On July 15, 2014, the Competitive Enterprise Institute (CEI) scored U.S. House of Representatives Roll Call Vote #414 on final passage of the Highway and Transportation Funding Act of 2014 (H.R. 5021), a bailout of the Highway Trust Fund and extension of the current federal transpiration law, MAP-21.
Critically, funding for this bill involved “pension smoothing,” a pernicious accounting gimmick that encourages deficit spending and increases the risk of pension insolvency.
The vote is included in CEI’s Congressional Labor and Employment Scorecard, which can be found at CEI’s labor and employment policy project, WorkplaceChoice.org.
The Competitive Enterprise Institute opposed final passage of theHighway and Transportation Funding Act of 2014 (H.R.5021):
- Pension smoothing is an irresponsible, fiscally imprudent gimmick for funding this bill.
- Delays in funding further imperil the financial health of pension plans, a number of which are already severely underfunded.
- Ultimately, taxpayers could be on the hook to bail out the Pension Benefit Guaranty Corporation (PBGC), which faces insolvency in about a decade without reform.
- The Competitive Enterprise Institute, Committee for a Responsible Federal Budget, Center on Budget and Policy Priorities, Heritage Action, Club for Growth, Madison Project, Tax Policy Center, DownsizingGovernment.org, Cato Institute, New Republic, Pension Practice Council of the American Academy of Actuaries, and the Concord Coalition have all spoken out against pension smoothing.
In the Pension Benefit Guaranty Corporation’s 2013 annual report, PBGC Director Josh Gotbaum states:
In 2003, the Government Accountability Office added PBGC to its “High Risk” list of agencies, because we control neither the benefits we pay nor the premiums we charge. Congress has repeatedly raised PBGC’s premiums, but they remain too low to fund our obligations. That’s why, 10 years later, we remain on GAO’s High Risk List.
We now project that, absent changes, our multiemployer program will be insolvent within 10-15 years.
For this one-year highway reauthorization, pension smoothing is used to “pay for” much of the bill. Pension smoothing is an accounting gimmick that allows the delay of payments into already underfunded pension plans. It is essentially an “I will gladly pay you Tuesday for a hamburger today” strategy.
On March 26, 2014, House Speaker John Boehner effectively killed the extension of unemployment insurance due to the program’s use of pension smoothing. Yet now, House Republicans are trying to use this exact same trick to offset spending for their infrastructure bill.
As Roll Call points out, “Congress relied on the same tactic to help finance the last surface transportation bill (PL 112-141) in 2012, showing an illusory boost of $9 billion, and the December 2013 budget agreement (PL 113-67.” It was also used in a student loan bill in 2012.
Enough is enough. Lawmakers must stop using accounting sleight of hand to spend money we do not have. The chart below, from the Committee for a Responsible Federal Budget
shows how “pension smoothing” hides liabilities by pushing them toward the end of budget projection periods.
It’s not right to trick the American people into believing you have found money to spend. There’s no money to be had, and in the life cycle analysis, this amounts to deficit spending. Also, putting off pension obligations risks some of the companies going under before pension payments are made. That could prompt taxpayer bailouts.
Pension smoothing only creates more problems down the road, and we lament the government’s use of this deceptive practice that misleads the public rather than making more prudent choices to properly finance our nation’s highways and transit systems.
The pension smoothing utilized in this legislation purports to increase tax revenues by $6.4 billion over 10 years. The deceptive mechanism defers businesses’ payments into employee pension plans. Such deferred payments thereby count as revenue for these businesses and are subject to taxation.
Nonetheless, as is historically the case, the reauthorization of the highway and transportation program, albeit a one-year bailout in this case, proved quite popular with lawmakers.
The Highway and Transportation Funding Act of 2014 (H.R. 5021) passed by a vote of 367-55, with 10 not voting.
Of the 55 Representatives who resisted the temptation to vote for the funding folly, 45 were Republican and 10 were Democrats:
- Scott, Austin
- Miller, George
To see if your member of Congress voted for the phony accounting that jeopardizes pensions, visit CEI’s Congressional Labor and Employment Scorecard (Vote 414) on WorkplaceChoice.org.
Cross-Posted on CEI.org