The fate of a multi-billion dollar emergency package to avert a nationwide shutdown of highway and bridge projects this summer may hinge on the outcome of a political tug of war over how to pay for it.
Senate Democrats are seeking creative ways to raise additional tax revenue without boosting rates while Republicans are pressing to reduce spending – including funds for Social Security disability payments and unemployment insurance.
The Republicans’ Social Security disability and unemployment insurance proposal reflects a mounting concern about the cost of people “double dipping” in the two programs. While there is no law against it, Republican policy makers say that it’s time to reexamine the programs in light of an explosion in the number of Americans collecting both unemployment compensation and disability insurance.
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The idea has been trotted out before, as part of the ongoing debate over helping the long-term unemployed, and President Obama included a version of a plan to discourage double-dipping in his fiscal 2014 budget.
Some critics warn that implementation and enforcement of the proposed new policy by the Social Security, which handles disability and state governments responsible for distributing unemployment insurance, could be complicated and difficult.
“It’s not a simple administrative matter,” said Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities and an expert on federal government spending. “And it’s a major administrative cost coming at a time when the Social Security Administration is already straining to administer its programs with shrinking appropriations.”
House and Senate leaders have abandoned hope of passing comprehensive legislation this summer that would extend highway and transit spending for the next six years roughly along the lines of current spending levels.
Instead, there is widespread agreement that Congress must pass a short-term, six month extension of spending authority to prevent the Highway Trust fund from going bankrupt in late July or early August, as the Department of Transportation has projected.
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The highway trust fund has operated on an 18.4-cents-per-gallon federal gasoline tax that hasn’t been raised since 1993. Currently, the tax generates about $39 billion a year, but the trust fund faces annual shortfalls of roughly $20 billion as owners of more fuel-efficient vehicles pay less into the fund while construction costs rise.
Senate Environment and Public Works Committee Chair Barbara Boxer (D-CA) said this week that Congress is facing “a mayday situation” because “we are on the verge of a transportation government shutdown.”
Already, 26 states have reported that “critical transportation projects” will either be delayed or scrapped in anticipation that federal funds will be cut off, according to Boxer.
Related: 700,000 Jobs at Risk If Highway Trust Fund Falters
In all, about 700,000 highway construction-related jobs could be lost or jeopardized if the trust fund goes belly-up next month, according to the Transportation Department.
Trying to raise the estimated $8 billion to $10 billion needed to replenish the near bankrupt federal fund and keeping federal dollars flowing to the states for highway, bridge and transit projects this summer will not be easy.
That became apparent on Thursday during a special meeting of the Senate Finance Committee to review proposals for salvaging the highway trust fund. The gathering highlighted the major fiscal fault-line between Democrats and Republicans over what should be the proper mix of fresh tax revenues and spending cuts to underwrite critical government policy.
Committee Chairman Ron Wyden (D-OR) unveiled what he described as a “bipartisan” approach he ironed out the night before with several senior Republicans that would largely underwrite the cost with a host of tax maneuvers and gimmicks that would generate $7.59 billion over the coming decade.
Much of that money would be raised through a series of “tax compliance and modernization provisions” designed to squeeze extra revenue out of the tax code.
“I did everything I could to come up with the most benign [cost] offsets possible,” Wyden told the committee members. That included beefing up mortgage reporting rules, modifying the required distribution rules for pension plans, and transferring $750 million from a fund for detecting and cleaning up leaks from underground petroleum storage tanks to the highway trust fund.
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Sen. John Thune of South Dakota – a member of the Senate GOP leadership – laid down a tough marker of his own requiring that virtually all of the new highway and infrastructure spending be offset by reductions in other federal programs.
“I appreciate Chairman Wyden’s interest in acting as quickly as possible to find the funding necessary to ensure the solvency of the Highway Trust Fund in the short-term,” he said. “But moving forward, I believe the package that will be considered by this committee must include reasonable spending reforms.”
Thune and other Republicans plan to push for an amendment that would strike out Wyden’s tax revenue increases and replace them primarily with cutbacks in spending on disability and unemployment insurance. Thune’s approach would also count on royalties from projected increases in U.S. energy production – an idea favored by Rep. Kevin McCarthy (R-CA), the newly elected House Majority Leader, and other House Republicans.
Thune’s main target would be the roughly 117,000 Americans who double-dipped by cashing unemployment and Social Security disability checks during the worst of the economic crisis. That practice cost taxpayers a combined $856 million in fiscal 2010 alone, according to a Government Accountability Office report issued in September 2012. According to one projection, the additional strain on the system will make the SSDI trust fund insolvent by 2016.
Related: Disability Benefit Program Is Going Broke
Disability insurance was designed for people who are unable to work because of medical conditions, while unemployment insurance provides modest assistance for job seekers who were laid off. The average double-dipper collected $7,316 in fiscal 2010, according to the GAO. About 1,500 reaped more than $40,000 a year.
Thune’s approach is modeled after a proposal drafted earlier this year by Sen. Rob Portman (R-OH). Under it, any month in which a person receives unemployment benefits would be deemed a month in which that person has engaged in “substantial gainful activity.
That designation would prevent that person from receiving UI and Social Security disability insurance simultaneously. It would also delay eligibility for disability insurance and Medicare for some people with serious disabilities “and hasten the loss of benefits for others,” according to an analysis by the Center on Budget and Policy Priorities.
Portman’s plan would save an estimated $5.4 billion over the coming decade, according to the Congressional Budget Office, after factoring in administrative costs. A separate study of Portman’s plan by Social Security actuaries pegs the ten-year savings at a much higher level -- $10.3 billion.
By contrast, the Obama administration approach – which is far less rigid -- would save only $1.2 billion over ten years, according to CBO, and $3.55 billion according to the actuaries. Obama’s approach would eliminate double dipping by reducing disability benefits dollar-for-dollar by the amount that an individual receives in unemployment insurance.
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