SAFEGUARD NEW JERSEY’S FUTURE
I, as a citizen of New Jersey, understand that meaningful pension reform is critically important in safeguarding New Jersey’s future and long-term fiscal solvency. If not addressed, residents are at risk for higher taxes and cuts to essential services due to the crowding out effect of growing pension liabilities. The current system is unsustainable and puts future retirees at risk. This issue affects all of us today, as well as future generations.
The first public pension fund goes broke in 2021. In just a few years, New Jersey’s pension crisis will hit hardworking New Jersey families when they can least afford it. They cannot – and should not – shoulder the burden of a broken and inefficient system. Thankfully, there is a better path to pension reform.
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PROPOSED SOLUTIONS FOR PENSION REFORM
Understand the Problem
New Jersey has roughly $235 billion in unfunded pension obligations. These pension costs are crowding out core government services, especially schools and roads, and other essential services hardworking New Jersyans rely on to get ahead in life. They’re also adding to the state’s unsustainable debt and damaging its credit rating.
This is one of the many reasons New Jersey ranks 48th in the nation in financial health. It doesn’t have the cash to meet its long-term obligations. That includes public pensions.
- New Jersey has had to continually cut funding for higher education because of its dire budget situation. NJ Spotlight reports that “New Jersey is spending less on higher education than it did in 2008.” The state’s inability to provide increased education funding is costing New Jersey’s middle-class families a shot at reduced tuition costs.
- In March, Moody’s Investors Service lowered New Jersey’s credit rating because it was concerned about the state’s unfunded pension system. It’s the 11th time credit rating agencies have downgraded New Jersey in the last seven years, leaving the state with “the second-worst debt grade among the states.”
New Taxes Aren’t the Answer
New Jersey is the most heavily-taxed state in the nation. Tax hikes won’t fix the pension crisis, even if New Jersey could afford them. Covering the gap would cost $26,000 per New Jersyan. Even with an additional tax on New Jersyans making more than a million dollars per year, there isn’t enough funding, and would worsen the problem of job creators taking their businesses out of state.
- Paying its way out of its pension problem would require New Jersey to raise its income tax by 29 percent or its sales tax to 10 percent. Either way, cash-strapped New Jerseyans would see even greater burdens on their wallets.
- Per the Tax Foundation’s yearly study, New Jersey has ranked in the bottom ten states for business tax climate since 2014. The state suffers from some of the highest property taxes in the country, an inheritance tax and an estate tax, and a poorly-structured individual income tax. A tax increase is the last thing hardworking New Jersey families need.
The Money Should Work Smarter, Not Harder
Cutting wasteful spending and unnecessary programs could go a long way towards solving the pension crisis. But there is another clear path forward: real pension reform could align with the private sector, where a majority of employers offer a defined contribution plan.
- According to the Pension and Health Benefits Study Commission, defined contribution or hybrid pension plans could save New Jersey nearly $2 billion.
- A majority of New Jersey voters think public employees should use a 401(k)-type plan.
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This issue affects all of us today, as well as future generations. We need to restructure the system to best work for New Jersey moving forward.
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