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A simple Irish solution to cutting deficits



Alex Pollock, writing in yesterday's WSJ, has a neat solution to cutting state, local, and federal government deficits. Cut government salaries. As Glen Reynolds notes, "if government workers know that proliferating deficits threaten their salaries, you turn them into a lobby for responsible spending." And as Mark Perry noted last month, this isn't a very draconian solution, since public sector workers already make a lot more than their private sector counterparts: "Total compensation costs for state and local government workers averaged $39.60 per hour worked in December 2009 (including benefits of $13.50 per hour), which was 44.5% higher than compensation for private industry workers."

Having had a long run of high growth and success, Ireland has now had a severe bust, the deflation of a housing bubble, and a financial crisis. Plus, its government is running big deficits. Sound familiar?

In response, the current Irish government budget takes these steps (translating from euros to dollars and rounding):

• Government employees' salaries up to $40,000 will be reduced by 5%.

• The next $54,000 of salary will be reduced by 7.5%.

• The next $74,000 of salary will be reduced by 10%.

When these tranches are added together, this gets you up to salaries of $168,000. Government salaries over this amount may be subject to marginal reductions of as much as 15%.

This looks like a very sensible plan for nonmilitary government employees.

Ireland has already worked out the plan. All the U.S. has to do is implement it.

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