Congress to move highway package with $20B in taxes, revenue

The highway, student loan and flood insurance package Congress is expected to approve today includes provisions that would raise $20 billion in new tax and fee revenues from companies, according to an estimate from the Joint Committee on Taxation.

One of the new measures would adjust the way pension liabilities are measured for companies. Currently, companies are generally required to contribute more into their pension plans because interest rates are at historic lows.

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The bill would adjust the way interest rates are factored in, and allow companies to contribute less to pensions. However, that would also lead to increased tax revenues from these companies, and this change would raise an estimated $9.4 billion over the next decade.

Some companies have been asking for the change, called "pension smoothing," in order to reduce their pension liabilities. And while this change would raise tax revenues, Americans for Tax Reform said they do not see this change as a tax increase, since the higher tax revenues are a side effect of a change to pension funding laws.

The second provision would raise the premiums that companies pay to the Pension Benefit Guaranty Corporation (PBGC) to insure their pension plans. This change would raise about $10.5 billion for the government over the next decade.

The combined proposals would raise an average of $2 billion a year from companies over the next decade.

The two provisions have not received a ton of attention this week, in part because of their complexity but mostly because Washington is consumed with the Supreme Court’s ruling on healthcare and, to a lesser degree, Thursday’s House vote placing Attorney General Eric Holder in contempt.

Because the bill relies on taxes and fees rather than spending cuts, it could prompt some Republicans to balk in the House, as many Republicans continue to seek government spending cuts over new federal revenues.

The additional revenue, plus a new tax on roll-your-own cigarettes, are needed to offset the cost of extending low interest rates for student loans and to make up for a shortfall in gasoline and other taxes that would be extended under the highway legislation.

The package set to move would extend federal highway funding for two years, reauthorize the national flood insurance program for five years, and extend a 3.4 percent student loan interest rate for one year.

The House is expected to vote early Friday afternoon, but timing in the Senate is unclear.

Without passage, highway funding would expire and the loan rate on federally backed student loans would double to 6.8 percent this weekend. Authorization for the National Flood Insurance Program (NFIP) expires July 30.

The bill, supported by leaders of both parties, would authorize $109 billion in highway spending over the next two years, just as the Senate-passed highway bill would have. The cost of the student loan bill is about $6 billion.

The tax changes were negotiated by Senate Finance Committee Chairman Max Baucus (D-Mont.), who praised them as a way of wrapping up the long-stalled talks on the highway and student loan bills.

"This investment in our transportation system is an investment in more than a million jobs, our economy and our future," Baucus said this week. "This agreement will also make a high-quality education affordable for millions of students across the country.

"We needed to reach across the aisle to get this done, and that's exactly what we did."

Senate Republican aides declined to comment this week on their level of support for the package.

However, House Ways and Means Committee Chairman Dave Camp (R-Mich.) welcomed the agreement, and noted that the agreement rejects other tax hikes that the Senate had proposed.

“I am pleased that this bipartisan agreement rejects nearly $7 billion in tax hikes proposed by the Senate and reinforces the fiscally conservative belief that Washington must live within its means,” Camp said. Camp also welcomed the PBGC changes.

“This agreement also adopts necessary reforms to the Pension Benefit Guaranty Corporation that will result in greater accountability to the workers who depend on this insurance program for their retirement needs,” Camp said. “Importantly, these reforms will also protect taxpayers from being on the hook for future bailouts.”