The once mighty city of Detroit has been brought to its knees in the largest municipal bankruptcy in US history. After decades of mismanagement and taxpayer flight, the city decided to call it quits and file for bankruptcy protection earlier this year. In a gesture of cooperativeness and solidarity that has characterized their conduct for many decades, the representatives of Detroit’s public employees’ unions have filed a lawsuit to prevent pension liabilities from being subject to restructuring during bankruptcy. Arguing that pension obligations are sacrosanct and should not be subject to restructuring, the unions that helped bankrupt the city are now preventing it from regaining solvency.
Luckily, in a surprise move earlier this week, Judge Steven Rhodes ruled that pensions could be cut in a restructuring. While the lawyers for the unions appealed the decision within minutes of the ruling, Judge Steven’s decision should be a wake-up call to cities and unions across the nation. Cities need to address their unfunded obligations now or risk the possibility of deep cuts later.
The restructuring of Detroit’s debts will go on for another year, and the litigation surrounding pension liabilities is likely to go all the way to the Supreme Court, but it is now clear that the rules of the game for pension obligations have changed.
Detroit’s is the largest municipal bankruptcy in US history, and it will be closely watched by other cities currently facing their own financial distress. If Detroit manages to use the bankruptcy process to reduce its pension obligations and cut its debts, taxpayers should rejoice as more of their money will go towards paying for services instead of servicing past promises.
Should the restructuring succeed in reducing spending, debt and taxes, money may once again walk back to Detroit, instead of fleeing as it has for decades.
Ever since winning the presidential election last year, French Socialist President Francois Hollande has been working tirelessly to raise taxes on just about everything. Since taking office, Mr. Holland has proposed a 75% “supertax” on the rich, new taxes on cars, and higher taxes on capital gains (over 60%): a total of 84 new tax measures and counting. It’s therefore not surprising that many of those targeted by these new taxes have packed up their bags and left. As a result of these wealthy taxpayers leaving, hundreds of high-end properties have flooded the Paris real estate market, causing a mini property crash.
What’s more, a recent poll by the left-leaning newspaper Le Monde shows just how widespread the discontent is with Mr. Hollande’s government. More than 70% of the French feel taxes are too high and the president’s policies proving to be misguided and ineffective. After several decades of living in one of the most redistributive systems in the world, the French are calling it quits. At over 57%, France’s public government expenditures – as a share of GDP – are forecast to overtake Denmark’s as the highest in the world next year. Like a hamster spinning aimlessly in a wheel, the French government needs more and more taxes to pay for the ever-increasing government spending.
With nearly a quarter of the French workforce now employed by the government or some form of government entity, the workforce has become “two-speed”. Those in the public sector are largely protected against layoffs while the rest struggle with record-high unemployment in the private sector. With the unemployment rate continuing to sky rocket, the socialist government is now talking about creating more public jobs for the unemployed. With so many in France now working for the government and a president determined to uphold the status quo, it stands to reason that those who can will
Nov. 7 (Bloomberg) — Travis H. Brown, author of “How Money Walks,” discusses why the super rich are moving out of New York with Trish Regan and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)
IRS Data has now become interactive and fun. Travis H Brown, author of ‘How Money Walks’ shows Simon Constable his new touch screen application which charts the effects of income tax on population growth and revenue in all fifty states.