September 1, 2014

A Short-Term Gimmick for Highway Funding

  • Discretionary spending is the portion of the federal budget determined through the Congressional appropriations process. Approximately one-third of...

The House Ways and Means Committee and Senate Finance Committee approved similar plans last Thursday to transfer $10 billion in general revenues to the Highway Trust Fund.

Unfortunately, both plans rely on “pension smoothing,” a gimmick that was used in the 2012 transportation bill that could later worsen federal deficits.

The Transportation Department plans to begin cutting payments for state transportation projects next month unless Congress fixes the trust fund.

The White House has come out in support of the House plan, but also criticized lawmakers for failing to find a long-term solution to highway funding.

Rather than pay for a solution with legitimate offsets, some lawmakers want to let corporations reduce their tax-deductible contributions to pension funds. In the short run, this would increase federal revenue. Later, however, the corporations might well need to increase pension contributions, reducing federal revenue. 

In another short-sighted decision last week, the House voted to permanently extend “bonus depreciation,” an expired tax provision that gives companies larger upfront deductions on certain capital investments. According to congressional staff estimates, this would cost the government $287 billion in lost revenue over 10 years.