Senate Considers Taxes From Inherited IRAs to Pay for Roads

U.S. highway and bridge projects would be financed by tax changes including closing loopholes, forcing early distribution of inherited IRAs and reallocating other tariffs under legislation before a Senate panel today.

The panel will also consider an amendment to let the federal vehicle tax rise with inflation. A recommendation to require distribution of inherited individual retirement accounts within five years would bring in about $4.64 billion during 10 years, according to a statement issued by the Senate Finance panel led by Max Baucus, a Montana Democrat.

The subcommittee needed to find about $30 billion spanning two years to fund the Senate version of legislation to pay for road and bridge repairs, the Congressional Budget Office said in a report yesterday. The House version, passed by the transportation panel last week, identified funding including U.S. fuel taxes intended for mass transit projects.

A provision to transfer certain tariff revenue to the Highway Trust Fund, which pays for transportation projects, would raise $2.61 billion, according to the statement. Other Senate Finance recommendations include closing tax loopholes related to alternative-energy credits and for penalties levied against some low-mileage vehicles and delinquent tax debt.

Inherited IRAs

The updated bill also would impose limits on inherited IRAs. Under current law, the holder of an IRA must start taking taxable distributions at age 70 1/2. Savings can build tax-free when the account holder dies and leaves the account to someone younger who can spread out distributions over a lifetime.

The change would raise $4.6 billion in the next decade and require people who inherit IRAs to pay taxes on that income within five years of the original holder’s death, with some exceptions.

The Highway Trust fund, which reimburses states for transportation projects, may be unable to meet its financial obligations as soon as October, according to an analysis of Congressional Budget Office data by the American Association of State Highway and Transportation Officials.

The U.S. government may have to ration payments to the states to keep the fund solvent, according to the CBO.

One of the amendments under consideration to the Senate bill calls for changing the federal tax code to allow for annual adjustments of the federal fuel taxes in line with inflation rates. Senator Mike Enzi, a Wyoming Republican, offered the amendment, which notes that the fuel tax hasn’t been changed since 1993.

Enzi is among 276 federal Republican lawmakers and three Democrats to sign a pledge by Grover Norquist, who advocates lower levies, promising not to raise taxes.

The federal government receives 18.4 cents from the sale of every gallon of gas for the Highway Trust Fund. It uses a formula to determine how much money each state gets in return.

To contact the reporter on this story: Carol Wolf in Washington at cwolf@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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