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Congress Again Plays “Kick the Can” in Summer 

Peter Lefkin 

Inside the Beltway 

8/13/2014 

Two new laws were passed just before Congress broke for summer recess. While the issues were important, the bills epitomized lawmakers’ habit of putting form over substance and delaying tough decisions for future generations to tackle, says Peter Lefkin.
Unpredictability is sometimes a good thing.

Weather in Washington, D.C. has been cooler than usual. The Nationals are playing above-average baseball. And for those who care, and I certainly don’t, Justin Bieber hasn’t been arrested or stopped by police in the last two months.

However, predictability, while mostly welcomed in life, can be undesirable when it continually leads to poor results. That’s how Congress left Washington for its summer recess. Lawmakers hastily enacted two major pieces of legislation—a transportation bill and a veterans’ health-care bill—just minutes before the planes began revving up their engines at Reagan National Airport.

Working on the Highway
Admittedly, it’s hard to knock transportation funding. If you live in an urban area, then you know firsthand that major upgrades to aging and deteriorating infrastructure are badly needed. With a bulk of the roads, bridges and tunnels built in the 1960’s and 1970’s, the nation’s transportation system hasn’t grown fast enough to accommodate the population growth and suburban expansion that has occurred during the last 40 to 50 years.

… Congress chose to take the easiest political—and the most fiscally irresponsible—path to secure transportation funding.”
Yet Congress chose to take the easiest political—and the most fiscally irresponsible—path to secure transportation funding. A failure to act on this issue would have increased the risk of shutting down transportation projects, which would aggravate motorists ahead of the November mid-term elections. Rather than expose themselves to the political consequences of road closures, congressional leaders approved the transfer of $10.8 billion into the Highway Trust Fund. The law staves off the insolvency of the fund until May 2015.

For almost 60 years, roughly the lifespan of the nation’s interstate highway system, the Highway Trust Fund has been subsidized by a federal excise tax paid at the gas pump. This gas tax was first adopted during the Eisenhower administration. It’s a form of justice in taxation, that is, people who use our roads the most should foot the bill.

… since 2008, the U.S. government has borrowed over $50 billion to keep fund transportation projects afloat.”
However, critics argue that excise tax doesn’t collect enough money from people who live in cities and drive less, and that the revenue it generates has been hurt by fuel-efficient vehicles, which have pushed gas prices lower. It’s a valid argument that I wouldn’t dismiss out of hand. Still, simply raising the gas tax by 12 cents per gallon, as proposed by Sen. Bob Corker (R-Tenn.) and Sen. Chris Murphy (D-Conn.), is probably a better approach.

Today, the tax stands at 18.4 cents per gallon (roughly four liters) for regular gas and 24.4 cents for diesel. The gas tax hasn’t been raised since 1993 even though Americans’ purchasing power has been eroded by more than one-third due to inflation. That has led to an increase in federal borrowing. In fact, since 2008, the U.S. government has borrowed over $50 billion to keep fund transportation projects afloat. President Eisenhower, the father of the U.S. interstate highway system, would never have approved of this strategy.

Brilliant Disguise?
In an effort to avoid drawing the ire of political talk-show hosts, and to delay a tough decision, House Republicans punted on the Highway Trust Fund insolvency issue. How did they free up the cash for the interim subsidy? Rather than actually paying for the projects, lawmakers used a budgetary gimmick called “pension smoothing,” which reduces the short-term obligations of companies with underwater pensions to fund their plans. Essentially, companies take smaller deductions for their pension payments, at least in the next few years, and thus bring in more government revenue.

Rather than actually paying for the projects, lawmakers used a budgetary gimmick called “pension smoothing…”
Unfortunately, this tactic doesn’t actually generate any added revenue because companies will have to boost their pension contributions down the line to recoup what was lost. It’s no way to run a country and it’s exactly the type of measure that breeds public cynicism and distrust of government. Further, it has fueled a doubling of the national debt during the last seven years. Eventually, people might wake up to this trick.

Meanwhile, the other matter that got my goat was the way Congress handled the supplemental bill for the Department of Veteran Affairs. Over the last several months, the agency has come under significant attack for its long waiting lists, inadequate care and cover-ups for its mistakes. Congress sought to address this issue by proposing a $16.3 billion funding program that would open up 27 new medical facilities and provide $5 billion to hire more doctors, nurses and other medical employees. At the same time, it allows roughly $10 billion to go to private care for veterans who are on a long waiting list or who live 40 miles away from the nearest VA facility.

But the eleventh-hour VA bill, which passed the House and Senate by an overwhelming majority on August 1, was an end-around. Since it was deemed “emergency” funding, Congress was able to skirt the budget rules that require new spending to be offset by either revenue increases or budget cuts someplace else. It also doesn’t include any real reform of the VA system that might wring greater efficiency. Nobody can quarrel with the goal of providing better VA services and reducing the backlog. However, once again, Congress and the president took the politically expedient route and stuck the next generation with the bill.

Prof. Herb Stein, an economic advisor to Richard Nixon and Gerald Ford, once observed, “If something cannot go on forever, it will stop.” Each day we don’t address our problems increases the danger that they will get worse and the policy prescription to remedy those problems in the future will be even more painful. It’s one of the biggest reasons why people have such little faith in government.





The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

 


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