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January 07, 2005

Airline Bankruptcies: Higher Taxes for Good Firms

Even as airlines are using the bankruptcy courts to bust their unions and destroy their workers' pensions, a side story is the mounting debts of the Pension Benefit Guaranty Corp., the government agency which will take over the costs of those workers' pensions (although not pay them their full benefits).

But the costs are substantial. The proposed elimination of US Airways pensions will cost the federal insurance fund $2.3 billion. The proposed takeover by the fund of the United pilots pension fund will cost the PBGC a total of $1.4 billion.

The result of all these bankrupt firms dumping their liabilities on the government is the looming insolvency of the PBGC itself:

It has gone from an $8 billion surplus in 2001 to a $23 billion deficit in 2004, raising questions about its long-term ability to pay retirees their pensions.
To solve the problem, the insurance rates that fund the PBGC will have to be raised, raising costs on companies that actually continue to provide pension funds to their workers.

This is what makes the bankruptcy courts actions so vicious. They strip airlines of their pension liabilities, allowing them to go out and compete with lower costs against existing firms that continue to take care of their workers. And those firms that take care of their workers by providing pensions will see a tax hike to cover the past mismanagement of those now low-cost competitors.

Let's be clear-- whether by intent or incompetence, the present policy of the government is to do everything possible to destroy existing pension funds for workers.

Posted by Nathan at January 7, 2005 09:22 AM