The Use of Locally Imposed Selective Taxes to Fund Public Pension Liabilities
By Thad Calabrese (New York University (NYU) – Robert F. Wagner Graduate School of Public Service)
This chapter examines a growing phenomenon in pension funding in which jurisdictions enact a new selective tax or fee, or increase an existing one, to reduce unfunded pension liabilities. Selective sales tax refers to a sales tax confined to a particular commodity or a limited number of commodities, such as a tax on sales of liquor, cigarettes, gasoline, or other petroleum products. Because this is a relatively recent practice, this chapter describes the trend and notes commonalities among jurisdictions that are dedicating selective taxes to pension funds. In addition, it frames the importance of public pensions to the finances of state and local governments. Key takeaways: (1) Unfunded public sector pensions are a growing burden on states and localities, and they present risks to current and future taxpayers. (2) The phenomenon of jurisdictions enacting a new selective tax or fee (or increasing an existing one) to fund their unfunded pension liabilities is becoming more common.
Source: SSRN
