Daily Deduction

from the Tax Policy Center

Whither the Highway Trust Fund?

By :: July 9th, 2014

Smoothing pensions to fund highways: A bumpy, short road. The House Ways & Means Committee will include “pension smoothing” in a $10.9 billion highway funding bill to be marked up tomorrow. In 2012 lawmakers covered two years of highway and transit funding by allowing employers to delay tax-deductible contributions to employee pension plans, raising companies' taxable income and federal revenue. The current bill would raise $6.4 billion through pension smoothing, $3.5 billion through customs user fees and the transfer of $1 billion from a fund used to clean up leaking underground storage tanks. It would extend the life of the Highway Trust Fund through May, 31 2015. But the plan may run into trouble in the Senate, where West Virginia's Jay Rockefeller insists that pension smoothing revenue be used to fund coal miners' retirement, not road construction.

Camp set a clear, if not completely paved, course for tax reform. TPC has released a comprehensive new analysis of Camp’s tax reform plan, including the plan’s revenue impact, distribution of the tax burden, economic incentives, and effects on compliance. TPC’s Howard Gleckman concludes that elements of Camp's plan will likely drive the next tax reform. He “designed a tax reform that passes the credibility test… [and] did the nation an important service.”

Taxed in DC without representation? The American Council of Life Insurers is suing the DC Health Benefit Exchange Authority over the District’s temporary one-percent tax on insurance policies sold to city residents outside its health exchange, including long-term care and disability insurance. ACLI claims this is a violation of the Fifth Amendment. Since the tax is to fund the health exchange, ACLI further argues that the tax violates the Affordable Care Act itself: It requires that exchanges be financially self-sufficient by the end of 2014.

The cut that keeps on cutting: The property tax base is bigger in Miami-Dade than it was in 2011, but the property tax cut promised and pushed through by Mayor Carlos Gimenez has had lasting effects. The city has $240 million less in property tax revenue today than it did three years ago. Gimenez’s budget for the coming year calls for 700 job cuts to bridge the roughly $64 million gap between property taxes and the cost of county services. Most county job cuts would be in law enforcement.

Down under, some multinationals load up on debt to minimize taxes. They set up “thin capitalization” arrangements: Debt is shifted to parts of the company in high-tax jurisdictions to reduce taxable income. It allowed Australia’s largest coal miner, Glencore, to pay almost no Australian income tax over the past three years, in spite of generating $15 billion in income. Australia’s legislature will soon consider a change to the maximum ratio of debt to equity a company can have from 75 percent to 60 percent.

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  1. Ralph H  ::  10:14 am on July 9th, 2014:

    You report on many dumb tax ideas, funding mass transit and highways by letting companies defer pension contributions is probably the dumbest! We now have almost all city and state pensions underfunded; do we want more problems from private company pensions? Will we bail them out in 10 years.

  2. Michael Bindner  ::  2:55 pm on July 9th, 2014:

    On pension smoothing, Rockefeller is right. The GOP needs to grow up and raise the appropriate tax. If their only alternative to that is governing by gimmick then they stand for nothing useful. Ike is rolling in his grave.

    Camp and his staff put together a wonderful school solution on tax reform that gives us no reason to pass it. Of course, the expansion of the child tax credit necessary to make reform really attractive could never pass a GOP House. You coule sweeten it by VAT funding Social Security and create personal retirement accounts – but to get that done they would have to be insured accounts holding employer voting stock with every worker receiving the same size account. Labor may balk, even at real socialism and the GOP would surely balk, since they can see a few steps ahead.

    The ACLI is desparate, since it is a stretch to call taxation an illegal 5th Amendment taking – and a temporary tax could be temporary enough to expire before the solvency date – unless the fuinds pass the tax along to the customers – then temporary could take a longer view.

    The Miami-Dade cuts were stupid – likely based on the revenue bubble that occurred in the runnup to incresed dividend and capital gains tax cuts. Of course, the supervisors who went along with the Mayor are as equally guilty of going along with the siren song of the tax cut, which always benefits the richer payers (who are also contributors) the most.

    Multi-national thin capitalization is another reason to increase or institute value added taxes (which include profit) and increase taxes on dividend and capital gains beneficiaries and high level employees. Interest earned by holding excess cash should also be considered VAT income. Its time to stop this nonsense.

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