The Other Side of State Bankruptcies


Former House Speaker Newt Gingrich is all for having legislation that allows states to file for bankruptcy protection. Gingrich says that doing so would free state governments from their crippling debts and allow them to rebuild their finances. It would also cause state governments not to always approach the federal government for bailout funds. Although it seems a logical and simple solution to the financial problems of cash-strapped state governments, is there more than meets the eye?

Many do not realize that there are other options state governments have to reduce their deficits. For example, the state of Illinois just enacted a temporary state income tax increase to help close its budget gap. Likewise, California has initiated wage cuts and tax extensions in its struggle to overcome its $25 billion deficit.

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