Tax cuts: Padding your pocket, pummeling your pension?

If the economy slows your pension could take a hit, one industry group warns

While pension plans have generally recovered in the wake of the financial crisis, some experts are warning more pain could be ahead if states don’t budget appropriately.

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The National Conference on Public Employee Retirement Systems (NCPERS) recently released a report, which noted that while many states have been making contributions to their pension plans (though some still remain in “dire situations”), they may be forced to make hard fiscal choices and reduce benefits if the U.S. economy slows.

“When tax revenues tighten, as they do in recessions, the competition for general fund dollars will become even more intense, and public pensions will face greater challenges in obtaining the funding to meet any budgetary gaps,” the study noted. “Meeting future pension plan obligations and commitments to other public services will be much easier if states have an adequate and growing tax revenue structure.”

As previously reported by FOX Business, a potential recession is a top concern among U.S. CEOs in 2020.

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Part of the problem is that many state governments have not raised taxes, despite the fact that economic growth has been strong. According to data from the National Council of State Legislatures, since 2010, there have been small enacted tax changes – and many of them have been sales tax increases.

Predictably, tax collections have lagged.

NCPERS found that between 2009 and the end of 2018, Americans’ personal income rose by 24 percent. Over roughly the same time period, however, real tax revenues collected by states only increased by 13.4 percent.

According to data from the Pew Charitable Foundation, since the Great Recession states have missed out on $283 billion in tax revenue.

Part of the remedies recommended by the group includes avoiding tax cuts, reversing recent tax cuts, increasing personal income taxes and sunsetting all tax breaks.

Meanwhile, the Trump administration – which cut taxes in 2017 – is pursuing a second round of federal tax cuts. They are expected to roll out a detailed plan this year.

The average pension funded level last year was 71.7 percent, down from 72.6 percent in 2018, according to a separate study conducted by NCPERS.

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