Pension Gimmick Is Running Out of Fake Money for Highways

January 8, 2015

One thing that the incoming Congress will need to address soon is the state of the Highway Trust Fund, which will run out of money sometime this year. Readers may be curious why this seems to be a perennial issue. Everyone is always talking about the Highway Trust Fund, and the issue never seems to go away.

The reason for this is simple; Congress doesn’t make permanent fixes to the problem. The most recent budgetary shenanigan staved off the demise in the near term, but it ran out of money. Now we’re in the same position that we were in prior to the tomfoolery.

It would be easy to say that Congress has done nothing to solve the Highway Trust Fund problem, but that would be too charitable. The budgetary trick they used was a regulation to lower required contributions for pension funds. Because those contributions are deductible, they matter for budget scoring. With lower required contributions, firms contribute less early on, and instead realize taxable income. However, later on, the lower funding catches up to them, and they contribute more, and take more deductions.

The result is that Congress gets the temporary appearance of more revenue during the 10-year budget window, but cuts off some of the lost revenue outside the budget window.

In other words, the money that Congress “provided” to keep the trust fund solvent never really existed in the first place. They might as well have just directly taken money out of the general fund and done nothing. Instead, they monkeyed with pension provisions in order to pretend that they had improved the fiscal situation.

I am agnostic on the appropriate size of government surpluses or deficits. It is not my field. (Though over the very long run, of course, a government must run an approximately balanced budget.) However, there is no value – outside of political value – in creating fake sources of revenue. Meanwhile, there may be value in less haphazard pension regulations.

In sum, Congress’s imaginary source of revenue has inflicted real consequences on the pension industry, but now it’s running out – to the extent that fake money can even run out in the first place. A permanent solution is necessary.


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