This week, the U.S. Senate will consider S. 1813, the highway spending reauthorization bill.  As part of the mechanism for paying for new federal spending on roads, the bill raises net taxes by $7 billion over the next decade.

S. 1813 is a net tax increase, and support for it would be a violation of the Taxpayer Protection Pledge.  If the Senate wants to pay for new federal spending on roads, they should do so with spending cuts, not tax hikes.

The lion's share of the tax increases are on two provisions:

• A retroactive tax increase.  The bill repeals a tax credit which was claimed by some employers in 2009 and which they were allowed to roll forward until the credit was used up.  Companies affected by this retroactive repeal will owe taxes for prior tax years.  As we wrote yesterday, this is an unfair "ex post facto" tax hike which one might expect to see in a banana republic.  As a result of this, multiple years of tax returns will have to be filed, resulting in billions of dollars in higher taxes, penalties, and compliance costs.  Cost to taxpayers: $1.6 billion over ten years
   
• IRA and 401(k) tax hike.  Under current law, if you inherit an IRA or 401(k), you are allowed to stretch the taxable distributions from that account over the course of your lifetime.  This bill requires you instead to take that distribution over five years.  This results in much more accelerated tax payments to the IRS.  Needless to say, there are thousands of Americans every year who inherit IRAs and earn less than $250,000.  Passing along an IRA is the way that middle-income Americans transfer savings from one generation to the next.  To raise taxes on IRAs and 401(k)s is to discourage their use as a tax-preferred savings vehicle, the opposite of what we need to be doing in the face of bankrupt Social Security and Medicare programs.  Cost to taxpayers: $4.6 billion over ten years