In “Why Mitch McConnell’s State Bankruptcy Idea Is So Stupid,” Josh Barro makes a very important and elemental point about Mitch McConnell’s proposal to let states go bankrupt. Bankruptcy is only available to those who are insolvent – and no state is even close to insolvency because they have the power to tax. Right? A bankruptcy court cannot wipe out debts simply because the debtor prefers not to raise taxes to pay for them. So, for example, McConnell’s bankruptcy stance is only a proposal to massively raise NYS taxes.*/
Of course, McConnell would comfortably argue that NY taxpayers, not federal taxpayers generally, should pay the bills. But that is not the argument he is making. And it is important to debunk the bankruptcy narrative because it (1) allows Republicans to use it pejoratively (deadbeats, profligates, failed public policies) while also (2) allowing Republicans to think they are acting beneficently and with fiscal probity – allowing some debts to be wiped out and the state to emerge “reorganized” and stronger. No, all these debts must be paid, in full.
And given the number of states that are, and will be, incurring massive costs associated with Covid-19 and its consequences — including large states like NY, NJ, CA, FL, WI and so on – McConnell is actually advocating for the most massive tax increases in U.S. history.
Let’s be clear about that and not fight on McConnell’s false ground.
*/ Of course, it also has to be noted that the states are not legally allowed to declare bankruptcy and thus McConnell’s harebrained scheme would require Congress to actually vote the states into possible bankruptcy. That’s not going to happen and, as discussed above, the whole country would have to be pretty much wrecked before any state could credibly argue that it is “insolvent.”