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Editor: Paul L. Caron, Dean
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Thursday, May 18, 2017

Roin:  Retroactive Taxation, Unfunded Pensions, And Shadow Bankruptcies

Julie Roin (Chicago), Retroactive Taxation, Unfunded Pensions, and Shadow Bankruptcies, 102 U. Chi. L. Rev. 559 (2017):

Academics and journalists criticize politicians for the dismal financial situations of many state and local jurisdictions. And certainly, politicians routinely make inaccurate fiscal claims. However, the voting public bears some of the blame for continuing to vote for politicians peddling what amounts to fiscal “magic.” This Article suggests a mechanism for holding them at least partially accountable for their carelessness: retroactive taxation triggered by objective measures of fiscal distress.

Retroactive taxes would provide jurisdictions with a mechanism for recouping some of the differential between the cost of services provided to past residents and the taxes they paid in earlier years. Although such retroactive taxation is incapable of providing a complete solution to the financial troubles of states or localities, it could help by reducing the incentive residents have to flee as such distress becomes evident. Further, the prospect of being subjected to such taxation might encourage more voters to vote for politicians willing to confront unpleasant fiscal choices early on, making later distress less likely, or less severe.

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The flaw in in assuming the voters know and understand when they are being peddled fiscal "magic." Given the low level of economic understanding held by much of the public, equating ignorance with carelessness is just wrong. The politicians need to assume a certain level of fiduciary responsibility for their platforms. Let's place the blame where it really needs to go ... the public employee unions and the politicians who cater to them at the expense of future taxpayers. Rather than try to assess retroactive taxes, better to claw back benefits and exorbitant pay agreements from the unions. Go after those who benefitted from these bad deals, not the taxpayers.

Posted by: ruralcounsel | May 19, 2017 4:18:02 AM