The US Fiscal Crisis: Movement at the Station
Controversial measures – like cutting long-term entitlements or increasing taxation on the well-off. Yet these are required to wind back the groaning deficit which feeds the crippling debt.
That’s why two developments are very interesting.
One, a proposal by Newt Gingrich and Jeb Bush that would allow US states to declare bankruptcy. Big states like California, New Jersey and Illinois can’t pay their bills and can only increase taxes. These Republicans want to stretch the bankruptcy laws to allow the states to reorganise their finances free from their contractual obligations is an option already available to cities and towns. Republicans like it because it would enable states to renegotiate working conditions and union rights the way Wisconsin is attempting. They would simply treat their unionised workforces like a bankrupt company negotiation with creditors to pay them so many cents in the dollar – pretty brutal.
Second, the first comment by Republican congressional leadership that their forthcoming budget would tackle entitlements head on. This is a shift from their previous position, embraced by the Tea Party, that they would never touch Medicare or Social Security. Now their congressional leadership is promising to bring forth a blueprint for entitlement reform, probably as a result of Ron Paul-style libertarianism within their ranks. The details will be interesting. A higher retirement age for example? That is being proposed by the National Commission on Fiscal Responsibility and Reform.