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No State Bailouts


Congress shall pass no law to purchase (i.e. bail out States) State debts unless the purchase is ratable based on population for all States or unless approved by a two-thirds vote of both Houses.

No State Bailouts: Proposed Language

Congress shall have no power to provide financial assistance to, or purchase any debt securities of, any State or entity by which it does business or subdivisions or municipalities thereof unless the financial assistance or purchase is provided to all States and prorated by population determined by the most recent census or unless approved by a two-thirds vote of both Houses.


Any effort by Congress to bail out any person, business or state is a form of special legislation. In 1980 Congress bailed out Chrysler and did not lose any money in the process. The justification was a classification founded on the theory of “too big to fail.”  In 2009 Congress bailed out Wall Street under the same theory, with a large consensus being that it was a waste of money and did more harm than good. At the same time, Congress bailed out General Motors on the “too big to fail” theory, but the jury is still out on whether taxpayers will recover all of the $50 billion in equity, $6.7 billion loan and $18 billion in tax breaks furnished to that company to allow it to continue under reputedly uneconomical contracts.

There has been discussion about bailing out certain states like California which have mismanaged their economy to the point that they may go bankrupt. One can imagine the classification dreamed up to support a congressional “too big to fail” bailout of California, namely GDP produced by the state, importance of the state to the national interest, and similar arguments.  Yet, most people believe this is wrong. The purpose of this amendment is to ensure that states are not bailed out unless two thirds of both Houses agree. States need to conduct themselves responsibly or face the consequences.

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