Alert: Senate Republicans Vote to Raise Taxes With Highway Bill

We’ve directed a lot of attention to the deficiencies of the House version of the highway bill (here and here).  We must also work to defeat the Senate version, which is even worse.  The 2-year $109 billion Senate bill (S.1813) offers no reform to mass transit and continues to mandate that states use 10% of their funding for wasteful “enhancement projects.”  As bad as the House bill is for conservatives, the Senate bill is absolutely indefensible.  Yet, amazingly, it was reported out of the Senate Environment and Public Works Committee with unanimous support from Republican members last year.  Last night, it was approved by the Finance Committee.


The Senate bill will spawn even larger deficits in the long-run.  Even for the two-year authorization period of the bill, there will be a $35 billion deficit between trust fund outlays and gas tax revenue.  Both the House and Senate versions rely on drawing down all existing funds in the trust fund to cover some of the gap ( to the extent that those funds really exist outside of an accounting gimmick).  However, there will still be a $13 billion shortfall over the next two years (and much more in the long-term).  The House bill relies on new royalties from oil exploration (that will never be approved by Democrats), but the Senate bill relies on phantom savings (from revenues that are already used to offset other expenditures) plus…you guessed it; tax increases.

After the EPW committee approved the underlying provisions of the bill, the Senate Finance Committee voted last night to approve $7 billion in sundry tax increases to fund this terrible bill.  One of those provisions includes a tax hike on inherited “stretched” IRAs and 401(k)s.

Here are the details from the horse’s mouth (Baucus Chairman’s Mark).

Require Distributions of Inherited IRAs within 5 yearsUnder current law, holders of IRAs and 401(k)-type accounts are required to begin taking taxable distributions from those accounts once they reach age 70-1/2.  However, they can stretch those distributions over many years if they leave their account to a very young beneficiary.  When the account holder dies, the taxation of the account is then spread over the life of the beneficiary.  The Chairman’s Modification would require the retirement savings accounts to be treated, for tax purposes, as distributed within five years of the death of the account holder, unless the beneficiary is the account holder’s age, a child with special needs or older than 70.  This provision is estimated to raise $4.648 billion over ten years.


Hence, if someone bequeaths a retirement savings account to his grandchild, the beneficiary will have to liquidate the fund within 5 years and pay full taxes on the distributions.  This applies irrespective of how young the grandchild would be at the time of the grandparent’s death.

This ridiculous bill also transfers some revenue on tariffs from imported cars to plug the hole in the trust fund.  The problem is that this revenue is already accounted for and is used for other purposes.  This bill merely spread the same money around and uses the savings for multiple expenditures; not unlike the effort to use “war savings” as pay-fors.

The committee report passed with 17 ayes, 6 nays, and 1 present vote.  Here is the breakdown of the vote:

Ayes: Baucus, Rockefeller, Conrad (proxy), Bingaman, Kerry (proxy), Wyden, Schumer,

Stabenow, Cantwell, Nelson, Menendez, Carper, Cardin, Snowe, Crapo (proxy), Roberts (proxy), Thune

Nays: Hatch, Grassley (proxy), Enzi, Cornyn (proxy), Coburn (proxy), Burr (proxy)

Present: Kyl (proxy)

Snowe, Crap, Roberts, and Thune were the 4 Republicans who voted for this travesty.

The full Senate will vote for cloture on the tax hiking, deficit-spending highway bill on Thursday afternoon.  We must defeat both bills, especially the Senate version.  Nevertheless, the House bill is almost as offensive.  Once we agree to the premise that we must overspend the level of gas tax revenue purveying the trust fund, we will always be exposed to future tax increases and bailouts to bridge the gap.


Call your Senators and tell them to vote no on cloture for S.1813 – the highway bill with tax increases.

Cross-posted from The Madison Project  []



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