Since 2010 ushered in an era of nearly total legislative gridlock, domestic tax and spending policy has been driven by only two things: jobs and the deficit.
Imagine a bus stop with two lines. The first is a very short one that includes anyone with a proposal that is likely either to (1) “create” jobs or (2) raise revenues without raising taxes. The other is a long line of people with pressing policy concerns that don’t create jobs and don’t raise revenues or, in the worst case, don’t create jobs and cost revenues.
When a bus — a congressional legislative vehicle — pulls up to the stop, people in the first line pile on. And people in the second line just stand there waiting, as their line — of accumulated policy issues from seven years of neglect — just gets longer. They never make it on the legislative bus.
Thus, the centerpiece bipartisan legislation is, each year, a highway bill. In fact, the Senate just last week passed a $305 billion highway bill by a lopsidedly bipartisan vote of 83-16.
Whenever one of these bills comes up, legislators republish their transparent talking points about our “crumbling infrastructure,” but in real life they understand that, whatever its utility, highway spending is just an “easy,” bipartisan way to create jobs (even Republicans drive cars, right?). There’s a whole school of economists backing them up on this — they’re called Keynesians.
And no doubt some of this highway spending is “needed,” if you define being needed as something people wouldn’t mind having if they don’t have to pay for it themselves. Because we don’t pay for highway spending with taxes. We pay for it with debt.
In today’s congressional ecosystem, that new debt must be “offset” by revenues. In Congress, creating “revenues” is a classic exercise in magical thinking. The ultimate magic potion here is something you can count as “revenue” that’s not a tax. And the search for that potion has led Congress — both teams, Democrats and Republicans — to that Fountain of Pretend Revenues: PBGC premiums.
PBGC premiums are just fabulous. They’re this weird fee that employers who maintain pension plans have to pay, for “insurance.” They can’t actually be used to pay for fixing your local pothole. But they can be put right there on the congressional income statement, where they look just like taxes. What could possibly be cooler than that? It’s better than crack, and more addictive.
Congress went on this pretend revenue binge in 2012, when, in the Moving Ahead for Progress in the 21st Century Act (MAP-21), it raised PBGC premiums to pay for… a highway bill. Then, when they needed an end-of-year budget fix for 2013, Congress — led by the supposedly super-budget-minded Paul Ryan — did it again. And this October, when they needed a budget fix for 2015, they did it again.
Single employer plan PBGC premiums are now totally out of proportion to any risk the DB system presents. Over the last three years — since this binge began — PBGC has had underwriting gains of $2.6 billion (2013), $4.1 billion (2014) and $4.2 billion (2015). Those are billions. And this trend is only going to get worse as the premium increases from 2015-to-forever kick in. “Forever” because the PBGC variable-rate premium, which is a percentage of unfunded liabilities, is itself increased for wage inflation.
Think about that last point for a second. This is, in effect, a tax rate that goes up with inflation — it’s anti-indexed. That is just one example of the sort of totally bogus magic Congress uses as it waves its hands over the “budget.” Here’s another: This year, in the October 2015 budget deal, they advanced payment of the 2025 PBGC premium one month, so that they could bring it inside the budget window.
Are you following me on this? Just to be clear: We will have to finance all this highway construction with new debt, because all of these new and unnecessary PBGC premiums can’t actually be used to pay for highways. But we will be able to pretend that we are not adding to the deficit because all those extra premiums — which cannot be actually accessed and will (given its prior record) be incompetently invested by PBGC — magically “count” as revenues.
Apparently, Congress doesn’t care about two things: (1) simply lying to the American people about our financial condition; and (2) bleeding the defined benefit system to do it.
All of these premium increases are, of course, damaging the DB system. Sponsors are responding by terminating their DB plans. And to be clear: PBGC premiums are not the sole or even the main cause of the decline of DB plans. In my view, that honor goes to the decades-long decline in interest rates. With global aging, some decrease in interest rates has been inevitable, but rates have in my view, for some time, been lower than what would be called for under a rational monetary policy. And why is that? Because, supposedly (and in my view, wrongheadedly) the Fed believes that low interest rates will… create jobs.
So in this new world, your average 65-year-old worker may not have a pension. But he will be able to get a job, filling potholes.
Michael Barry runs Plan Advisory Services, a consulting group that helps financial services corporations with the regulatory issues facing their plan sponsor clients. He blogs at moneyvstime.com. The views expressed here are those of the author alone, and do not necessarily reflect the views of NAPA or its members.
