security by a factor of about 5x, is that it is impossible to extend pension benefits as generous as you are getting to everyone. It is completely impossible because (1) we have an aging population where more people are going to be retired, and (2) there isn’t enough “return on investment” in the world to relieve the taxpayers of covering most of the costs for these retirees.

You can blame Wall Street all you like. But Wall Street is YOUR benefactor, not mine. Your unions are collection agents for Wall Street pension funds.

40 replies
  1. oz says:

    Any self employed professional paying 53.25% taxes needs to get a new accountant or tax advisor!

    Let’s get real here, Ed.

    Do you know the contribution limits on a Solo 401k?
    Look it up. All of those dollars are fully tax deductible… There are more tax breaks for
    self-employed folks than any worker group
    by far…

    Who exactly is subsidizing who?


  2. Editor says:

    Well first of all Oz, you know I always welcome your comments. Let me respond:

    The first 15% is unavoidable – it is for social security and medicare, and self-employed people pay both the employer and employee shares, which equals 15%. As far as I’m concerned, if the government gets it instead of me, that is a tax. Since I don’t make over $108K, these assessments impact 100% of my income.

    On top of that is a top California state tax rate that kicks in for everything you make over $80K, and a 28% federal rate that kicks in for everything you make over $83K. Yes, I’m talking about the marginal rate. If you can get your income over that level you will pay 53.25% taxes on every additional dollar you make. Put another way, if I am offered an opportunity to take on another project that pays, for example, $2,000 per month, after taxes I will only actually get to keep $935. And I think that is obscene.

    Of course there are tax deductions, but to get deductions you have to spend the money. I have always been bemused by (or have pitied) those who think they should borrow money against an overpriced home just so they can get the “write-off.” At the end of the day, I want money free and clear to use as I please, and that means I have to pay the tax. As for the 401Ks, are you kidding again? Did you read this?

    Why would I throw away money in equities? Are you saying I should have the savvy of a hedge-fund manager and beat the market? Is that my moral obligation in order to deserve retirement security? Quite a burden to only place on private sector workers, while the public sector workers get the 7.75% return, guaranteed by my taxes. By the way, my investment strategy is to eliminate debt, and there is no write-off available for that.

    In my experience the tax deductions available to self-employed folks are only helpful in certain professions. I utilize every legitimate tax deduction available to me, and am underwhelmed by the “subsidy” it affords me. As I said, to get the write-off, you have to spend the money.

  3. oz says:

    Ed – ????????

    This is your most confusing post/reply yet.

    Do you seriously not see or know the tax saving vehicles afforded to the self-employed?

    First of all it’s 13% for SS/med, not 15% thanks to a boneheaded SS tax cut that comes courtesy of our children and grandchildren.

    Second, If you’re worried about that hypothetical tax rate on that sliver of income between 80 to 108k (which is the only place the tax rate you mentioned is even close to coming into play), then put your hypothetical 2k/mo into a 401k. Please be sure to thank the rest of us non-self-employed folks for subsidizing you since we can’t even think about putting 24k/yr into such a vehicle (max for the rest of us peasants is 16.5K…) meanwhile you can put more than double that in…hmmmm… you can tell where our tax laws are biased towards, huh…)

    Lastly, your disapproval of 401k saving is doing yourself and your readers an extreme disservice. Disclaimer: I am not a registered investment professional; but if you put your solo 401k into a middle of the road fund like PRWCX you will likely do just fine. 10 yr average at 8%.


    To think that all there is out there is index funds and hedge funds is quite naive.

    Please, go see a financial professional. Your last response, honestly, sounded like uninformed whining. You’re better than that.

    R/ Oz

  4. Editor says:

    Oz – your challenging comments are always welcome here. Of course you’re right about the 13% vs. 15%. I’m hopeful our commander in chief will come to his senses and restore the 15% withholding next year. Could it be they are trying to destroy social security in order to deflect attention from the true problem, which is public sector pensions?

    You’re right about the vehicles write-off, too, but typically the people who write off their vehicles are firemen who work construction during the five days per week when they are off (yes, Oz, it is five days off per week on a 3-on 6-off schedule when you factor in vacation – sorry, couldn’t resist). Anyway, since I don’t work in construction, I can’t write off my vehicle, or my tools. I remain underwhelmed by the write offs available to a self-employed professional.

    While you’re right about the bracket between $80K and $108K being fairly narrow in the grand scheme of things, it happens to be about where most self-employed people who work very, very hard will end up (unless their self-employed gig is on top of their public sector job that pours in the real money that their self-employment earnings – which allow them to write off their truck and their tools – are on top of) In my opinion people who rely on their self-employed income for 100% of their income, who manage to claw their way to cumulative earnings that are over $80K and under $108K, are the LAST people who should be having to pay $53% (or 51%) of their income in taxes. And it is presumptuous to think that someone making $80K, before taxes, living in California, can afford to put one dime into a 401K, even if they are nearly debt-free.

    Which brings us to your suggestion that it is easy to make 8% in the market. I’ll research the PRWCX fund, but I stand by my analysis that tells me we are headed for more tumult in the market, not less. I think bonds are overvalued and are headed off a cliff, for starters.

  5. oz says:


    I meant VEHICLES in a tax saving device manner, not actual vehicles– that was another unnecessary slam at the public sector…or were you slamming the private sector now, I’m not sure???

    Again, if you’re not taking advantage of some of those vehicles: SEP IRA, solo 401k, etc… you need to, no matter how much debt you have.

    As far as it relates to your actual vehicle, much of your expenses likely ARE deductibe, along with many of your other expenses, too.


    A frequent problem I’ve noticed Ed is that your theories are typically disconnected from the real world. There are theoretical tax rates and actual ones, Ed.

    I challenge you to find any real self-employed person WHO HAS BEEN TO A TAX PROFESSIONAL, that is paying an effective tax rate of anything close to 51%.

    I can’t believe I’m still saying this, but go see a tax pro, and leave the high taxes to us non self-employed working stiffs.


  6. Editor says:

    Oz – I am a financial professional. I have an MBA with an emphasis in finance and investments. I spent 20 years, up until a few years ago, working as a CFO for small private companies. I have an intimate and expert understanding of the financial challenges that face small businesses. Unless you cheat, and I don’t, the “top five tax deductibles for self-employed workers” that you reference don’t buy you much. Remember, you have to spend the money in order to get the write-off. And I employ a CPA every year to assist me to file my taxes, and we utilize every tax deduction that is legitimately available.

    The fact remains – in the state of California, if you have an adjusted gross income as a self employed person that is over $80K and under $108K, you pay 51.25% taxes on every extra dollar you make. To beat the example to death, if you take on an extra project that pays $2,000 per month gross, you will keep, after taxes, $975. That stinks, no matter how you slice it. I invite you to explain to me the flaw in this logic or these facts.

  7. boprn says:

    Occasionally, when I feel the need to be depressed there is always CivFi waiting with yet another misguided article. Yet, after reading this article I don’t feel the sorrow that I had wished for when I clicked this (semi)-favorited site. It was as if someone took my favorite Mussorgsky Piece and put on the B-52’s Love Shack. Unfortunately this article misses the mark so far that it is hard to take seriously enough to generate the sorrow I have come to expect from Mr. Ed.

    What I take from the article instead of the usual sorrow is a realization that Ed, and others like him are envious of the long term decisions that those who work for the government have made. The decision of sacrificing income over the last few decades for a stable retirement into the future is chief among the long term decisions of course.

    How do I know its envy? Simple. The financial difficulty that the state finds itself in is not the result of those who work for a living getting a retirement, but those who don’t work at all getting welfare/EBT cards, subsidized housing, food stamps, free cell phones, free health care. Of course none of it is free, but we all pay for it. You see, Ed (and those like him) don’t have a constant drumbeat about all the money thrown away on the non-contributing members of society. Instead of bringing the non-working class to the forefront in article after article after article – the articles are written about people who show up every day and do their jobs.

    So you see, there are real dollars going to waste in areas we ALL can agree about, but that’s not what Ed, TL, and others choose to focus their time on – its government workers instead. If they were truly interested in fixing the financial mess we now find ourselves in they would be talking about the massive give-aways at the federal level that have taken place over the last two years (again, to the noncontributing members of society). Why don’t they do that – E.N.V.Y. They envy what others have worked for, what they themselves have not earned.

    Ed, you would find yourself even more envious if you could look out the window of my living room and see the ocean. Did I mention my wife is pretty hot too? Life is good for the government employee.

    At last, I leave you with this – how to sorrow and woe properly: http://www.youtube.com/watch?v=KID6aSwXfJg

  8. boprn says:

    Mr. Ed, please be sure to listen to the 1:30 mark of the linked video to hear how it supposed to be done.

  9. Editor says:

    Boprn – your comments are always welcome here, but where to begin?? First of all thank you for the link – do we also share a love for classical music?

    This post is a bit of a departure. It was an attempt to elicit empathy from the public sector worker, not sympathy. Let’s review:

    (1) You had NO IDEA when you took your job in the public sector that your wages and benefits would increase at a rate way beyond the rate of inflation. The bargain was supposed to be you would endure a LOWER salary in exchange for job security and moderately better benefits. Now you make more in your base salary than your private sector counterparts, and your pensions have increased from a 1.25% per year accrual to a 2.0% per year accrual (for safety, from 2.0% to 3.0%) – calculated on a higher base salary. So to say you made a long-term decision is accurate, but that decision was to accept terms far more modest than you now enjoy. Did you really think all this would be sustainable? Do you still think so?

    (2) The “middle class” are those taxpayers who have to cover these dramatically increased wages and benefits. And the fact is – neither you nor Oz have refuted this, because you can’t – an independent contractor who earns between $80K and $108K of adjusted gross income will pay 51.25% tax on every additional dollar they earn. And that, Boprn, stinks to high heaven.

    Your suggestion that this post and others on CIV FI are motivated out of envy is probably not entirely unfounded. I would be less than human to not wonder how everyone working for the government suddenly – as everything got “negotiated” upwards over the past 20 years – found themselves able to retire at an average age of 55 with an average pension of $68,000 per year, when people in the private sector retire at an average age of 68 with an average social security benefit of $15,000 per year. But there is more to these posts than the motive of mere jealousy.

    The fact is we can’t afford it. If you include federal workers, California has about 2.5 million government employees. And because of the earlier retirement ages, California is on track to have one retired government employee for every one still working. By contrast, California has about 12 million private sector workers, and is on track to have two active workers in the private sector for every one who is retired. Here are the calculations:

    Cost per year for California’s retired government worker pensions: 2.5M x $68K = $170 billion

    Cost per year for California’s retired private sector workers on social security: 7.0M x $15K = $105 billion

    Cost per year if every retired person in California had the average state worker pension, and retired at age 55:
    [2.5M x $68K] + [(21M/2) x $68K] = $884 billion

    Please think about this: These calculations, which are roughly accurate, should put completely to rest that favorite notion of the public sector unions, which is that all “middle class” retirees should enjoy pensions equal to what government workers receive. Because to allow all Californians this benefit would cost us nearly $900 billion per year, which is about 50% of California’s entire GDP.

  10. boprn says:

    It would seem I hit a nerve; how do I know this? You missed the main point of my post, and instead focused on periphery issues. Now I admit that the thick river of sarcasm that ran through my post might throw off a lesser editor than yourself, but you have no excuse, as you are the best out there. The main point of my post is in the following paragraph:

    “””How do I know its envy? Simple. The financial difficulty that the state finds itself in is not the result of those who work for a living getting a retirement, but those who don’t work at all getting welfare/EBT cards, subsidized housing, food stamps, free cell phones, free health care. Of course none of it is free, but we all pay for it. You see, Ed (and those like him) don’t have a constant drumbeat about all the money thrown away on the non-contributing members of society. Instead of bringing the non-working class to the forefront in article after article after article – the articles are written about people who show up every day and do their jobs.””””

    Thirty percent of all welfare recipients live in California, while we have about twelve percent of the population. In addition there is a large illegal alien population sucking the government (tax payers) dry at every emergency room and school in the state. These NON CONTRIBUTING ‘members’ of society, NON TAXPAYING ‘members’ of society only take.

    I believe you have found yourself in the trap of believing Faux news, Schwarzenegger, and others who are so afraid of telling the truth of where your tax dollars go that they have invented a scapegoat – the public employee. That’s not to say that there are funding problems for pensions, or that spiking shouldn’t be stopped (it should), but the funding of programs for those who don’t contribute ANYTHING to society is many times that of those public servants who HAVE contributed to society.

    Don’t you think it would be more honest to address the real money suck that is devastating California? I believe that you unconsciously fear addressing the real problems facing this state and country as a result of political correctness. No different than a politician or news outlet, you lack the rocky-mountain-oysters to tackle that which may have political consequences. It’s safe to run with the bulls of Faux, Chris Christie, Walker, and the rest of the now popular scape-goating crowd as the risks are few.

    But I do hold out hope for you. Anyone who appreciates the likes of Mussorgsky has the ability to learn and change. But then again Hitler liked Mussorgsky.

    Realize that was over the top, but had to do it.

  11. Editor says:

    Boprn – our agreement on these other issues are well documented. In order to revive the economy, reform government, and restore the proper incentives to our citizens, everything you bring up is true. In my opinion, the agenda of the unions who control our government – and they do, in unity (and phony disunity) with monopolistic corporations and Wall Street – is to expand government, and government worker pay, in order to expand their organizations. That is their incentive and therefore is their agenda. It is one reason that unionized government is so problematic. I believe that, as you say, “the funding of programs for those who don’t contribute ANYTHING to society” and the unsustainable pay and benefits now granted public employees have the same root cause – unionized government.

    I’ve said this to you before – and you said “fat chance” (paraphrasing): When public sector unions start using their political power to fight “the funding of programs for those who don’t contribute ANYTHING to society,” we could then downsize government, and probably could afford to pay the remaining government workers the rather high rates of compensation they are currently receiving. Actually I would phrase the goal a bit differently than you – stop funding programs that don’t contribute anything to society, including those programs that actually harm the people they are intended to help.

  12. oz says:

    Ed – “I am a financial professional. I have an MBA with an emphasis in finance and investments”

    Huh? That and a 4 quarters will get you a dollar. I only have a B.S. in Geology. Can we still talk? You are clearly not tax-savvy and neither is your accountant. And I am not referring to cheating the system.

    Your accountant strikes me as a “plug and chug” type versus a tax consultant type. I suggest you see the latter.

    “Remember, you have to spend the money in order to get the write-off” Since when is putting the money in a retirement plan “spending it”? A financial professional afraid of retirement plans???

    Ok, Ed, I’ll make you a bet. Take your partly taxpayer subsidized computer and taxpayer subsidized internet access and email me with a little bit more about the specifics of your self-employment. I bet I can show you how you can legitimately lower your tax bracket by 10% on that hypothetical 80-108k range you’re so worried about. Once I do, I want a full retraction of this post and for you to stop whining. If I can’t, I will cease and desist permanently on this topic.

    I’m serious, Ed. You have my email. R/ Oz

  13. Editor says:

    Oz, Oz, Oz – what part of this don’t you understand? What exactly is your point, anyway? That anyone who isn’t willing to defer (via the 401K etc.) or otherwise obtain deductions so that their AGI drops under $80K is financially incompetent? That nobody can legitimately end up with income between $80K and $108K? Sorry if some people end up in this valley of tax death, but they do. A lot of self-employed people work very hard to get into a position to have a few extra bucks, and find themselves paying 51% in taxes. And I’ll say it again, Oz, it stinks. Can’t you just acknowledge that maybe self-employed people with NO pension and NO benefits should maybe not have to pay 51% taxes on every additional dollar they earn, if they’re fortunate enough to claw their way to an AGI north of $80K?

    You may chastise me for being risk-averse with investments, and you’d be right. So what would have been the benefit of being a risk taker over the past 10 years? How do you know you’ll beat the market? The only way to get a return is to take huge risks, because the Dow and the S&P 500 have gone nowhere, bonds are grossly overvalued – sell them now, Oz, and thank me later – gold is maxed, and nobody has the slightest idea which way currencies are going to go. Are you kidding? Anyone who is even slightly risk-averse these days should be using whatever extra cash they earn (after they pay the 51% taxes on their marginal earnings) to eliminate debt, and you don’t get a write-off for retiring principal.

  14. oz says:

    Ed – There are two issues here. Let’s deal with your risk aversement/ dismissal of a retirement plan later.

    The other issue is your inept tax planning. That specifically is not a concern of mine, but your whining about it is. Let’s work on that first.

    Case in point. Do you know Mr. Warren Buffett’s actual salary? Do you know his tax rate?

    Do you know that as a self-employed business owner that you set your salary? There is nothing magical about Mr. Buffett, his business, or his tax scale.

    Tax consultants I talk to (clearly unlike your accountant) tell me that generally speaking with proper planning, the HIGHEST effective total (FICA, fed, state) income tax rate a self-employed pro can expect is about 35% on ANY amount of income, NOT 51%.

    I await your email. R/ Oz

    PS. And yes, as a side point (please let’s not get too distracted), but I would be willing to say that anyone who is not willing to put money into some form of a retirement account is financially incompetent.

  15. Editor says:

    Oz – I am referring to the MARGINAL tax rate on adjusted gross income that is over $80K and under $108K, in the state of California. And there is NO WAY you can avoid paying 51.25% tax on that bracket of income. Period. I understand that the composite rate can be quite a bit lower, I am referring to the MARGINAL rate on the INCREMENTAL INCOME. Are we going in circles?

    The only way to avoid this, as far as I know, is to form an LLC with a few other independent contractors, and do “profit distributions” in order to avoid paying into social security and medicare. While quasi-legal, this is not a path I am comfortable taking, so I don’t. Other than that, again, there is NO WAY for an independent contractor in California to avoid paying 51.25% taxes on the increment of additional earnings between $80K and $108K.

    And that STINKS, Oz. We can argue about whether or not there are good retirement investments out there all day long, but that doesn’t change the above fact.

  16. oz says:

    Ed – Okay. You’re starting to get there.

    My point is, the above “fact” you reference is only true in a theoretical world. The only people, if any, who pay that tax rate are those who are too lazy, ignorant, or self-centered to properly structure their business and fund their retirement and have not sought out the proper counsel.

    You have mentioned one of MANY potential real world solutions. You will not email me your specifics, but I would recommend swallowing some humble pie and seeing a TAX accountant or TAX lawyer for a couple hours and let them make the decision on what is legal vs. not. Your discomfort is likely only because you do not understand. (You take this risk averse thing to an extreme, Ed) Even an MBA can ask for financial advice. I don’t know any specifics about this debt you mention, but you may even be able to claim principal on that against your current business income.

    As for your own retirement plan, Ed, for heaven’s sake, fund it NOW and stop complaining about everyone else’s.

    Even if you want to be completely out of stocks, bonds, etc. there are still retirement plans you can invest in. You have no excuse not to be in a retirement plan, Ed. I say this very sincerely.

    R/ Oz

    P.S. Warren Buffet’s salary, by the way, is 100k. He is married and likely has a contribution to a supplemental business health insurance policy deduction that together with his personal deductions take his income comfortably out of the tax range you speak of. My guess is he’s talked to a few tax pros along the way.

  17. r says:

    What I take from the article instead of the usual sorrow is a realization that Ed, and others like him are envious of the long term decisions that those who work for the government have made
    Spoken like a true public employee trough feeding piglet who would be making minimum wage with out his gov workfare!

  18. Tough Love says:

    Boprn , I hadn’t commented here, but since (in your 2:29AM marked comment) you mentioned me (as TL for short) so it seems appropriate for me to respond to your remarks.

    You speak of and conclude envy drives the posts of pension reformers and that freebies are the real source of all our financial problems. While the freebies ARE indeed expensive and likely need to be better match (meaning reduced) to available revenue, let’s get back to Public Sector pensions:

    A few facts (they ARE facts … any competent pension actuary can confirm this):

    (1) the pension contributions of public sector employee and the investment earnings thereon, pay for just about 10-20% of the typical Public Sector pension. The 80-90% balance is paid for by employer (meaning Taxpayer) contributions and the investment earnings thereon. And to to defray the usual nonsense, investment income is NOT a source of contributions and derives FROM the original source contributions proportionately. Had Taxpayer not been forced to contribute so much, 80-90% of that investment income would have stayed in the Taxpayers’ pockets.
    (2) employee contributions (when actually made by the employee and not picked-up by the employer) are usually in the 5-10% of pay range, yet the level annual % of pay (over one’s career) to fund a pension to a 30-yr employee retiring at age 55 is typically about 40% of pay for a miscellaneous employee with a COLA-increased 2% per year of service formula, to almost 60% for those with the 3% formula. Essentially, the contribution of Taxpayers are about 5 times yours. That’s why #1 above makes sense.
    (3) In the end game it’s “total compensation” (cash pay + pensions + benefits) that matters. How it’s divided up matters little as the COST is the same. Per the US Gov’t BLS “cash pay” in the Public and Private Sectors is relatively close for the vast majority of occupations and has been for quite some time. Yet (see #s 1 and 2 above) Public sector pensions routinely have a “value” at retirement, the Taxpayer paid-for share of which, is 2, 4 even 6 times (for safety workers) greater that what comparably paid Private Sector workers (retiring at the SAME age and with the SAME years of service) receive from THEIR employers. These MUCH greater pensions, when added to equal cash pay, results in “total Compensation” FAR greater for the Public Sector workers. This is neither necessary to attract a qualified workforce (or to keep them), is unjustified, and grossly unfair to Taxpayers.

    So, while you call it “envy” I call it unjust enrichment via unnecessarily high pay, pension, and benefits. To be sure, YES we have a problem with freebies to the unproductive and unfortunate members of society, but we ALSO have a VERY big problem with excessive “total compensation” afforded Civil Servants.

    Now …. aren’t you glad you brought me into this discussion ?

  19. Oliver says:


    Thank you for you well written article using documented facts. The comments by many of the “public employees” just illustrate how deep the entitlement and propaganda is to these people. I don’t fault them, they are just ignorant. The math does not work for them and they are too ignorant to realize it. Instead they will fight to their grave to extract as much as they can from the private sector via the monopoly of force that the government has. Until they can work with the private sector to fundamentally change this country (bad word choice) we have little hope. Place your bets.

  20. Charles says:

    Once the employer (taxpayer) has paid salary + benefits (the entire employee compensation package the employer pays to keep the employee working for him instead of somewhere else) the compensation no longer belongs to the employer (taxpayer).

    Any investments Calpers makes belong to the members. Any investments the members make with their own funds which come from their salary belong to them, not the taxpayer.

    Their houses, cars, stocks, bonds, Calpers retirements, EVERYTHING bought and paid for out of their salary and benefits compensation belongs to them.

    If the State of California pays Zero into Calpers in a particular year as they have in the past, member contributions and investments by Calpers are the source of 100% of that year’s disbursements and the taxpayers pay nothing. The members still pay though, they don’t get a pension contribution holiday like the State of California gives to itself.

    If taxpayers pay 18% of salary to Calpers in a given year then 82% of the cost is born by employees and Calpers investments. As was the case 42 years ago in 1969 when I went to work for Caltrans.

    Models and projections about the stock market are just as reliable as models and projections about global worming. They depend of variables and factors that can only be guessed at.

    As far as Social Security goes, it could have payed much better than it does today if FDR had kept his hands out of it to finance WWII and Lyndon Johnson had not dipped into it to finance the police action in Viet Nam, not to mention raids any time it showed a surplus. The Federal Government conveniently forgot that SS funds belonged to IT’S members.

  21. Rex The Wonder Dog! says:

    Thank you for you well written article using documented facts. The comments by many of the “public employees” just illustrate how deep the entitlement and propaganda is to these people.
    The trough feeding piglets are delusional 🙂

  22. Rex The Wonder Dog! says:

    If taxpayers pay 18% of salary to Calpers in a given year then 82% of the cost is born by employees and Calpers investments. As was the case 42 years ago in 1969 when I went to work for Caltrans.

    Charles, 95%-100% of ALL CalTURDS moeny is from the taxpayer-so once again I spank you with the truth Charles-like I always have in the past, and your “spin” is destroyed 🙂

  23. Tough Love says:

    Charles, You spent too much time in the engineering books.

    You really should have taken a few courses in basic finance/economics.

    Your clueless.

  24. Charles says:

    Not at all. The money I am mentioning here no longer belongs to the State or the taxpayers. So interest and principal in Calpers don’t belong to them either. The employer and the taxpayer are totally out of the picture now, which is why you as a taxpayer can’t go in and claim your share of the taxes that went into Calpers plus the investment on it.

    Also, finance and economics are required subjects for an engineer. In fact, one of the problems on the professional engineering exam is on engineering economics, which includes future value of money, depreciation, etc., etc.

    Besides, nothing I brought up for discussion here has to do with mathematics. It is a simple question. Does money paid into salary and benefits by an employer belong to the employee or can the employer change his mind and want a portion of it back? Which portion, the employees house or only his pension. If one, then why not the other?

    Please don’t tap dance around the issue.

  25. Tough Love says:

    Charles, Taxpayer are interested in not OVERCOMPENSATING Civil Servants….period. With cash pay relatively equal in the Public and Private Sectors (and I’m NOT specifically talking about Engineers) and MUCH MUCH greater benefits and Pensions in the Public Sector, Civil Servants (in the vast majority of occupations) are simple OVERCOMPENSATED.

    It’s PRIMARILY via pension …. that’s what my earlier comment focused on.

    It’s very hard to understand (with your background) why you cannot comprehend that if Civil Servant contributions WITH INTEREST only accumulate to an amount sufficient to buy (at retirement) 10-20% of their pension ….. then the balance MUST be coming from Taxpayer contribution (and the investment earnings thereon). There is NO 3-rd party payor called “interest”. This isn’t complicated.

  26. Charles says:

    “Once more into the breach!”

    Call it investment earnings or interest whichever you please, they are essentially the same thing.

    The taxpayer pays in 18% in an average given year meaning the employee and the investments on all the money in Calpers pay for the rest. The taxpayer does not pay 85 to 90% or 95 to 100% as I have seen claimed by Spanky.

    What the taxpayer might have done with the tax money contributed is not an issue. The money didn’t belong to him any more after the time it was taken.

    Before 1999, the last change in the retirement formula was in 1971. The time to complain should have been decades ago. Even the 1999 “gravytrain” only netted me 13 1/2% over the old formula.

    Once again, the only way your reasoning makes sense would be if the money still belonged to the taxpayer. Then the investment income would still belong to him. This is plainly NOT the case.

    The time to have done something about this was over the last 4 decades when the money was being deposited. The State of California can hardly advertise their salary and benefits to recruit employees and then turn around and ignore their obligations.

    I’m sure you can change compensation going forward for new employees, this is already happening. Changing pension formulas for existing workers is another story. However, employee contributions can certainly be changed going forward by getting the agreement of bargaining units and that is happening. For instance, PECG the engineering association, has agreed to 8% to Calpers from 5%. That is a 60% increase.



  27. Tough Love says:

    Charles, You are lucky your were an Engineer. You certainly would have failed miserable in finance.

  28. Tough Love says:

    Charles, You are lucky your were an Engineer.

    You certainly would have failed miserable in finance.

    I cannot think of anyone I’ve ever met as “thickheaded” as you.


    And quoting …”For instance, PECG the engineering association, has agreed to 8% to Calpers from 5%. That is a 60% increase.”

    It’s so easy to make statistics (and changes such as this) seem meaningful. In the Public Sector Pension arena, RARELY is that so. Sure it’s a 60% increase, but with the total cost of the rich plan requiring a level annual contribution of 40-50% of cash pay, that 8% is about 1/5 of what Taxpayers would have to contribute to fully fund the plan over their working careers.

  29. Charles says:

    You are correct. It is way less than I would have paid in the private sector. That was one of the major reasons I went to work for the State.

    Becoming an engineer was hardly a matter of luck.

    Failed miserably in finance?

    If I only paid 20% of what I should have for my retirement then I am hardly miserable in finance, and certainly not thickheaded.



  30. Tough Love says:

    Charles said …”If I only paid 20% of what I should have for my retirement then I am hardly miserable in finance, and certainly not thickheaded.”

    Good pint …. IF it lasts ???

    Oh, and ask you children ,and their friends if they’re pleased that you and your ilk have left such a huge debt for THEM to pay.

  31. boprn says:

    Because this board has turned into the usual mess I am going to address just the last comment by TL.

    “Oh, and ask you children ,and their friends if they’re pleased that you and your ilk have left such a huge debt for THEM to pay.”

    What the ‘children’ are paying for are illegal aliens who consume about 50% of the CDCR’s 12 billion dollar budget. The children are paying for illegls who consume about 25% of the school budget (again this would be billions). The children are paying for billions at local level police departments and jail – again for illegals. The children are paying for government subsidized hospitals for illegals – again billions per year.

    If the illegal problem was solved, then the budget problems California faces would be solved. Let’s move onto another way to solve the budget/tax problems of the state.

    Get rid of all welfare. Currently 1/3 of all welfare cases in the U.S. are in California. We only have 1/8 of the population so we don’t have the tax base to cover these people. This group consumes more government resources than the average citizen – far more. The police, hospitals, school systems…its a lot like the illegal crowd actually.

    Why do I bring these two groups up? These are changes that have happened in the last few decades that have changed the fiscal environment of California. If California were a patient we would be looking at recent events that had negatively affected the health of the host. CalPers has been around for 80 odd years – so that is not a recent change. The money sucking illegals and welfare crowd are.

    My problem with Ed, TL, and the moron Rex is that you are VERY vested in seeing working people lose what they have earned, but don’t address the entitlement crowd. I have believed for years that there will be economic problems that will force state governments to make a decision; do they keep giving away stuff to noncontributing groups withing society or do they pay the people who work for a living.

    Several of you advocate taking away what people have earned. It makes me wonder at times if you are part of the entitlement crowd, and are trying to protect your ‘free stuff’. At the very least you have bought into idiots like Schwarzenegger, Christie, Walker, and others who say those who go to work are the problem. Not a single one of your heroes have addressed the welfare or illegal crowd – why do you think that is.

    You guys are no different than the masses in Germany in the 1930’s. The government has given you a scapegoat – and your clinging onto it because you have so much fear.

  32. Tough Love says:

    boprn, Your comment was “standard operating fair” ….. divert attention to the issue at hand … your grossly excessive, unnecessary, and unjust (to Taxpayers) pensions and benefits.

    And you misunderstand the issue with respect to our children. The cost of illegals is a current (as in this year) budget problem. No matter how bad it is, we pay for TODAY’s costs with TODAY’s money.

    Your excessive pension promises are MUCH more insidious as the costs of annuals accruals is inadequately funded as earned, but push off into the future for another generation (our children) to pay for …. or RENEGE on these excessive promises (as I hope and trust they will do).

    And PLEASE, don’t give me that “working people” BS when referring to Civil Servants …. the only group with 14K pensions ….. 80-90% of which is paid for by the Taxes, NOT employee contributions.

  33. Editor says:

    Gentlemen – let’s continue to discuss this using facts and logic. Boprn, I don’t think too many of the people commenting here would disagree with your points about the need for welfare reform and immigration reform. Just faithfully implementing Bill Clinton’s welfare reforms here in California, as they were (for the most part) in the rest of the U.S., would go a long way towards both saving the taxpayer’s money and finally rescuing the so-called disadvantaged communities. And if we reformed welfare and other entitlements in California – bringing the state more into line with most other states – that would go a long way towards reducing and even reversing illegal immigration.

    But I think you are overstating the “scapegoating” issue with respect to our need to reform levels of compensation to government employees. At the local level, about 80% of all government spending is for public employee compensation and benefits. At the state level, after you eliminate federal “pass throughs” to local cities, school districts, and other local jurisdictions, the total spending on personnel as a percent of the budget is about two-thirds. Roughly stated, our state and local governments in California take in about $400 billion per year and pay out about $500 billion per year. We have to stop borrowing $100 billion per year, which, when you add up the state, the 58 counties, the over 400 cities, and the countless local school districts and other agencies, is what we are doing. Meanwhile, total compensation for state and local government workers (remember the overwhelming majority if you include K-12 education are local government workers), is literally TWICE what the average person earns in the private sector. There is an awful lot of money at stake here. Don’t you think that along with welfare and immigration reform, we need to address the fact that most of our taxes are spent on government worker pay, and government workers make twice as much as taxpayers? Can’t we do both?

    Remember, we don’t just want to balance the budget without raising taxes, we need budget surpluses so we can finally start investing in infrastructure again – for example, California has a freeway system designed for 20 million people in a state with 40 million people. To upgrade our freeways, aqueducts, transmission grid, rail, dams, and ports – to name a few – we need two things: Budget surpluses, and the political will to stand up to environmentalist extremists. You and I probably agree on that, too.

    You claim that pensions are paid for by interest earnings. But these rates of interest are based on economic facts that are part of the past, not the future. Equity markets, and passive investments in general, are doomed to lower rates of returns than what has occurred historically because the developed world has aged. Too many people – and pension funds in aggregate – are going to be selling investment assets (so they can live on the proceeds) for these assets to appreciate at the rates they have in the past. That mega-trend combines with another mega-trend, the increasing total market debt in the global economy which has been increasing for nearly 60 years, accelerating in the past 30 years, and is now at an unsustainable maximum. This debt was fueling economic growth, and that source of capital is essentially gone. Total debt outstanding can no longer expand. This also drives down rates of return.

    We can go round on this forever, but these two points probably summarize our difference of opinion: (1) Reducing government worker compensation is part of our economic mandate, along with reforming immigration and welfare. (2) Pension funds and investments in general cannot achieve the rates of return they claim, because of our aging population and our massive and maxed out debt.

    A final thought: You suggest we focus on welfare reform and immigration reform because it will save the state money and allow a balanced budget without raising taxes. What you propose is part of a broader theme – lowering the cost of living. If we avoid raising taxes, if we avoid borrowing more money, no matter how we do it, then we lower the cost of living. If we roll back extremist environmentalist regulations, we also lower the overall cost of living. This is something that unions, especially government unions, fail to adequately appreciate. If you lower the cost of living, then you can lower wages without lowering the standard of living. To oversimplify, if government workers made less, they could afford to make less.

  34. boprn says:

    This is so much falsehood on here that it just isn’t worth my time. Stayed away for a good 6 months – won’t be back.

  35. Editor says:

    Tough Love – I would certainly miss you. I appreciate that someone is paying attention to the numbers and verifying them.

  36. Douglas says:


    “Get rid of all welfare. Currently 1/3 of all welfare cases in the U.S. are in California. We only have 1/8 of the population so we don’t have the tax base to cover these people.”
    As near as I can tell, we mainly have Meg Whitman to thank for this misleading information. We may indeed have 1/3 of all welfare cases, (or 32% + or -) I have seen similar figures from several sources.

    HOWEVER, It is also true that California has about 12% of the nation’s population AND about 12% of the nation’s welfare costs. (According to the US Census Bureau and other sources) I can only infer that the difference is in the way “cases” is defined in California.

    In any case, California, while it may have a higher per capita welfare cost than the average state, there are at least 8 other states with higher per capita costs than California. (This includes ALL government, state and local, welfare costs)

    California does not pay 1/3 of the nations welfare costs. And “Get rid of welfare.” is not a viable option, legally or morally.

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