Funding Highways by Underfunding Pensions

Filed in National by on July 16, 2014

This is the latest from the Congressional brain rust — this time trying to find money for the Transportation Trust Fund. This time, it is Hoouse Republicans who are looking to use this trick to look like they are paying for the extension to the Transportation Trust fund. Instead of looking at rational ways of raising revenue (taxes, closing tax loopholes), they’ve decided that undermining America’s already hemorrhaging pension system is the right place to get money to pay for our roads. But this is apparently not the first time this accounting gimmick has been floated to actually fund something. The Democrats tried using this mess into a bill to extend unemployment insurance and it was part of the funding mechanism for the last temporary Transportation Bill. Which means that this bit of business is available for some appalling bit of bipartisanship. (Even though the GOP looked at the pension smoothing plan to pay for unemployment benefits and said that it paid for nothing. Now they are all for it.) So what is Pension Smoothing?

If you change corporate pension funding rules to let companies set aside less money today to pay for future benefits, they will report higher taxable profits. And if they have higher taxable profits, they will pay more in taxes over the 10-year budget window that Congress uses to write laws. Those added taxes can be diverted to the Federal Highway Trust Fund.

Unfortunately, this gimmick will also result in corporations paying less in taxes in later years, when they have to make up for the pension payments they’re missing now. But if it happens more than 10 years in the future, it doesn’t count in Congress’s method for calculating budget balance. “Fiscal responsibility,” as popularly defined in Washington, ignores anything that happens after 2024.

How stupid is this gimmick? In the face of the coming retirement train wreck, Congress is letting companies underfund their pensions now so that Congress can get the higher taxes. The private companies will need to make up those funds at some point, but recent his history shows that some of these companies will go into bankruptcy in order to shed their pension obligations. The Pension Benefit Guarantee Company is supposed to backstop and administer those plans once they are taken over and the PBGC is currently running a deficit of $36B.

The Tax Policy Center (left-leaning) hates this and also says it doesn’t really raise any money:

In a nutshell, here’s what it does: Companies can postpone contributions to their pension funds. This means that their tax deductions for pension contributions are lower now, but the actual pension obligations don’t change, so contributions later will have to be higher—by the same amount plus interest. In present value terms (that is, accounting for interest costs), this raises exactly zero revenue over the long run.

Let me say that again using all capital letters to express my frustration.

Revenue Effects of “Pension Smoothing”THIS $6.4 BILLION REVENUE PROVISION RAISES NO REVENUE OVER THE LONG RUN!!!

The Heritage Foundation and the Club for Growth hate this too. And (surprisingly) they hate the fact that this bill with all of its gimmickry (the Heritage link provides more detail on what else funds this bill) is only a temporary fix.

So think about that for a second. The business of shifting the costs of government to middle class people (who will be left holding the bag on this thing now and when these retirees go to access their plans) is a real artform now. And every single bit of this is avoid hiking taxes on gas.

Tom Carper has proposed a hike in the gas tax and also voted against the short-term fix to the Transportation Trust Fund — holding out for the long term fix. He has also called out the House for also being shortsighted ( but not for their gimmicky proposal). Who knows where Coons and Carney are — hopefully they’ve stopped trying to burnish their Pete Peterson Fiscal Hero awards long enough to see that this bit of bipartisanship costs their constituents money.

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  1. cassandra_m says:

    This passed the House yesterday (after I’d finished writing), with John Carney reported as Not Voting.

  2. Jim C. says:

    Our rep was at his Father’s Funeral yesterday. My condolences

  3. cassandra_m says:

    I’m sorry to hear about that. Condolences from all of us at Delaware Liberal.

  4. puck says:

    let companies set aside less money today to pay for future benefits, they will report higher taxable profits. And if they have higher taxable profits, they will pay more in taxes

    Here’s an idea: what if we make them keep funding pensions the same, and also collect more taxes from their already-record profits to pay for the roads that are making them so rich?

  5. Mike Brady says:

    Here’s another idea, let’s reduce our expenses, balance our checkbook and pay off debt so our children and after don’t have to pick up the can we kicked down the road for so long. Let’s have some leaders that don’t choose popularity and job retention over serving rightly. Let’s shine the light on it all.

  6. Dana says:

    The biggest part of the problem is that the feds are involved with so much of the highway fund in the first place.

    Federal law requires that 92¢ out of each $1.00 collected in the federal gasoline excise tax be spent in the state in which it was collected. Wouldn’t it make more sense to cut the federal gasoline tax (18.4¢ per gallon for gasoline, and 24.4¢ per gallon on diesel fuel) by 92%, giving the states room to raise their gasoline taxes by that amount, if they wanted, and leave only the 8% remaining for truly interstate projects?

    Every dime that the feds send back to the states comes with strings attached, and reporting requirements. We could eliminate all of that extra, unnecessary bureaucracy, and let the states decide what highway projects they think are the most important, and what needs to be funded, and by how much, without the extra restrictions and costs imposed by the bureaucratic transfers.

  7. Liberal Elite says:

    @MB “Here’s another idea, let’s reduce our expenses,…”

    Good luck with all of those future potholes in your neighborhood…

    How badly do you want everything around you to suck??

  8. Dana says:

    Mr Elite wrote:

    @MB “Here’s another idea, let’s reduce our expenses,…”

    Good luck with all of those future potholes in your neighborhood…

    How badly do you want everything around you to suck??

    Why do you assume that reducing expenses must mean reducing fixing potholes? I suggested a means of lowering expenses which eliminates only bureaucracy, but there are other things which could be cut from budgets besides road maintenance.

    On Interstates 80 and 81 in Pennsylvania, the state is replacing the mile markers. The new mile marker posts are full sized, placed every tenth of a mile, while the ones on the even mile numbers include the blue and red colored Interstate 80 or Interstate 81 emblems on them as well. But on the Pennsylvania Turnpike, the tenth-mile markers are just reflective stickers on PVC posts, not nearly as expensive, but perfectly adequate to do the job.

    So, why do we need the larger posts, other than to spend more money?

    Probably the biggest part of the problem is that we have all of these people who think up new and improved things we can have, and, apparently, nobody who ever asks, “Is this really necessary? Can we manage without it?”

  9. cassandra_m says:

    So, why do we need the larger posts, other than to spend more money?

    Maybe should ask your local DOT this question. Pennsylvania’s highway fund consists of about 25% of Federal dollars. The rest comes from state and local taxes.

    And LE apparently hasn’t driven on PA roads lately. Plenty of them are in pretty bad condition — potholes nor snow plowing are effectively managed there.

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