The Bottom Line

July 3, 2014

The Pension Benefit Guaranty Corporation (PBGC) put out an annual report this week of its financial status insuring private pensions around the country. Although most pension plans look to be in better shape than last year, some plans covering multiple companies are likely to fail. At that point, between 1 and 1.5 million people would receive a guaranteed amount from the PBGC that is lower than their promised benefit. However, the PBGC itself is underfunded, and does not have sufficient reserves to sustain these payments for the long term. According to the report, the pension fund will "more likely than not" run out of funds by 2022 and is 90 percent likely to run out by 2025.

The PBGC provides insurance to defined-benefit private pension plans covering approximately 44 million people. Companies covered by PBGC pay premiums for this insurance. In exchange, PBGC will pay benefits to plan employees if the pension plan goes bankrupt. There are two separate insurance programs with different premiums, rates, and payout rules: one covering approximately 34 million workers in plans maintained by a single employer, and another covering 10 million workers in multiemployer plans.

First, the report's good news: single-employer plans are in a stronger financial position than last year, though they are not out of the hole yet. The PBGC's ten-year deficit improved from $32 billion last year to a deficit of $7.6 billion this year, mostly because of the improved economy and the increased premiums in the Murray-Ryan budget agreement. That agreement increased single-employer premiums for 2015 and 2016 and indexed them to wage growth. Although the program is still projecting a deficit, it is expected to be solvent throughout the next decade thanks to balances in its revolving fund.

Now, the report's bad news: many multiemployer plans are severely underfunded, particularly those involving unions with declining membership. Because of lower than expected market returns, declining numbers of employees, and other factors, the number of underfunded plans has increased dramatically this decade.

Multiemployer plans covering almost 1.5 Million people are severely underfunded (i.e., <40% funded)

July 2, 2014

Department of Transportation Secretary Anthony Foxx started the Highway Trust Fund clock yesterday, informing state transportation directors that disruptions in federal reimbursement of highway projects would begin on August 1. The cash management measures are intended to prevent outflows from depleting the Highway Trust Fund.

Starting August 1, the federal government would no longer reimburse states for projects immediately. Instead, they will distribute to states a proportionate share of available funds every two weeks when the fund receives incoming revenue. This is a major change from the current scenario of daily distributions. Of course, uncertainty will make it difficult for the state transportation departments to anticipate precisely how much they will be reimbursed and will lead states to delay some projects until there is a longer-term solution.

DOT considers $4 billion of funding the cut-off point for implementing cash management measures for the highway account. Their latest Highway Trust Fund ticker shows the account's fund running out by late August or early September, at which point spending could only be reimbursed with incoming revenue, enough to cover about three-fourths of spending.

July 2, 2014

In the context of a middling U.S. economic recovery, several commentators have argued that we should ignore deficit reduction in order to pursue growth-promoting policies. This debate, however, overlooks a critical point since both objectives can be achieved simultaneously. A recent report commissioned by the Peter G. Peterson Foundation, authored by economists Janice Eberly and Phillip Swagel, highlights just this point, that economic and fiscal health are not in conflict.

July 1, 2014

The Tax Policy Center and Urban Institute have issued a new report entitled "Flattening Tax Incentives for Retirement Saving." Authors Barbara Butrica, Benjamin Harris, Pamela Perun, and Eugene Steuerle examine three different options to change the tax treatment of 401(k)s and describe their effects on the annual income distribution of taxes along with the lifetime distribution of taxes and income.

The three options are:

  • Reduce the 401(k) combined employer/employee contribution limit from $51,000 to the lesser of $20,000 or 20 percent of income
  • Expand the saver's credit so middle-income earners can take greater advantage of it
  • Replace the income and payroll tax exclusions for 401(k) contributions with a 25 percent refundable credit
July 1, 2014

Our recent paper Trust or Bust: Fixing the Highway Trust Fund called on lawmakers to identify a long-term fix to the funding gap in the Highway Trust Fund (HTF). Unfortunately, it appears unlikely that there is sufficient time to enact a fix before funds fall too low and disrupt construction this summer. A short-term patch can be enacted by transferring funds from general government revenue. To be fiscally responsible, however, this transfer should be fully offset elsewhere in the budget.

Previously, we discussed long-term options to restore highway solvency by cutting spending, raising more from current highway taxes, and raising new taxes. Below are tax, spending, and other options that could pay for upfront general revenue transfers to shore up the HTF in the short-term, although they leave the HTF's chronic imbalance in place. These options can buy time, but they do not replace the need to identify a long-term solution to bring dedicated revenue and spending in line.

Options To Offset a Transfer of General Revenue
Policy Ten-Year Savings Trust Fund Extension
Dedicate one-time "deemed repatriation" tax to the HTF $125 billion 8 years
Dedicate temporary transition revenue from repealing LIFO to the HTF $90 billion 6 years
Repeal certain oil and gas tax preferences^ $35 billion 30 months
Eliminate tax exclusion for new private activity bonds $30 billion 24 months
Require filers to have a SSN to file for a refundable child tax credit $20 billion 16 months
Eliminate Amtrak subsidies* $15 billion 12 months
Eliminate "Capital Investment Grants" for the rail system* $15 billion 12 months
Reduce farm subsidies $15 billion 12 months
Close Section 179 "luxury SUV loophole" $10 billion 8 months
Reduce Strategic Petroleum Reserve by 15 percent $10 billion 8 months
Increase sequestration by $1 billion/year $10 billion 8 months
Repeal tax deduction for moving expenses $10 billion 8 months
Clarify worker classification $5 billion 4 months
Prevent "double dipping" between unemployment & Social Security Disability $5 billion 4 months
Allow drilling in ANWR and the Outer Continental Shelf $5 billion 4 months
Reduce federal research funding for fossil fuels and nuclear energy* $5 billion 4 months
Repeal or phase-out tax credit for plug-in electric vehicles $1.5 - $5 billion 1 - 4 months
Require inherited IRAs to be paid out within 5 years $4 - $5 billion 3 - 4 months
Extend current Fannie/Freddie fees through 2021 $4 billion/year 3 months
Extend customs fees through 2024 $4 billion 3 months
Deny biofuels credit for black liquor (retroactively) $3 billion 3 months
Increased mortgage reporting $2 billion ~2 months
Require the IRS to hire private debt collectors $2 billion ~2 months
Enact federal oil and gas management reforms in the President's Budget $2 billion ~2 months
Devote mandatory aviation security fee to deficit reduction through 2024 $1.5 billion ~1 month
Make coal excise tax permanent $1.5 billion ~1 month
Make Travel Promotion Surcharge permanent $1.5 billion ~1 month
Clarification of statute of limitations on overstatement of basis $1.5 billion ~1 month
Close the "gas guzzler" loophole $1 billion ~1 month
Revoke passports for seriously delinquent taxpayers  < $0.5 billion <1 month

Sources: CBO, OMB, JCT, and CRFB calculations
All numbers are rounded and calculated by CRFB based on a variety of sources.
*These discretionary changes would need to be accompanied by reductions in the discretionary spending caps.
^Includes expensing for exploration and development as well as the “percentage depletion allowance” 

June 27, 2014

The Obama Administration yesterday released the details of its request for war spending (Overseas Contingency Operations, or OCO), with a grand total of $66 billion of funding – $60 billion new funding in addition to $6 billion of State Department/international program funding already in the President's budget.

June 26, 2014

Continuing our series of transportation-focused blogs, this blog discusses the budgetary treatment of the Highway Trust Fund (HTF). While most of the attention regarding the HTF has focused on proposals to address the impending exhaustion of the HTF, the need to reauthorize highway programs by the end of September presents an opportunity to reform the budgetary treatment of spending from the HTF to provide greater transparency in highway spending.

June 26, 2014

As we approach the twin deadlines to reauthorize surface transportation spending and shore up the Highway Trust Fund (HTF), policymakers should note the importance of addressing the structural imbalance between highway spending and dedicated revenue.

June 26, 2014
CRFB Releases Updated Budget Simulator

Over the past few years, lawmakers have engaged in a series of budget showdowns trying to avoid fiscal speed bumps and reduce deficits. However, debt projections continue to show an unsustainable outlook, and there appears to be little appetite for the kind of deal that would be necessary to put it on a downward path as a percent of GDP. That's where you come in.

June 26, 2014

The Senate Finance Committee is beginning a markup of a short-term patch to the Highway Trust Fund, providing funding through the end of the year. Without additional funds, the Highway Trust Fund will run low this summer, disrupting funding for highway projects, and eventually run out of money entirely. If that happens, all revenue coming into the trust fund for 2015 will be used to pay for current projects, meaning no new projects would receive funding next year.

June 25, 2014

The Ways & Means Committee today marked up new and extended tax breaks costing more than $210 billion of lost revenue and increased outlays over the next decade, plus another $35 billion in interest payments.

June 25, 2014

CBO published its score of the Postal Reform Act of 2013 (H.R. 2748), a bill introduced by House Oversight Committee Chairman Darrell Issa (R-CA), on Monday. The bill would deliver net unified budget savings of $17 billion over the 2015-24 period, reflecting a $23.6 billion reduction in off-budget spending and a $6.6 billion increase in on-budget spending.

June 25, 2014
5 Ways to Fix the Broken VA

Jim Nussle, Co-Chair of the Committee for a Responsible Federal Budget, served as the Director of the Office of Management and Budget from 2007-2009. Prior to his time at OMB, Mr. Nussle represented the 1st District of Iowa in the U.S. House of Representatives for 16 years. He recently wrote an opinion featured in the CNN Opinion section. It is reposted here.

June 25, 2014

As we've been writing about various ways to improve the state of the Highway Trust Fund (HTF), the Senate Finance Committee has been discussing options to do just that.

June 25, 2014
House Rules Subcommittee Hearing on H.R. 1869

This morning at 10 a.m., the House Rules Subcommittee on Legislative and Budget Process will hold a hearing on the Biennial Budgeting and Enhanced Oversight Act (H.R. 1869), sponsored by Rep. Reid Ribble (R-WI). Maya MacGuineas, President of the Committee for a Responsible Federal Budget, will provide expert testimony.

Watch the hearing live here.

Read her written testimony here.

June 25, 2014

We've written many times on the need to reform Social Security well before it becomes insolvent in the 2030s.

June 24, 2014

We released a new paper, Trust or Bust: Fixing the Highway Trust Fund, which showed the Highway Trust Fund (HTF) faces a $170 billion shortfall over the next decade and provided numerous options to close that shortfall. In a previous blog, we explored options for doing that by increasing revenue from sources that are currently dedicated to the HTF.

June 23, 2014

Without a fix soon, the Highway Trust Fund (HTF) will run out of money this summer, slowing down infrastructure projects across the nation.

June 23, 2014

Last week, Senate Majority Leader Harry Reid (D-NV) indicated his plans to bring up the Medicare Protection Act for a vote on the Senate floor.

June 20, 2014

Both the House and Senate have passed bills reforming the VA, and a conference committee must now meet to hammer out differences between the two bills. Yesterday, CRFB President Maya MacGuineas sent a letter to the 28 conferees, calling for the resulting bill to take a fiscally responsible approach and honor our nation's commitment to veterans without adding to the national debt.

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