With signs of growing backlash against overly generous public employee pay, pensions, and other perks, politicians and policy experts have begun examining ways to “claw back” excessive contracts.
William Voegeli, a visiting scholar at Claremont McKenna College in California, suggests it could be legally permissible for states to implement a so-called ‘Irish tax’ on generous public employee pay and benefits.
In an attempt to balance their national government budget, Irish lawmakers last year enacted a special tax on government employees’ pay. Analysts are calling it ‘the Irish tax’.
Not on Individuals
“State constitutions do not mimic the U.S. constitution, so I think the U.S. constitution’s ban of taxes against specific persons, called bills of attainder, . . . might not have as big of a provision in each state,” Voegeli says.
He said a tax on the pay and perks of government workers might not be considered a bill of attainder because it could be viewed as a tax on an economic class instead of a tax targeted at individuals.
“Also, the bill of attainder provision does apply to the U.S. Congress, but the Supreme Court, in any circumstance, would not extend it to state legislatures,” Voegeli said.
The political consequences of such an effort could be serious, he notes, pointing out laws to tax government workers’ pay and benefits at higher rates would represent “mortal” threats to public employee unions.
“[An ‘Irish tax’] would only happen if you were talking about a state where the general tenor of public opinion regarding public employee unions and their power had taken a nosedive,” he said. “If you are going to try it, you better be pretty darn sure that it is going to win, because in defeat, the public employee unions will emerge much stronger.”
Adam Summers, a regulatory expert at the Reason Foundation in Los Angeles, worries an “Irish tax” could backfire on taxpayers.
“This would appear to be adopting the same rationale as many union members and others on the political left use in their quest to try to ‘soak the rich,'” Summers said. “Besides, given the power and influence of labor unions on the state legislature here in California, it could even backfire and just cause them to lobby—most likely successfully—for even greater compensation to make up for the added taxes.”
But Summers said he believes the prospect for passage of an ‘Irish tax’ in California, especially, is growing because the public has become so incensed over government pay, health insurance, and retirement packages far more generous than those most private-sector workers receive.
Anger About Excesses
“The unions would vehemently oppose it and pour lots of money into an advertising campaign to fight it,” Summers said. “Even with all this money, though, there is a strong and growing anger among the nonunion public about excesses in the number of government employees and the benefits those employees command. I think it would still have a decent chance of success.
“There is a general wave of distaste for big government spending and elected officials now, so voters might see this as a way to fight back at Sacramento [California’s state capitol] for all the mess the legislators and the unions and the special interests have caused,” he added.
Dean Baker, director of the Center for Economic and Policy Research in Washington, DC, does not understand the grumblings of those who want to institute an ‘Irish tax’ in some states with high-cost public employees. He noted some government employees are being furloughed and said some are underpaid.
“I don’t doubt that there are some overpaid public employees, just like there are some overpaid private sector employees, but blatantly hitting public employees with a tax, I do not quite understand the logic. A lot of public employees are underpaid,” Baker said.
“The [push for an ‘Irish tax’] is coming from people who do not particularly like public employee unions,” he said.
Voegeli says another way for states and municipalities to get out of excessive public employee pay and pension packages is to go into bankruptcy. But he notes lawmakers in some states, including California, are making it more difficult for municipalities with large union debt obligations to do this.
“Outside of a court abrogating a [public employee union] contract in a bankruptcy situation, the feasible options to curtailing these things are few and limited,” Voegeli said. “Indeed, there was a law passed in 1999 in California, called Assembly Bill 400, that greatly increased pensions for state workers and that many counties and municipalities matched. And now as various counties and municipalities have seen their pension obligations absorb a bigger share of their entire budget, many are talking about going bankrupt, and there is a legal basis for that to happen.”
However, he added, Democrats in the California state legislature “have now, at the behest of unions, become very concerned about it and are trying prevent it from becoming too easy for municipalities and cities to declare bankruptcy as a means of abrogating their most expensive public employee contracts.”
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.