Bipartisan Agreement on Gimmicks to Fund the Highway Trust Fund

Jul 11, 2014 | Other Spending
Both the House Ways and Means Committee and the Senate Finance Committee approved legislation on Thursday to fund a short-term patch for the Highway Trust Fund. Both had previously announced plans with offsets: the Finance Committee had an $8 billion plan relying on increasing tax compliance while the Ways and Means Committee had a $10.9 billion plan relying largely on a budget gimmick known as pension smoothing.

The plans have a lot in common, indicating a degree of bipartisan and bicameral agreement. Both deposit almost $11 billion into the Highway Trust Fund to fund highways through next May, extend customs fees expiring in 2023, and rely on pension smoothing. Yet there are significant differences: the Finance Committee legislation, which passed with bipartisan support, includes several tax compliance measures and only partial versions of some policies in the House bill. Unfortunately, one of the House policies, pension smoothing, is a budget gimmick that only raises revenue in the short term and should not be used to pay for anything.

Pension smoothing, which temporarily reduces companies' pension obligations, changes the timing of some taxes paid, raising money in the first six years and costing money thereafter. Since not all of the costs are measured in the 10-year budget window, the provision appears to raise money in the short term.

If Congress decides it wishes to relieve companies of some of their pension obligations, it should not count the temporary revenue generated by that policy. Further, CBO estimated that as a result of pension smoothing, pensions will be more underfunded, likely resulting in more companies' plans being taken over by the PBGC.

Short-Term Proposals to Fund Highways
Policy House Ways & Means Senate Finance
Enact pension smoothing $6.4 billion $2.7 billion
Extend customs fees by 1 year to 2024 $3.5 billion $2.9 billion
Increase mortgage reporting - $2.1 billion
Clarify of statute of limitations on overstatement of basis - $1.3 billion
Withhold payments from Medicare providers with delinquent taxes - $0.8 billion
Transfer funds from the Leaking Underground Storage Tank Fund $1 billion $1 billion
Rescind old transportation earmarks - <$0.2 billion
Total Revenue Raised $10.9 billion $11 billion
Percent Raised From Pension Smoothing Gimmick ~60% ~25%

Source: JCT

The Senate bill is less fiscally irresponsible than the House bill, because it relies on the gimmick for only 25 percent of its revenue, rather than almost 60 percent in the House bill. Unfortunately in the markup, Finance Committee leaders indicated that they wanted to use the remaining portion of the pension smoothing gimmick to fund several other policies, including underfunded coal miner pensions, U.S. Forest Service payments to schools in counties with National Forests, and a trust fund dealing with abandoned mines. If all of the real offsets (minus pension smoothing) from each bill were added together, a combined bill could raise almost $9 billion, enough to fund the Highway Trust Fund until early next year.

Congress has less than a month to pass a short-term fix for the Highway Trust Fund and will hopefully abandon gimmicks in the final legislation. After addressing the short-term fix, lawmakers should quickly move to pass a long-term highway bill that addresses the chronic highway funding shortfall by either cutting spending, raising more from current highway taxes, or raising new taxes.

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