Middle Class Suckers

There is hot debate over whether public workers get more pay than private-sector workers. This article is not one of those. This article is to actually explore how many average tax payers does it take to support one single average public federal worker.

The average federal worker earns $83,679, while the average private sector worker earns $51,986. With a spouse, married filing jointly without itemizied deductions, 10% non-taxable retirement contribution, 6.2% social security tax, and a 10% chartable contribution, $83,679 would end up paying around $5400 in federal taxes. Using the same criteria for the private-sector worker gives around $1900 in federal income taxes. So the federal worker pays $5400 of their own salary (with the outlandish assumption that all their taxes go just to paying their own salary and there are no other needs for these federal tax dollars) which leaves around $78,000 left over for the private-sector to pay for. Using $1900 for each private-sector worker (again repeating the outlandish assumption that all their taxes go just to paying the salary of this single average federal worker and there are no other needs for these federal tax dollars) means it takes 42 people to support just the salary of a single average federal government employee.

With around 4,443,000 federal employees, it takes 4,443,000 x 42 or 186,606,000 private-sector workers to just pay the salary of the federal employees. If only it stopped there. But these federal employees can’t pay for their own benefits, we have to! Figures vary, so let’s use the one that makes the number look as bright and cheery as we can make them. The average benefits cost $42,462. We will be generous and suppose that these federal employees pay $12,462 of their own benefits, leaving a mere $30k for the tax-payers to pick up. (Note that private-sector employees average only $10,771 in total benefits received.) That means we will need another 15+ private-sector workers to support our single federal employee, so 4,443,000 x 57 or 253,251,000 private-sector workers to pay just the salaries. 57 isn’t yet the magical number. Let us proceed.

Our federal employee retires and collects monthly checks for the rest of their life. This is wonderful until you look into the financial position of the Civil Service Retirement and Disability Fund (CSRDF.) From this handy-dandy May 2012 Federal Employees’ Retirement System: Benefits and Financing report (which is the report written for members and committees of congress)

In other words, on October 1, 2010, the civil service trust fund had an unfunded actuarial liability of $673 billion. All but $9.7 billion of this unfunded liability is attributable to CSRS. Federal law has never required that employee and agency contributions must equal the present value of benefits that employees accrue under the CSRS.

Note that the CSRS is the Civil Service Retirement System. Think of it as a company pension plan. This is just one portion of the retirement benefits package of federal employees.

You will never guess what they did with the money in the CSRDF. Okay, if you have read “How Secure is Social Security” you might know. Again from our May 2012 Federal Employees’ Retirement System

The CSRDF is similar to the Social Security Trust Fund in that 100% of the monies deposited must be used to purchase special-issue U.S. Treasury bonds. This exchange between the trust fund and the Treasury does not result in revenues or outlays for the federal government. It is an intra-governmental transfer, which has no effect on the size of the government’s budget surplus or deficit.

Federal trust funds are not a “store of wealth” like private pension funds. The assets of the civil service retirement trust fund are U.S. Treasury bonds that function solely as a record of available budget authority. The bonds cannot be sold by the trust fund to the general public in exchange for cash. They can only be returned to the Treasury, which recognizes each bond as representing an equivalent dollar-value of budget authority to be used for the payment of benefits to federal retirees and their survivors. The Office of Management and Budget has stated that

These [trust fund] balances are available for future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. The holdings of the trust funds are not assets of the Government as a whole that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury. From a cash perspective, when trust fund holdings are redeemed to authorize the payment of benefits, the Department of the Treasury finances the expenditure in the same way as any other Federal expenditure—by using current receipts or by borrowing from the public. The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits…

Federal trust funds do not represent a store of wealth for the government because they consist entirely of U.S. government bonds. A bond represents wealth only when it is held by someone other than the individual, company, or government that issued it. A bond is an I.O.U.—that is, a promise to pay. An I.O.U. received from someone else might be considered an asset, provided that the issuer is willing and able to pay the debt when it is due, but writing an I.O.U. to oneself does not create an asset. This analogy applies to the U.S. Treasury bonds held by the federal government’s trust funds: they are I.O.U.s issued by one agency of the U.S. government and held by another agency of the same government. Both the issuer and holder are part of the same entity: the U.S. government. When federal trust funds redeem their bonds, the Treasury has only one source from which to obtain the required cash: the public. It can do this either by collecting taxes or by borrowing.

So the taxpayers paid $30,000 a year for our federal employees benefits while they were working, and that was sent to the general fund to spend on something else. Now when this person retires, we are going to have to pay that money a second time so it will be there every month to give our federal employee their check.

But nothing to fear here.

Although the CSRDF has an unfunded liability, it is not in danger of becoming insolvent. According to the projections of the actuaries at OPM, the assets of the CSRDF will continue to grow over the next 70 years.

Oh, that makes me feel so much better. Right…the federal government can’t currently keep up with its funded liabilities now (borrowing $.40 of every dollar spent), what makes anybody think they will be able to get to the unfunded versions? And look what I see. The federal government has now outdone the entire nation! The national debt of $16+ trillion has surpassed our great nation’s GDP of $15+ trillion.

How many average tax payers does it take to support one single average public federal worker? 57 when they are working, and then probably 50 or so after they retire.

PS:

According to BLS, there were 111.714 million full-time workers in the United States last year. Of these, 18.073 million worked for local, state or federal government, and 93.641 million worked in the private sector.

We are currently only short 253,251,000 – 93,641,000 or about 160 MILLION full time private-sector workers just to pay current government federal salaries alone!

SOURCES:
1. Federal/private-sector employee earnings
( http://www.fedsmith.com )

5. Federal Employees Retirement
( http://www.fas.org )