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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

States: Let ‘Em Go Bankrupt!

A New Republic piece by Alexander Hart that tries to draw attention not only to the fiscal crisis in the states, but to the human and economic consequences of massive state spending cutbacks, almost feels quaint. Yes, everything he says is correct; it really is dumb to tolerate big state employee layoffs and public benefit cuts in the midst of an economy struggling to recover. But the GOP takeover of the House makes any relief package for state and local governments a complete non-starter.
Sure, Republicans are willing to “help” the states by eliminating Medicaid coverage mandates and thus encouraging states to dump millions of poor and elderly recipients from the rolls. Beyond that, any relief, however humane or sensible, would be denounced as a “bailout” or another “failed stimulus package.” So it ain’t happening.
Indeed, the hot conservative idea for the states at the moment is the suggestion, made most visibly by Newt Gingrich and Grover Norqust, that they be allowed to declare bankruptcy. And Gingrich has made it abundantly clear what his motives are in pushing for this extraordinary measure:

I … hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy, so that states like California and New York and Illinois that think they’re going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and, frankly, if they don’t want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states.

So two of the major tribunes of the alleged party of fiscal probity are encouraging states to default on their obligations in order to screw over public employee unions and cut current retirement and health benefits.
This won’t actually happen, if only because Newt and Grover’s Wall Street buddies aren’t about to get in line to recoup their own state debt holdings. But it’s an interesting reflection on the true conservative commitment to federalism that prominent leaders would even discuss this idea, even as they frown on middle-class consumer debtors and reject any genuine relief for the states.

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