Paying Pension Benefits Would Require Massive Tax Increase

Study says N.C. household taxes must rise $764 annually for next 30 years

RALEIGH (By Rick Henderson and Anthony Hennen, Carolina Journal Online) — A recent study on public pension liabilities concludes that North Carolina would need to raise taxes on every household by $764 for each of the next 30 years just to fulfill its promises to retired state workers — and despite that startling conclusion, the Tar Heel State’s public pension system is in better shape than many of its peers.

The paper (PDF download) for the National Bureau of Economic Research, by Robert Novy-Marx of the University of Rochester and Joshua Rauh of the Kellogg School of Management at Northwestern University, highlights the extent of the funding dilemma: Without changes in pension policies, just to pay retired government workers the benefits they were promised would require 30-year annual tax increases averaging $1,348 nationally. Tax increases would range from about $330 in Indiana to a staggering $2,763 in New Jersey. Those figures do not include funding for state employee health benefits, which are in worse fiscal shape than pensions.

In the paper, North Carolina’s $764 per year ranks 40th nationally in the tax increases per household needed to satisfy pension promises — below neighboring Tennessee ($792), Virginia ($991), and South Carolina ($1,216).