Pensions Payments Proposal : Pay Later?

Is there no end to the ignorance of our government? How can these people, with a straight face, say all we have to do to fix our problems now is pass them on to next year or the next generation.

They have to believe it always worked before, why not now? What exactly do these politicians use for intelligence? This is why we are in trouble now. We're at the edge of darkness, there is no tomorrow.

Who are these people?

The Big Lie at the Heart of the Highway Bill
Source: Alex Brill and Alan D. Viard, "The Big Lie at the Heart of the Highway Bill," The Atlantic, March 16, 2012.

The Senate-passed highway bill takes a big step backward on pension policy by adopting a provision that allows employers to shirk some of their pension plan contribution obligations. The Senate explains that the benefits are twofold, say Alex Brill, a research fellow, and Alan D. Viard, a resident scholar, at the American Enterprise Institute.

By alleviating the burden on businesses to contribute to pensions, the Senate's action will essentially stimulate the economy by freeing up business' cash for hiring. Because businesses won't allocate nearly as much cash to their pensions, they will not be able to claim that deduction on their corporate tax rates, which means tax revenue will increase.

Estimates suggest the provision will bring in $18 billion over seven years, a fraction of which will be used to fund roads, bridges and public transportation. However, each of these claimed benefits is far more injurious than beneficial, and additional consequences of the bill make it dangerous, threatening the need for future bailouts.

First, many of the largest pension plans are already underfunded, and a further holiday on contributions will only further exacerbate the problem. The 100 largest plans were roughly $200 billion underfunded at the end of last year.

The Pension Benefit Guaranty Corporation (PBGC), a federal agency responsible for covering pensions for workers when plans prove insolvent, already faces a $26 billion gap between the assets it holds and its liabilities from past pension failures. If the PBGC can't get the necessary money from the fees it charges and the assets it holds, taxpayers will be left on the line to cover inevitable losses.

Second, the plan will do little to stimulate the economy. Pension investments by one firm become part of the pool of savings that finances investment throughout the economy. By further choking the flow of business savings, the Senate is only shifting money around the economy and is stimulating nothing.

Finally, the bill increases government revenues now, but they will decrease later to compensate. A break on contributions for the near-future simply means that businesses will allocate more to pensions later on. When they do, they will take greater advantage of the tax deduction and the government will face a no-gain or even a net loss.