The Senate Transportation Budget Buster By Erich W Zimmermann

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					           The Senate Transportation Budget Buster
                                     By Erich W. Zimmermann
                                           May 17, 2005

The Senate is expected today to pass bloated, $295 billion transportation reauthorization
legislation. After initially agreeing to a $284 billion bill—the same amount passed in the
House and a funding level the administration agreed would avoid a veto—the Senate
decided this just wasn’t enough, so Finance Committee Chairman Charles Grassley (R-
IA) proposed an amendment to add $11 billion to the size of the bill, a provision that
busts the budget and turns the bill into veto bait. In the face of enormous budget deficits,
this increase in funding ostensibly received Senate endorsement when a motion to waive
the Budget Act to allow the bigger bill passed by a comfortable 76 to 22 margin.

There are a number of concerns regarding the Senate transportation bill, especially in
regards to its impact on the federal deficit. The following analysis conservatively
estimates that $18-24 billion of the Senate’s transportation bill will be funded through
deficit spending, but depending on which budgetary assumptions are used, the grand total
is likely to be tens of billions of dollars more.

In typical congressional fashion, the bill and the $11 billion funding increase are “paid
for” in part with a series of accounting gimmicks and sleight of hand that would certainly
have made David Copperfield jealous. In addition, the bill expands the federal deficit by
redirecting revenue from the general treasury into the Highway Trust Fund.

The concerns this bill raises:

• The Senate highway bill is helping general funds disappear. The only way to
responsibly fund this bill is to ensure that federal gas tax revenues, which are collected in
the Highway Trust Fund (HTF), are sufficient to cover the entire cost of the
transportation program. Last year, the Office of Management and Budget (OMB)
estimated this level to be $256 billion over six years. However, the American Jobs
Creation Act (AJCA) of 2004 (P.L. 108-357), which passed in 2004, changed the fuel
taxes on gasoline-ethanol blends (gasohol) and resulted in additional HTF revenues.
These changes, however, simply took money that would have been in the general fund
and placed it in the HTF, but did not include offsetting spending cuts or revenue raisers.
These same provisions were included in last year’s Senate transportation bill (S. 1072),
and their cost to the Treasury would have been offset by “unrelated (to highways)
revenue raisers.”1 However, when that bill failed to pass, the gasohol provisions were
lifted from S. 1072 and included in AJCA, except that the offsetting revenue raisers were

    U.S. Senate Budget Committee, “Budget Bulletin,” May 10, 2005.
not included, creating transfers to the HTF that will result in a “pure increase in the
federal deficit.”2 Therefore, when proponents of higher transportation funding claim
increases to the HTF as a result of AJCA justify the larger $284 billion bill, this is not
entirely true. While AJCA provisions to crack down on fuel tax evasion generated real
increased revenue by $1 billion annually, the gasohol provisions ($2-3 billion per year)
only transfer revenue from general funds and are therefore a drain on the Treasury.
COST TO THE GENERAL FUND: $12-18 billion.

• The Senate transportation bill diverts revenues to special interests. The Senate
Finance Committee tax title for the original, $284 billion Senate proposal contains a
mind-boggling array of tax cuts for alcohol producers, limousines, and gun
manufacturers. Most of these are unrelated to the legislation and should not have been
included, and though they are offset by other tax provisions, this increase went to things
other than transportation improvements.3

• As the bill grows, so grows the deficit. To pay for the $11 billion increase in funding
in the Senate bill, the Finance Committee has again worked its voodoo magic to create
the appearance that this is paid for, but really offers nothing more than a disingenuous
attempt to dress a sow’s ear as a silk purse. Much of the supposed increase in HTF
revenues is simply more transferring of general revenues. According to an analysis by
the Joint Committee on Taxation (JCT), while the HTF would gain $10.3 billion and the
Mass Transit Account would gain $1.5 billion, this would result in part from a nearly $6
billion transfer of general funds. JCT also concluded that the single largest offset is a
$15.9 billion provision that allows the Internal Revenue Service to fine companies it
determines are engaged in activities that lack “economic substance.” According to
Congress Daily, this provision has been resurrected 15 times in the past three Congresses
but never become law. It is hard to imagine that the 16th time will be a charm, and
without this offset, taxpayer losses as a result of this Senate bill will increase
COST TO GENERAL FUND: $6 billion in transfers; possibly much higher if the
economic substance doctrine fails.

Given the deficits we face, the Senate has passed a transportation bill that the nation
cannot afford. Simply desiring a bigger bill, as most Senators do, does not get the heavy
lifting done that will pay for a bigger bill. However, neither do the Finance Committee
provisions, which use illusion and trickery to create the appearance of a fully funded bill
but depend instead of a time-honored congressional solution: the transfer of billions away
from the Treasury. It is time to go back to the drawing board and draft a bill that will
limit transportation spending to HTF revenues and keep from blowing a tractor-trailer
sized hole in the federal budget.

 For more on this, please see the TCS analysis of the Finance provisions: