To understand why Republicans want state bankruptcy, it is necessary to understand what bankruptcy is – and what it is not.
Bankruptcy is not a default. The state has failed to pay its debts beforehand; that’s nothing new. Arkansas defaulted in the year of depression in 1933. Eight countries defaulted on canal and railroad debt in one year, 1841. The Fourteenth Amendment required former Confederate states to refuse their Civil War debts.
Defaults are sovereign actions. Governments that fail to pay can decide for themselves which, if any, debts must be paid in full, which ones must be paid in part, which debt is not paid at all.
Bankruptcy, on the other hand, is a legal process in which a judge decides which debt to pay, in what order and in what amount. Under the Constitution, bankruptcy is a force wholly owned by the federal government. American bankruptcy is monitored in federal court, by federal judges, according to federal law. That is why federal law can make U.S. cities go bankrupt, as has been done for many years. That is why Puerto Rico’s financial restructuring can be overseen by the federal control board. Cities and territories are not sovereignty. Under the U.S. Constitution, U.S. states is.
Understand that, and you begin to understand the appeal of state bankruptcy to Republican legislators in the post-2010 era.
Since 2010, American fiscal federalism has been determined by three big facts.
First, the state richest and most productive country very blue. Of the 15 countries that are least dependent on federal transfers, 11 are led by Democratic governors. Of the 15 states that are most dependent on federal transfers, 11 have Republican governors.
Second, Congress is dominated by Republicans. Republicans have controlled the Council for eight of the last 10 years; Senate for six. Because the Republic holds the Senate, federal justice also shifts toward conservatives and Republicans.
Thus the state bankruptcy process will enable Republicans based in poor countries to use federal power to impose their priorities on the budgets of rich countries.
When Cuomo protested the notion of McConnell’s bankruptcy, the governor of New York increased the risk of chaos in the financial markets. But McConnell does not advocate bankruptcy in the country to make the country’s bondholders difficult. Of course not! When McConnell spoke to Hewitt about troubled financial conditions, he did not handle their bond debt. He spoke to them pension debt. State bankruptcy is a project to turn difficulties into retirees while protecting bondholders – and, even more than bondholders, taxpayers.
Republican plans for state bankruptcy safely protect state taxpayers. Bush-Gingrich op-ed 2011 explicitly about this. A federal law on state bankruptcy “must explicitly prohibit federal judges from giving a tax increase mandate,” they wrote. You might be wondering: Why? If a Republican Senate majority leader from Kentucky is willing to blackmail Illinois state pensioners, why does he care to protect the Illinois state taxpayer shield? The answer is found in all three of the three facts of American fiscal federalism:
United States senators from smaller and poorer small countries not only represent their countries. Often, they do not even represent their country. They represent, more often, the richest people in the bigger and richer blue countries who feel it is more economical to invest in cheaper, smaller country races. That biggest contributor for the Mitch McConnell 2020 campaign and leadership is PAC, headquartered in Englewood, New Jersey. The second is a channel for funds from real-estate investors. The third is the Altria tobacco company. The fourth is the UPS package delivery service. Fifth is the pharmaceutical company Eli Lilly. The sixth is a home health care company, LHC Group. The seventh is the Blackstone hedge fund. Etc.
Thus the federal bankruptcy process for state finance can enable wealthy individuals and interest groups in rich countries to increase their influence in the federal anti-majority system to reverse political defeat in a more majority political system in large wealthy countries such as California, New York, and Illinois.