After years of controlling most of our transportation policy from Washington, there is no longer enough money in the Highway Trust Fund (HTF), to cover the cost of construction projects for the remainder of the year. Naturally, instead of looking for policy changes to solve the problem, such as returning transportation authority to the states, repealing Davis-Bacon wage mandates, and cutting mass transit funding, the politicians in both parties are reverting to their comfort zone. They are doubling down on our failed federal transportation system by either proposing new taxes or increasing spending to cover the projected $16 billion annual shortfall in the trust fund.
With the August 1st deadline looming, when the DOT is expected to cut back on federal funding for projects, the House and Senate are now working on two short-term patches. Short-term fixes would be palpable if they were used to make structural policy changes in the long-run. However, as is the case with most reauthorizations, both parties are looking for immediate notional spending offsets so they can plan a long-term package that either increases taxes or spending on a failed system.
The House proposal, HR 5021, sponsored by Rep. Dave Camp (R-MI), would plug the shortfall in the HTF through May 2015 by using a combination of notional and superfluous offsets that have been trotted out as an accounting gimmick for many reauthorization bills in recent years. The projected $10.9 billion cost would be “offset” by extending custom fees for another year in 2024 – 10 years from now. Additionally, the bill would “save money” by extending a “pension smoothing” provision for taxpayer-backed pension insurance for another few years.
The pension smoothing provision is one of the most laughable budget gimmicks, yet it has been trotted out as a savior every time Congress wants to increase spending. This plan allows corporations to cut the level of payments into the retirement funds backed by the taxpayer-funded Pension Benefit Guaranty Corporation (PBGC). By allowing companies to contribute less to pensions, they are entitled to less tax deductions, and in turn, incur a higher tax liability. That tortured labyrinth of projected new revenue, estimated at $6.4 billion over 10 years, is what will be used to offset the new highway spending.
Not only is this intangible 10-year offset for a 10-month expenditure reflective of the most absurd budget tricks in Washington – it is also bad policy.
Typically, when interest rates decline to the levels we have seen in recent years, companies must contribute more to their pension funds to ensure that the principle compounds enough for them to meet their overall obligation to retirees. If we lower the threshold for minimum contributions, taxpayers will likely be on the hook to bail out underfunded pensions in the coming years.
Alternatively, if companies are able to fill in the pension gaps in the coming years to compensate for the short-term underpayments, it will create a rubber-band effect on federal revenue. They will be entitled to increases in tax deduction commensurate with their added pension contributions, thereby voiding out the potential revenue increase being used as an offset in this bill. Garbage in, garbage out.
If Congress is committed to kicking the can down the road with a short-term extension, they should just be honest with the taxpayers and drop the phony offsets from the bill.
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