There They Go Again: More Timing Gimmicks Being Used as Offsets
It seems to be Gimmick Week in DC. After two of the Medicare physician payment bills offset their costs with gimmicks, the recently announced bipartisan Senate agreement on extending unemployment insurance (UI) benefits also partially pays for the extension with a timing gimmick. The agreement resorts to an old friend, the pension smoothing gimmick.
Last December, the maximum amount of unemployment benefits fell from 73 weeks to 26 when emergency unemployment benefits expired. This five-month extension of the maximum 73 weeks of UI benefits is made retroactive to December 28, so it will last through May. The $9.7 billion cost is paid for with some legitimate offsets, including extending customs fees through 2024 ($3.5 billion) and by allowing pre-payment of premiums to the Pension Benefit Guaranty Corporation ($190 million). In addition, the agreement prohibits millionaires from receiving UI benefits, although this provision only saves a negligible amount ($20 million when it was estimated in 2011).
However, the bulk of the savings ($6.1 billion) come from extending pension smoothing provisions in the 2012 transportation bill. By temporarily reducing pension funding requirements, the provision brings in revenue by increasing either businesses' or employees' taxable income in the short term but costs money over the long term when businesses must make up for the lower contributions. As a result, the bill as a whole saves $9.4 billion through 2019 but increases deficits by about the same from 2020 to 2024. Increased deficits would continue beyond the ten-year budget window. Unlike the House Republican physician payment bill, which paid for permanent costs with temporary savings, this bill would pay for temporary costs with temporary upfront savings that would turn into permanent costs. Congress may want to increase short-term spending, but they should make sure it is paid for over 10 years without completely abandoning the need for longer-term deficit reduction.
The use of the pension smoothing is particularly disappointing since it is unnecessary – a number of legitimate propsals exist offset the relatively modest cost of UI. They could have reduced the number of weeks, enacted some form of the double-dipping provision preventing people from claiming disability benefits while being unemployed, or found $1 billion of UI savings by enacting proposals to reduce fraud and abuse in the President's Budget. Lawmakers could have also increased the offsets they did use, by further increasing PBGC premiums, for example. These policies could easily offset the ten-year cost and would have created permanent savings rather than permanent costs.
The use of pension smoothing is entirely unnecessary and will only further deteriorate the long-term fiscal situation. There are plenty of real offsets available, and lawmakers should use them.