By Andrew Taylor
WASHINGTON — If there’s anything that can unite Democrats and Republicans in the partisan swamp of Capitol Hill, it’s free money.
The latest example of free money in Washington, D.C., is a retread proposal called “pension smoothing” that raises money but doesn’t increase taxes. To some people, that’s a win-win situation. But others say lose-lose is more like it, arguing that pension smoothing is budget fakery at its worst and that it could undermine pension security for millions of workers.
Lawmakers reprised the pension provision Tuesday to help pay for the federal Highway Trust Fund that finances highway construction projects, with both Democrats and Republicans getting into the act. The highway bill passed by a sweeping 367-55 vote.
The bill, written by Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, would raise almost $19 billion during the next six years by extending for another five years the pension-smoothing plan enacted to help pay for the 2012 highway bill.
Here’s how pension smoothing works: The measure would let companies reduce the amount they contribute to their pension funds now and make up for it later. Because pension contributions are tax deductible, companies would owe more tax revenue in the next few years as more of their earnings are taxed. But in the later years, they would be able to claim higher deductions from larger contributions to their pension funds.
Over time, the pension measure doesn’t raise revenue.
But it would during the next 10 years, the time frame used to estimate the cost of the legislation. During the final four years of the budget window, roughly two-thirds of that revenue gain would be taken back as companies take higher tax deductions from larger pension contributions. So the 10-year revenue gain is $6.4 billion, though it’ll continue to cost revenues after 2024.
The Senate’s version raises less short-term cash with a three-year extension of the tactic. Critics shouldn’t take heart: The Senate is saving the other two years to “pay for” other must-do legislation such as Forest Service payments to rural schools, underpaid coal miner pensions and a trust fund for reclamation of abandoned mines.
That tactic has budget experts crying foul. Just as using the pension changes as a painless budget “offset” is backed by both liberals and conservatives, think tanks from the left, right and political middle all oppose it as a gimmick. And they warn it could cost taxpayers because they could be on the hook if an insured pension plan can’t meet its obligations and has to turn to the government’s Pension Benefit Guaranty Corp. for help.
“It pretends to raise revenue. It doesn’t,” said Len Burman, director of the Tax Policy Center, a joint project of the left-of-center Brookings Institution and Urban Institute. “It’ll lose as much money, plus interest, in the future as it gains in the short term. And it undermines the pension security of American workers.
“Aside from that, it’s a great idea.”
Some company leaders argue that they again need relief from the current pension formula, which requires higher contributions when interest rates are low, as they are now. And they say the cash freed up by lower pension contributions in the short term would boost investment and therefore the economy.
“It seems like a win-win,” said Romina Boccia, a senior policy analyst at the conservative Heritage Foundation. “Congress gets extra revenue that they can then use … to say, ‘Oh, we’re paying for this additional highway spending.’ And they also get to claim they’re helping out these companies.
“Meanwhile, the taxpayer is on the hook for a potential bailout of these private pensions down the road.”
And according to a Congressional Budget Office report released last week, the pension provision “would increase the amount of underfunding” in single-employer, defined benefit pension plans and “would probably cause some plans to be terminated more quickly.”
There is other budget fakery in the measure, including using $3.5 billion in customs user fees that won’t arrive until 2024.
Asked Tuesday to respond to criticism of the pension idea, House Speaker John Boehner, R-Ohio, gave only a halfhearted endorsement of the measure.
“Then why would the president be supporting our bill to fix the highway funding over the next year?” Boehner said. “Why would Democrats be supporting it in both the House and the Senate?
“Listen, these are difficult decisions in difficult times in an election year.”