“Pension Smoothing” is a Sham

By :: July 9th, 2014

stupidtax2Pity House Ways & Means Committee Chairman Dave Camp. He wants to rewrite the tax code in a serious way, but instead he’s spending his days trying to come up with imaginary revenue sources to pay for important spending priorities like rebuilding our crumbling highways. Tomorrow, his committee will consider a proposal to partially pay for topping up the highway trust fund with a cynical budget gimmick called “pension smoothing.”

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!!!

In fact, it could cost the government money if underfunded pension plans can’t meet their future obligations and the Pension Benefits Guarantee Corporation must step in.

There is a sad symmetry to this gimmick. Congress is basically allowing companies to do what our current legislators do—postpone funding their financial obligations.

And it’s not the first time Congress has done this. They pretended to fund the 2012 transportation bill using this stupid, cynical budget gimmick too.

Back in olden days, when policymakers were willing to make hard choices, they adjusted fuel excise tax rates to maintain adequate highway funding. The 18.4 cent-per-gallon gasoline excise tax hasn’t changed since 1993. If the tax had kept up with inflation, it would be over 30 cents now (and the highway fund would be flush with cash). Yes, fuel excise taxes are regressive, but they also reduce our reliance on foreign oil and cut greenhouse gas emissions.

And if higher gas taxes are off the table, then Congress should look for a real funding source. Failing that, they should just admit that they are going to borrow to pay for highways.

Pretending to raise revenue, while adding to our long-run fiscal woes and undermining the retirement security of American workers seems like the worst possible option.

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23Comments

  1. Michael Bindner  ::  3:06 pm on July 9th, 2014:

    Len is absolutely correct, it is a dumb idea. Note that Bill Clinton did the same thing with DC pension funds (which DC taxpayers had caught up on because they had been dumped on DC in the first place when Carter created OPM and needed to make the numbers work). This helped Clinton balance the budget, since he did not have enough votes to raise taxes again on the wealthy. This is the same kind of thing – which hopefully dies in the House – and if not, the Senate. Of course, I suspect that a proposal was not made to increase the tax to allow for adding a carbon tax to gasoline (and maybe even replace the fuel tax long term). Its time to put such thoughts away as well and pass a higher gas tax. Doubling it sounds about right – as long as we also regulate oil speculaton – which can still be described as predatory – we should be able to leave gas taxes exactly in the same place.

  2. Why the Highway Trust Fund gimmicks need to stop – News  ::  9:19 pm on July 12th, 2014:

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  5. It’s back! The return of the pension-smoothing gimmick | AEIdeas  ::  10:07 am on July 14th, 2014:

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  7. Here’s How Conservatives Want To Fundamentally Change The Way The US Pays For Highways | Allmin.ed  ::  6:32 am on July 15th, 2014:

    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as “pension smoothing” as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

  8. RedTrack.ME  ::  6:33 am on July 15th, 2014:

    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as “pension smoothing” as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

  9. Here’s How Conservatives Want To Fundamentally Change The Way The US Pays For Highways | Construction  ::  6:38 am on July 15th, 2014:

    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as “pension smoothing” as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

  10. Here’s How Conservatives Want To Fundamentally Change The Way The US Pays For Highways | News Alternative  ::  6:39 am on July 15th, 2014:

    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as “pension smoothing” as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

  11. Here’s How Conservatives Want To Fundamentally Change The Way The US Pays For Highways | Social Dashboard  ::  11:50 am on July 15th, 2014:

    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as "pension smoothing" as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

  12. Congress Is Using Its Favorite Budget ‘Gimmick’ To Avoid A ‘Highway Shutdown,’ But Everyone Else Hates It | Allmin.ed  ::  2:12 pm on July 15th, 2014:

    […] Burman, the director of the Tax Policy Center, recently explained how pension smoothing works. And he said it could actually end up adding […]

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  14. Congress Is Using Its Favorite Budget ‘Gimmick’ To Avoid A ‘Highway Shutdown,’ But Everyone Else Hates It | Construction  ::  2:18 pm on July 15th, 2014:

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  15. Congress Is Using Its Favorite Budget ‘Gimmick’ To Avoid A ‘Highway Shutdown,’ But Everyone Else Hates It | Hihid News  ::  2:40 pm on July 15th, 2014:

    […] Burman, the director of the Tax Policy Center, recently explained how pension smoothing works. And he said it could actually end up […]

  16. Congress Is Using Its Favorite Budget ‘Gimmick’ To Avoid A ‘Highway Shutdown,’ But Everyone Else Hates It | Essential Post  ::  5:11 pm on July 15th, 2014:

    […] Burman, the director of the Tax Policy Center, recently explained how pension smoothing works. And he said it could actually end up adding […]

  17. Here's How Conservatives Want To Fundamentally Change The Way The US Pays For Highways | The Usual Sources – Where You Are The Source.  ::  6:09 pm on July 15th, 2014:

    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as “pension smoothing” as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

  18. Congress Is Using Its Favorite Budget ‘Gimmick’ To Avoid A ‘Highway Shutdown,’ But Everyone Else Hates It | Social Dashboard  ::  7:40 pm on July 15th, 2014:

    […] Burman, the director of the Tax Policy Center, recently explained how pension smoothing works. And he said it could actually end up adding […]

  19. Funding Highways by Underfunding Pensions : Delaware Liberal  ::  7:30 am on July 16th, 2014:

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

  20. Does Congress Really Care About The Deficit? Not When It Comes To Vets And Highways | Social Dashboard  ::  10:31 am on August 7th, 2014:

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    […] score House members. The conservative Madison Project also opposes the plan because it uses the gimmick known as "pension smoothing" as an offset, Daniel Horowitz, a spokesman for the group, told Business […]

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