Bandaid 2

A UI Extension Could Harm Taxpayers, Prolong Unemployment

They’re at it again.  The liberals in Congress, following the lead of Sen. Harry Reid (D-NV) 13%, are pushing for a three-month extension of unemployment insurance.  The bill they’re championing would allegedly provide flexibility for companies to reduce deductible corporate pension fund contributions.   They are using a tactic called “pension smoothing,” which is merely an accounting trick that could lead to a taxpayer bailout.

The Heritage Foundation’s Romina Boccia explains:

A similar approach was used in the 2012 transportation conference bill, also known as MAP-21. The idea behind the proposal is to loosen the rules governing pension contributions, allowing corporations that still sponsor defined-benefit plans to contribute less money to those plans.

In particular, the MAP-21 law changed the interest rate calculation that determines how much corporations must contribute to their pension plans each year. This matters because the interest rate calculation is supposed to keep the pension plans adequately funded. When corporations underfund their pensions and end up in bankruptcy, the U.S. taxpayer could be on the hook for a pension bailout through the Pension Benefit Guaranty Corporation (PBGC), a federal agency.

The PBGC is supposed to be self-funded, but it is currently suffering from severe underfunding itself.  And when that happens, taxpayers will be left footing the bill.

Sen. Jack Reed (D-RI) 10%, the bill’s sponsor, and others claim the bill would reduce the deficit by $2.1 billion.  It’s a bogus claim based on another accounting gimmick.   The bill would increase revenue in the short term but reduce revenue in future years.

This bill is a bad bet for taxpayers, but it will also prolong unemployment for many unemployed Americans.

 

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