Kentucky Senator Mitch McConnell, who controls the Senate Republican majority, announced a week ago that Congress wouldn’t provide any money to support state government public employee pension funds. For decades, many public pension funds have been underfunded, which means they pay out the promised benefits from current revenues. Now state governments are running deficits because the COVID-19 economic downturn has cut their tax receipts. McConnell said that, to solve the problem, states should declare bankruptcy, which would give them legal authority to cut promised pension payments to workers.
McConnell’s proposal set off a firestorm of opposition and he had to back down several days later. Prominent bankers and Democratic Party politicians pointed out that, if states declare bankruptcy, that would undermine the profitable financial system as a whole.
But recent history shows the Democratic Party governors who attacked McConnel’s proposal can’t be trusted to defend our pension payments, which are supposed to be legally protected in full. Democratic Party politicians in Michigan maneuvered to cut Detroit city workers’ pensions in a bankruptcy managed with the help of the Obama administration. Obama also worked with the Republicans to slash pensions for Puerto Ricans when Puerto Rico was forced into bankruptcy by the U.S. government.
The government’s legal obligation to make the promised pension payments to workers is no different legally than its obligation to pay interest to banks on money it borrows for long term projects like building bridges and roads. Now that the economic downturn has cut into tax collections, if they can’t pay both, which will they choose? Pensions for workers or interest payments to banks? Unless we fight back, we can expect not only layoffs, and cuts to programs like education, but attempts to cut our pensions as well.
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