Federal Highway Bill Signed into Law...With Usual Funding Gimmicks

President Obama signed a 10-month transportation funding bill on August 8. The bill makes $10.8 billion available for highway and bridge repairs. Funding for construction projects would have dried up without the short-term extension. A multiple-year funding bill continues to be, forgive the pun, a bridge too far for Congress and the Administration. And Washington is up to its usual tricks with the use of dubious funding mechanisms: 

The short-term measure, approved by lawmakers last month, is paid for using a budgeting maneuver called pension smoothing, which allows corporations to reduce their contributions to employee retirement plans. By allowing companies to do so, the government can boost tax revenues since companies are no longer eligible for tax deductions.

It turns out that "pension smoothing" is used all the time to generate short-term revenues:

Here’s how it works: You let companies set aside less money in their pension plans. When they put less in their pension funds, they report higher profits and pay more in corporate tax. That generates a little extra revenue, which you can put in the highway fund. Over the long run, this policy doesn’t actually generate any added revenue, since in later years, companies will have to increase their pension contributions to make up for what they didn’t set aside today, and their tax payments will go down. But since Congress measures the costs of laws over a 10-year window, the added revenues in the near term count, and revenue losses far in the future don’t.

And both parties are guilty of the practice:

Over the last few years, pension smoothing has been one of Congress’ favorite fiscal tricks, with members proposing it as a way to pay for all sorts of things: Cutting tax rates. Repealing the tax on medical devices in the Affordable Care Act. Shoring up benefits for coal miners. Undoing a set of cuts to military pensions that Congress had passed just weeks earlier. And pension smoothing actually did get used once, in the two-year highway bill that passed in 2012. If the House gets its way in the current fight, we’ll just be extending the underfunding that already happened in the 2012 bill for a few more years. 

There’s no real opposition in Congress to pension smoothing, just disagreement about how to spend the money it “generates.” It’s hard to avoid concluding that members of Congress aren’t trying to find ways to spend money without increasing the deficit; instead, they’re trying to find ways to spend money while being able to say they are not increasing the deficit. And that means there is a lot of demand for gimmicks like pension smoothing that appear to generate tax revenue without imposing a real tax increase.

Oy. 

Investing in our transportation infrastructure is critical to our economic future. Congress needs to work out a long-term highway funding plan that doesn't rely on accounting tricks and gimmickry. We've certainly paid the price for similar practices in Illinois. But hey, why change when you can keep getting away with it.