Wall Street can pay for the Bridge
by Marek Tyszkiewicz
Elections are job interviews and one of the best interview questions I’ve heard so far in this election is “How would you fund the bankrupt Highway Trust Fund?”
The Highway Trust Fund is a critical source of financing for infrastructure projections across the country. The Association of Civil Engineers gave our nation’s infrastructure a grade of D+. We know it’s bad when pieces of the Brent Spence Bridge fall off and crush cars parked for Bengals games like happened in Cincinnati last month. Money to fix the bridge will likely come from this fund.
The Highway Trust Fund is currently financed primarily through federal gas taxes – 18.4 cents per gallon of gas and 24.4 cents per gallon of diesel. These amounts have remained unchanged since 1993 and have not kept up with inflation. Because of more fuel efficient vehicles, we are also using less gas.
The bottom line is that the gas tax does not generate enough revenue to keep the Trust Fund solvent. For fiscal year 2015, revenue of $38 billion is expected to be raised by the tax, $15 billion short of the $53 billion needed.
Last July, Congress passed legislation providing temporary funding to keep the Trust Fund solvent for another 10 months, coincidentally through the election. One source of the funding called “pension smoothing” is actually a gimmick politicians use to avoid addressing funding issues responsibly.
Pension smoothing is actually misnomer. It increases the volatility of pension contributions corporations make in funding their pension obligations. (Only in Washington would something that increases volatility be described as smoothing.) Pension smoothing allows corporations to shortchange required pension contributions making them appear more profitable in the near term, resulting in higher taxes.
This is like the government telling you to go ahead and skip your mortgage payments because without your mortgage interest deduction, they’ll be able to collect more in taxes. You wouldn’t do that with your personal finances and we shouldn’t allow corporations to do that either. When corporations skip pension payments, even temporarily, they are not living up to their fiduciary responsibility of looking out for the interests of the plan participants.
Of course, this pension smoothing scheme only changes the timing of corporate taxes. It doesn’t create any real revenue – it’s just smoke and mirrors. In later years, when corporations need to catch up on missed pension contributions, their profits and corresponding taxes fall, leaving the government in a deeper hole.
My opponent voted to use pension smoothing to fund the Trust Fund. On the same day, in another vote, he could have voted to recommit the bill to develop a real long term funding solution. Instead, he chose the temporary funding gimmick, effectively kicking the can down the road.
A new long-term reliable funding source is needed. Some in Congress simply suggest raising the gas tax. Instead, I propose repealing the gas tax altogether and raising the needed revenue from a small transaction fee on derivative trading.
Recall that our most recent recession was started by a collapse in the financial markets caused, in part, by speculative trading. It would only be fitting to use a speculative trading tax to help restore our economy and infrastructure. The numbers on why we should do this are pretty compelling.
By eliminating the federal gas tax, fuel prices nationwide will drop. More money will flow directly into the hands of consumers and businesses who will spend it, effectively creating a $38 billion economic stimulus.
The gas tax revenue lost can easily be replaced with a derivative trading tax. A study by the University of Massachusetts Amherst illustrates how. Excluding ALL stock and bond trading and assuming derivative trading volume decreases 25% as a result of the tax, a small transaction tax (1% – 2% per trade, depending on type of trade) produces $63 billion in annual revenue, $10 billion more than currently needed!
Every $1 billion in infrastructure spending creates approximately 15,000 to 20,000 new jobs. This extra $10 billion financed by Wall Street bankers creates approximately 175,000 new jobs and a strong infrastructure, creating strong corporate balance sheets that positively impact our financial markets.
A transaction tax on speculative trades has other added benefits. Consider the impact this type of trading has on pension savings. With the demise of traditional pension plans, most ordinary folks now save for retirement through 401K’s and IRA’s and are subject to market volatility.
If carefully targeted at certain short term trades, such as automated, high frequency trading or derivative trading purely for speculation, more investors will look to buy and hold strategies, reducing market volatility. Wild market swings create panic and increase the likelihood that ordinary investors will make bad decisions. Reducing market volatility is a good thing for the middle class.
Reducing fuel prices, rebuilding our infrastructure, creating jobs, and decreasing market volatility are ideas that appeal to both political parties. Shippers, truckers, commuters, labor, and the Chamber of Commerce all support funding of the Highway Trust Fund.
Elections are job interviews. This is my response to the question on how to fund the Highway Trust Fund. My opponent chose a different path. I encourage you to watch our responses to this and other important questions online at www.electintegrity.com/debate. Watch the debate videos, checkout the websites and jobs plan, and on November 4th, hire the candidate that’s best for Ohio and the country.
Marek Tyszkiewicz is the Democratic congressional candidate for the Ohio’s 2nd district. He is also a small business owner, former math and physics teacher, and an actuary who for the last 24 years has helped public agencies fund their pension and health obligations. You can find out more about Marek and his jobs plan at www.electintegrity.com.