Proposed Gas Tax Hike to Prop Up Highway Trust Fund

Two Senators Eye Gas Tax Hike to Pay for Highways and Bridges

November 8, 2010

The Hill - A bipartisan pair of senators has urged President Obama’s debt commission to consider raising the gas tax to pay for infrastructure projects.

Sens. Tom Carper (D-Del.) and George Voinovich (R-Ohio) have written to the chairmen of the National Commission on Fiscal Responsibility and Reform advocating for a 25-cent per gallon tax increase.

“We suggest that the commission include an increase in the federal tax on gasoline and diesel as part of your report to the president,” they wrote. “We suggest that the taxes be increased by one cent per month for 25 months — a total of 25 cents over a three-year period.”

The lawmakers suggest that 10 cents of the tax increase should go to deficit reduction and 15 cents should go to funding transportation infrastructure improvements. It is one of many tax increases Congress is likely to consider in the months ahead as it wrestles with finding ways to reduce the nation’s $1.5 trillion budget deficit.

The proposal, however, seems likely to face staunch opposition from Republicans, many of whom ran on a firm anti-tax increase pledge. It is notable that Voinvoich, the GOP voice on the letter, is retiring at the end of this Congress. He and Carper argue that the nation’s infrastructure system is beginning to crumble.

“The Interstate Highway System is more than 50 years old and many roadways and bridges are reaching the end of their useful life,” they wrote. “In fact, nearly 50 percent of all bridges were built before 1966.”

The increase would more than double the current 18.4-cent federal tax on a gallon of gas, according to a Senate aide.

Both lawmakers sit on the Environment and Public Works Committee.

The age of the nation’s highways and bridges became a national issue in 2007 when the Interstate 35W bridge in Minneapolis collapsed, killing 13 people.

The letter was addressed to Erskine Bowles and former Sen. Alan Simpson (R-Wyo.), co-chairmen of the fiscal commission, which is due to submit its recommendations to Obama by Dec. 1.

The Treasury Department and the Congressional Budget Office are projecting that the national highway trust fund will run out of money in a few years, according to a Senate aide.

The tax increase, when fully implemented, would cost drivers on average $156 a year, or $13 extra per month.

Voinovich estimates the revenues that would go to transportation improvements would create 775,000 new jobs. Voinovich has also questioned whether to extend the 2001 and 2003 tax cuts passed under President George W. Bush.

“My gut is probably no,” Voinovich told The Hill in September. “I think I would probably not vote, period, for it.”

Chris Prandoni, the federal affairs manager at Americans for Tax Reform, a group that advocates for lower taxes, panned the proposal to increase gas taxes.

“I think the proposal by Sen. Voinovich is very discouraging considering the recent election, which you could argue is a repudiation of these tax and spend policies,” Prandoni said .

“We spend all this money to create jobs and we saw it didn’t work in 2009 with the stimulus,” he said.

But Carper and Voinovich argue that taxpayers will have to pay for the transportation improvements either way, because Congress is expected to transfer billions of dollars from the general treasury to the trust fund to fix roads and bridges. They note that the CBO estimates the highway trust fund will require $34 billion over the next six years.

“This situation will force Congress to decide between two unacceptable solutions: additional transfers from the General Fund, which will lead to a higher deficit, or a sharp reduction in federal transportation funding for every state, which will create additional unemployment and continued deterioration of infrastructure,” the senators wrote.

Prandoni of Americans for Tax Reform, however, disagrees with that rationale.

“Taxing our way out of problems isn’t going to solve anything,” he said.

Congress last increased the gas tax in 1993, under former President Clinton, raising it by 4.3 cents per gallon, according to a Senate aide. Congress also increased the gas tax in 1990, under former President George H. W. Bush, raising it 5 cents per gallon.

Both times lawmakers voted to increase the gas tax a portion of the revenues went to deficit reduction.

Flashback: Proposed Gas Tax Hike to Prop Up Highway Trust Fund

January 14, 2009

ThomasNet News - With Americans driving less, the federal government has been unable to generate enough revenue from gasoline taxes to keep pace with the cost of highway construction and repair. A Congress-appointed commission is proposing a tax hike to make up for lost revenue.

As manufacturers buckle down to stem their transportation expenditures, a proposal by the National Surface Transportation Infrastructure Financing Commission due later this month may put a snag in their plans. The 15-member panel is reported to be calling for a 50 percent increase in gasoline and diesel fuel taxes to finance highway construction and repair, according to the Associated Press.

Members of the infrastructure financing commission say they will urge Congress to raise the gasoline tax by 10 cents a gallon and the diesel fuel tax by 12 to 15 cents a gallon. The increase would bring the tax for gasoline to 28.4 cents a gallon and as much as 39.4 cents a gallon for diesel fuel. Additionally, the commission allegedly will recommend tying the tax rate to inflation, Outsourced Logistics says.

Extra money must be generated because the current gas tax doesn't pay enough for the upkeep of the U.S. transportation system, Adrian Moore, vice president at the Reason Foundation and a member of the commission, explains to the AP.

As the commission laid out in a February 2008 interim report, the current funding system suffers from three main flaws:

1. Insufficient revenue to maintain and improve the transportation network;
2. Misalignment between current funding mechanisms and transportation system use, resulting in costs growing faster than revenue; and
3. Investment of revenue not cost effective.

The Highway Trust Fund, which is the primary source for transportation infrastructure and is majority-funded by federal gasoline taxes, has been unable to generate enough revenue because Americans have been driving less and reducing fuel use.

Plus, "as vehicles become more fuel-efficient, Americans will be able to drive more miles as they pay less in fuel taxes, making a highway maintenance system that depends on gasoline taxes unsustainable," Moore said to Reuters.

According to the commission's draft report, the tax increase is a short-term measure to raise nearly $20 billion more each year than currently collected, Reuters notes. A study by the Transportation Research Board of the National Academies (via the AP) estimated that the annual gap between revenues and the money needed for highway and transit system improvements will increase to $134 billion in 2017 under current trends.

Moore does not support the tax hike, but adds that it's the only solution that can be immediately implemented. He and the rest of the financing commission believe that the long-term solution is a mileage-based revenue system where the vehicle is billed on the number of miles driven, on what type of roads and the time of day. The creation and installation of such a system would take about 10 years, the AP reports.

The tax-hike proposal will be the second increase recommendation made to Congress in a year. Though the first was opposed, an emergency bill in late 2008 moved through Congress and the Bush Administration to pass and sign the needed legislation to prop up the Highway Trust Fund, Outsourced Logistics adds.

If the upcoming tax-increase proposal passes, it will pose more monetary challenges for manufacturers who were already looking to reduce fuel costs. A September 2008 survey of 450 manufacturers in the U.S. and Canada by manufacturing online marketplace MFG.com showed that 28 percent have begun buying materials from suppliers closer to their plants to stem fuel costs. Another 25 percent were reviewing their transportation and logistics contracts to find ways to trim fuel use. Only 14 percent said they would absorb the higher fuel costs and accept lower profits.

Whether the proposed tax hikes will change some manufacturers' minds about absorbing higher fuel costs is yet to be seen.

Another question that remains unanswered is whether tax hikes or usage fees will be more effective in keeping the Highway Trust Fund solvent while keeping costs reasonable for American drivers and businesses. What's your take? Would you rather a tax hike or pay a usage fee?

Panel Wants Fuel Taxes Hiked to Fund Highways
by Joan Lowy
The Associated Press, Jan. 1, 2009

The Path Forward: Funding and Financing Our Surface Transportation System
National Surface Transportation Infrastructure Financing Commission, February 2008

U.S. Gas Tax Needs Hike, Overhaul: Commission
Reuters, Jan. 3, 2009

Gas Tax Hike or Use Fee?
Outsourced Logistics, Jan. 6, 2009

Manufacturers Seek to Reduce Fuel Costs
Managing Automation, Nov. 7, 2008