Aside from the issues of a potential violation of the
Constitution, the costs, and the effect on the state's municipal bonds, and the
question of who in a state could declare bankruptcy for the state, a state
filing for bankruptcy should raise concerns for every American. Over a trillion
dollars were spent on various bailout programs, most of which went to banks and
Wall Street is enjoying record profits and paying out near record bonuses. At
the same time, states and municipalities across the United States are suffering
and in the midst of budget catastrophes.
So, the solution being kicked around Washington is to amend bankruptcy laws so
that states can reap the same benefits as municipalities, including that
unfunded pensions become unsecured claims that likely will not get much of
a dividend. Investors in the state's
bonds could likewise end up with unsecured claims. Ironically, a major
reason proponents argue to amend bankruptcy legislation is to prevent states
from looking for handouts to their financial woes from the federal government.
But, the biggest reason behind allowing state to file bankruptcy is to change
the pension and healthcare plans which are an enormous burden on the state
budget. Many state workers have traded higher salaries in the private sector
for the stability and pensions that accompany working for the state.
Cutting the pension obligations of for-profit corporation that declare
bankruptcy makes some sense, but for a state to do the same does not pass the
smell test. Not to mention, the huge drain this new group of people will put on
the federal government to compensate for their loss of benefits.
The United States has the lowest effective tax rates since the Depression with
the richest taxpayers paying close to 90% in the 1930′s. Nevertheless, the
taxpayer was tasked with bailing out Wall Street and the banks without an increase
in taxes. Now, rather than requesting those who can best afford it to step up
and help increase revenue of their states, state employees will bear a big part
of the burden of bailing out their states for which they have worked at lower
rates of pay than in the private sector.
Would we be hearing of the possibility of states' bankruptcies if these
bankruptcies would put the pensions of the members of Congress at risk?
articles about consumer debt by Ted Connolly, co-author of The Road Out of Debt