The great train robbery

Posted: Jul 30, 2001 12:00 AM
WASHINGTON -- While official Washington's attention was elsewhere, the House Republican leadership last week quietly cleared for floor action a remarkable piece of legislation. It busts the budget, violates President Bush's stated principles and poses trouble for the future. Yet, this outrageous concoction has been introduced by 432 out of the 535 members of Congress. HR 1140, the Railroad Retirement and Survivors Improvement Act of 2001, addresses a $40 billion unfunded liability in the pension fund for the nation's railway workers by cutting payroll taxes and increasing benefits. That removes $15.6 billion, not authorized in the budget resolution, from the 2002 surplus. It supplies $15.3 billion for the rail pension trust fund to invest in the private sector -- violating Bush's strictures. A bill like this is not considered with great fanfare. House Republican leaders plan to bring it up early in the week by suspending the rules under a procedure that requires a two-thirds vote for passage (which is usually reserved for relatively non-controversial legislation). Debate is minimal, and amendments are not permitted. Only C-SPAN's afternoon viewers may notice. A similar bill slithered through the House last year unnoticed but was killed by the Senate's then-Republican leadership. No such block exists today. George W. Bush, who would like this bill stopped, is learning how Washington really works -- especially the limits of presidential power. On May 8, Budget Director Mitch Daniels and National Economic Adviser Lawrence Lindsey wrote a conciliatory letter offering to help draft a more reasonable bill (to no effect). Presidential adviser Karl Rove, lunching with Republican congressmen last Thursday, made the same point (with no more success). The railroad industry is one of the nation's weakest, but it stands tall on Capitol Hill. Rail management and labor, their arms linked, can play the congressional game. The bill's principal sponsor is a prototypical congressional old bull: Rep. Don Young of Alaska. And he has a green light from House Speaker J. Dennis Hastert. Why would the speaker, a loyal Republican who wants the new president to succeed, buy into a bill that means nothing but trouble for the administration? "It's a matter of building alliances," a Hastert ally explained to me. Afflicted by a closely divided House where troublesome liberal Republicans comprise the balance of power, Hastert must bestow favors to generate power. A leader who is struggling for votes on campaign finance and HMO reforms is willing to shed a few scruples in supporting a very bad bill. Considering the rail pension fund's $40 billion unfunded liability, a Senate staff memo says: "No pension fund in the private sector would address such a deficit by cutting contributions and increasing benefits." Federal spending would rise $3.9 billion under the bill while pension contributions would fall by $4 billion. The total budgetary cost for next year of $15.6 billion results from the measure's real eye-popper: a $15.3 billion for private sector investments. This is a blatant violation of Bush's flat prohibition of government investment, as contrasted with individual investment, in private capital markets (a scheme that President Bill Clinton once proposed). A new government board would invest federal funds in stocks and bonds (with Republicans now co-sponsoring the Clinton scheme that they once deplored). Borrowing money from the public and then getting a higher rate of return through private investment amounts to arbitrage. It poses a brave new world for managers of government trust funds. Although HR 1140 cuts taxes imposed on railroads in the short-run, the long-run looks bleak. Actuaries of the Railroad Retirement Board calculate that beginning in 2026, higher taxes will be needed to pay for the richer benefits. The levy on employers will rise 2 percentage points in 2026 and 4 points in 2038. But not to worry. Assuming the railway lobby's clout will persist through the 21st century, those tax hikes will be allayed. On Friday afternoon, President Bush considered but decided against a veto warning to prevent the Great Train Robbery of 2001. He is beleaguered by legislative uprisings on all fronts, and apparently feels this is no time to challenge Speaker Hastert, Chairman Young and 432 friends of the railway lobby. That's the way Washington works.