In American political jargon, “bailout” is a pejorative synonym for the taxpayer-funded rescue of an insolvent bank or other institution that at least partly brought its predicament on itself.
Of course, there are bailouts — and there are bailouts. Government rescues are defensible where the alternative would be unacceptable collateral damage to society, the recipient’s distress is due to circumstances beyond its control, and financial aid is conditioned on structural reforms.
Examples: Congress’s imposition of a financial control board on the District of Columbia in 1997; the federally-backed General Motors rescue in 2008; or legislation to address Puerto Rico’s debt crisis in 2016.
Unfortunately, President Biden seems intent on redefining bailouts down. His student loan relief plan, an estimated $400 billion transfer to the minority of Americans who took out loans for their higher education, from everyone else, contains no requirement that government or universities address the root causes of high tuition.
This is on top of $5 billion per month in student debt payment pauses that began — reasonably — when the pandemic hit, but which the Biden administration has extended to June 30, 2023, long after the economy’s recovery. These pauses disproportionately help borrowers employed in higher paid professions, according to a report by the Committee for a Responsible Federal Budget.
And now comes a $36 billion dollar bailout of the Teamsters’ pension plan, which the president, surrounded by union leaders, announced at the White House Dec. 8. The cash infusion, which is funded by the Treasury Department but administered by the Pension Benefit Guaranty Corp. (PBGC) , ensures that 350,000 retirees get all the benefits their union bargained for through 2051.
This is undoubted good news for them. Except for the enormous cost, though, there’s not much in it for the rest of the 165 million people who participate in the labor force, 88 percent of whom do not even have a defined-benefit pension.
Whereas Biden stretched to find a legal basis for the student loan bailout in a 2003 statute, this one is specifically authorized by Congress. A provision of the $1.9 trillion pandemic relief legislation, enacted in March 2021, offered to shore up underfunded multiemployer pensions — the Teamsters’ Central States Pension Fund being the largest — and conditioned the aid on essentially no structural reforms.
It need not have come to this. Multiemployer plans cover about 10 million unionized workers employed across various industries — trucking, coal, commercial baking — as opposed to those on a single company’s payroll. Once upon a time, such plans seemed like a sound idea and their insolvency, against which the PBGC insured, a remote risk.
But this was before years of deregulation, recessions and other upheaval weakened the industries involved — and before years of what critics call the pensions’ systematic overstatement of their funding levels.
As of the 2010s, 100-plus multiemployer plans covering about 1.3 million workers were facing short-term collapse, threatening to bankrupt the PBGC, which also insures much more stable single-employer plans.
Reasoning that the situation called for shared sacrifice among companies, unions and taxpayers, Congress in 2014 adopted a bipartisan reform providing for employers to pay more for PBGC insurance, limited “haircuts" to retiree benefits and PBGC financial support for pension plan mergers.
But the 2014 law failed to solve the biggest problem — that Teamsters fund — in part because, on the eve of the 2016 election, the Obama administration rejected politically sensitive benefit trims.
Stalemate ensued in Congress. In 2018, a bipartisan select committee on the issue failed to come up with a bill that could pass. The next year, Republicans offered a modified version of the 2014 law’s shared-sacrifice approach; Democrats countered with a proposal that would have the government pick up the tab, basically with no strings attached.
The latter prevailed in 2021 because Democrats won “trifecta” control over the presidency, Senate and House after 2020, and the pandemic bill provided a legislative vehicle that could avoid a GOP filibuster. At the time, the Congressional Budget Office estimated the cost at $85.9 billion; the most recent CBO estimate, issued Sept. 30, raised that to $90.4 billion.
To repeat: There was a case for protecting most of the Teamsters’ pensions, with modest taxpayer support. But there was no case for using public money to protect every single dollar of them, when the vast majority of taxpayers enjoy no such perks.
This obviously happened because of the influence a special interest — organized labor — currently enjoys in Washington. Come to think of it, the 2021 law didn’t make employers chip in to solve the problem they helped create, so it’s a quiet corporate subsidy, too.
Politically motivated, economically regressive, expensive and unconditional — this is bad policy, even for a bailout.