“Pension Smoothing” is a Sham
Pity 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.
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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