Jeb Bush & Newt Gingrich: Let The States Go Bankrupt

The meme gains steam.

During the 2008 financial crisis, the federal government reacted in a frantic, ad hoc fashion, tapping taxpayers for bailouts galore, running roughshod over the rights of bondholders and catching the American people unaware and unprepared. In contrast, we still have time to prepare for the looming crisis threatening to engulf California, Illinois, New York and other state governments.

The new Congress has the opportunity to prepare a fair, orderly, predictable and lawful approach to help struggling state governments address their financial challenges without resorting to wasteful bailouts. This approach begins with a new chapter in the federal Bankruptcy Code that provides for voluntary bankruptcy by states, a proven option already available to all cities and towns across America.

The figures for next year's budgets are staggering. California, which faces a $25.4-billion budget shortfall, will pay $100,000+ pensions to more than 12,000 state and municipal retirees this year. A Stanford study puts the state's unfunded pension obligations at more than half a trillion dollars. Illinois has a $15-billion budget deficit, prompting its governor and lame-duck Legislature to hike its personal income tax rate by 66%. New York, where 73% of the government workforce is unionized, is staring at a $10-billion deficit.

I have a feeling this one is already won. Which isn't to say we should act as if it's won; but I think this train has left the station.

The states will go bankrupt. There doesn't seem to be many other good alternatives. True, just forcing them to raise taxes to deleterious levels and cut spending in an abrupt and disruptive way is on the table, but that doesn't do anything about these massive public sector pensions and such.

In terms of pure politics: These states are still controlled by Democrats and will be for the foreseeable future. So let the Democrats explain to their union stooges why they're reneging on all those promises they never should have made.

Win, win, win.

posted by Ace at 12:57 PM

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