writers working for newspapers as diverse as the New York Times, the Wall Street Journal, and the Washington Post called the statute’s funding mechanism a “gimmick.”12
The gimmick increased the risk that some businesses would not be able to pay the pensions that they had promised employees. Congress had in 1974 required companies promising defined-benefit pensions to their employees to make minimum payments to their pension funds to ensure the employees would get the promised pensions. Even with that 1974 law, however, some companies still stiffed their employees. As a worker who baked Wonder Bread in Hostess’s Lenexa, Kansas, plant explained:
In July of 2011 we received a letter from the company. It said that the $3+ per hour that we . . . contribute to the pension was going to be “borrowed” by the company until they could be profitable again. Then they would pay it all back. . . . This money will never be paid back. The company filed for bankruptcy and the judge ruled that the $3+ per hour was a debt the company couldn’t repay.13
Hostess Brands, which produced Twinkies, Ding Dongs, and other confections along with Wonder Bread at thirty-three plants across the country, used the pension money for corporate expenses including compensation for executives. When the company went bankrupt, it owed huge sums to the pension funds for its 18,500 employees.
This outrage at Hostess suggests that Congress should have strengthened the 1974 law to protect pensions, but it instead weakened it by resorting to its transportation-funding gimmick. This has put many people at risk. According to Milliman, a leading pension consulting firm, just before Congress passed the gimmick, the hundred largest pension plans operated by individual corporations were underfunded to the tune of $257 billion. This figure does not include the shortfalls with any of the twenty-seven thousand smaller pension plans. The transportation-funding gimmick weakened pension plans that cover thirty-two million workers.14
In the course of debating the 2014 transportation statute, a few members of Congress warned that it was leaving members of future Congresses to impose the tax increases and spending cuts needed to fund the $10.8 billion in current transportation spending and that it also put pensions at risk. Yet, no legislator responded to these concerns. The lengthy congressional report on the statute also failed to do so.15
Because Congress had in 1974 established the Pension Benefit Guaranty Corporation “to insure the defined-benefit pensions of working Americans,”16 it might seem that legislators need not have addressed whether they put pensions at risk with the transportation-spending gimmick. The PBGC collects insurance premiums from employers with defined-benefit pension plan, puts the money collected into a fund, and uses the fund to pay pensions to retirees if their former employer’s pension plan goes broke. Yet, the PBGC’s maximum guarantee for an employee is less than $13,000 per year, meaning that the transportation-funding gimmick does in fact endanger employees.
Worse still, according to Joshua Gotbaum, the PBGC’s director appointed by President Obama, speaking two months before Congress passed the transportation-spending gimmick, “Congress has continued to set PBGC premiums and has done so in ways that . . . [underfund] PBGC.” As a result, according to a footnote buried deep in its November 2014 annual report, the corporation lacks “the resources to fully satisfy PBGC’s long-term obligations.”17 The PBGC as a whole had a net worth of minus $62 billion. In underfunding the corporation, members of Congress also ducked blame for (5) charging employers premiums adequate amounts to insure the pensions they promised. This is a relatively small instance of the Debt Guarantee Trick.
The PBGC’s lack of cash raises the question of what would happen if in a crisis it can’t pay even its meager guaranteed pension. Its 2014 annual report states, “The U.S. Government is not liable for any obligation or liability incurred by the PBGC.” That is what Congress has said, but if you believe that, “I have a bridge to sell you,” as the saying goes. Congress similarly disclaimed liability for the debts of government-sponsored mortgage firms Fannie Mae and Freddie Mac, but paid their debts anyway. We the taxpayers will foot the bill if the PBGC goes broke. However, by taking the position that the taxpayers will not have to pay, members of Congress also ducked the blame for (6) the potential costs of bailing out the PBGC.18
Meanwhile, Congress uses the PBGC to fudge its budget accounting by including the corporation in the federal government’s books on the basis of its current cash inflows and outflows. This means that, according to Professor Howell E. Jackson, the PBGC seemed to have made “a positive contribution to the federal budget (reducing deficits) over the past five years,” even though it would likely produce an immense long-term loss to the public.19
In sum, members of Congress maneuvered to duck many kinds of blame:
1. blame for increasing the gas tax
2. blame for losses and layoffs in transportation construction
3. blame for borrowing more money, and thus blame for adding to the deficit and the national debt
4. blame for raising the tax rate on corporate profits
5. blame for charging employers premiums an adequate amount to insure the pensions they promised
6. blame for the potential costs of bailing out the PBGC
Essentially, members of Congress twisted and turned to avoid blame without regard to the ultimate impact on the people.
Moreover, having escaped responsibility for the burdens required to raise the money for transportation, legislators also didn’t feel pressure to focus the money on the projects that would do the most good for voters—projects such as replacing the South Park Bridge before it had to be closed. This they have pervasively failed to do.20
At every step in the South Park Bridge story, members of Congress structured policy to maximize their credit and minimize their blame. For them, it was “every man for himself, and the devil take the hindmost.” We the People are the victims.
The Highway and Transportation Funding Act of 2014 is no worse than most statutes that Congress enacts today.21 Congress-as-usual routinely uses tricks that let its members promise something for nothing or very little. One trick is to leave to members of future Congresses the job of imposing the burdens needed to pay for the things Congress promises now. This is the Money Trick.
Most people know that Congress plays this trick but do not know the scale on which it does so. Congress has used this trick so repeatedly that current policy, if continued into the future, will leave a roughly $100 trillion gap between future spending and future revenue. This is about ten thousand times greater than the $10.8 billion bill left by the 2014 transportation statute. In chapter 6, I will explain why the gap is so large and what the consequences are for us and our children, but here is the bottom line: Future Congresses will inevitably have to increase taxes and cut spending from the levels reflected in current policy to a painful extent. Detailed studies from the left and the right conclude that an increase in economic growth won’t close the gap.22 Yet, by “kicking the can down the road,” as members of Congress have described their conduct, they make the gap bigger and thus will inflict upon us even-more pain in the future.
The trick that Congress uses for taxing and spending is only one of those for ducking blame that members of Congress have been using since the late 1960s (see chapters 3, 4, and 7). The tricks have changed the role of legislators, which
