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Government Debt: A Tale of Two States: New Jersey and Washington

Democracy and Power: 104 Future Debt Burden

A government debt is a government claim against personal income and private property – an unpaid tax bill.
– Hans F. Sennholz

All democracies institute programs for current voters and shift the debt to future workers, even the unborn. Social Security, Medicare, prescriptions drug benefits for seniors are prime examples in America.


Government Debt: A Tale of Two States:  New Jersey and Washington


Many American States and municipalities have miserable and dangerous public debt.   Steve Forbes  believes that the Obama administration's stimulus money to these States has only put off their day of reckoning, which could result in municipal bond defaults.  Forbes applauds Governor Chris Christie of New Jersey for cutting spending back to 2006 levels and attempting to negotiate with the public employee unions. Under-funded public employee retirement and health care contracts are a major portion of the debt. 

 This Republican (Christie) got a Democratic legislature to cut the new fiscal year's budget to a level below that of four years ago. He enacted a cap on property tax increases, and the state's top income tax rate is 17% less than it was under Christie's predecessor. Now this no-nonsense governor has declared war on the bloated pensions of government bureaucrats. "I know there are some public workers who aren't happy about it today," said Christie. "But ten years from now, when you have a pension to collect and health benefits to collect, you are going to be looking for my address to send me a thank-you note."

 Washington State's Union Tax 

William McGurn explains in the Wall street Journal the State of Washington's public employees union's initiative to create new taxes:

... that would mean a new 5% tax on individuals earning more than $200,000 a year and couples earning more than $400,000. An additional 4% would kick in for individuals earning more than $500,000 and couples making more than $1 million.

Here's a better way of putting it. By taxing others, these unions want to insulate the governor and the legislature from having to make difficult choices about what the government should fund and what it might cut back.

Forbes correctly recognizes dangers in putting off the day of reckoning.  Christie by battling with the public employees is seeking a prudent fiscal system, which will  preserve employee pensions and health care.  New Jersey is facing a terrible scenario of defaulting on government bonds and the inability to honor contracts.

The proposed tax in Washington will delay the day of reckoning.  Ultimately, because of government's propensity to over spend, the State of Washington will  have a worse day of reckoning.  Just as California, Greece, New York, Ireland and many other democracies are having ugly days of reckoning recently.

These diametrical opposite approaches to governance is what every modern democracy must confront.  Christie is exceptional and even with foresight and courage may not have enough power to succeed.   Throughout the world, in order for democracy and freedom to survive additional systemic restrictions on government spending must be constituted to halt government deficits and debt.

Remember, government debt is an unpaid tax that will be the burden of  future generations - fiscal and personal freedom.