With the announcement of the new Senate highway bill yesterday, Congress reaffirmed its addiction to budgetary gimmicks. Despite discretionary outlays hovering around $1.1 trillion, the Senate feels the need to sell off part of our Strategic Petroleum Reserve just to cover $9 billion of the new spending. Apparently the federal government is such an efficient operation that there is simply nowhere else to cut!

One of the more egregious gimmicks relates to pensions. To raise revenue, the proposed highway bill gives private companies running defined-benefit pensions four more years to transfer “excess” pension assets to retiree health care. Why does this raise federal revenue? Because companies would otherwise contribute general funds to retiree health care, and those contributions are tax deductible. When companies transfer pension assets instead, there is no tax deduction and, hence, more money for the government.

The reason this is a gimmick is that it imposes a hidden cost on taxpayers. Reducing pension assets increases the chance that plans will go bankrupt. (This is why it is generally illegal for companies to use pension assets for anything other than pensions.) Private pensions are insured by a federal agency called the Pension Benefit Guaranty Corporation (PBGC). But if the PBGC runs out of money, then taxpayers will likely have to make up the difference.

So allowing companies to reduce their pension assets imposes a contingent liability on taxpayers that does not appear on the government’s balance sheet. The Senate plans to count the new revenue but conveniently ignore the new cost. If there is an attempt to address the hidden cost on any of the bill’s 1,030 pages, I have not seen it.