Taxes and Deficits in the Highway Trust Fund

Today (May 6, 2014), the Senate Finance Committee is holding a hearing - New Routes for Funding and Financing Highways and Transit. The Highway Trust Fund (HTF) has had funding issues for several years and is projected to have another deficit for this fiscal year (ending 9/30/14).

Every time you buy a gallon of gasoline, you pay 18.4 cents of gasoline excise tax to the federal government (you also pay something to your state government). The 18.4 cent federal tax has been the same amount since 1997!  Of this amount, 15.44 cents goes to the HTF, 2.86 cents goes to the Mass Transit Fund and 0.1 cents goes to the Leaking Underground Storage Tank (LUST) Trust Fund. (For the history of the tax, see the Dept. of Transportation website.)  The HTF is used for maintenance and constructions of roads.

At March 2013, the Congressional Budget Office noted the expected growing deficits in the HTF:



http://www.cbo.gov/budget-options/2013/44853

Per the CBO, a 1 cent increase in the gasoline excise tax generates about $1.5 billion. Thus, a $20 billion shortfall could be addressed with a 14 cent increase.  That doesn't sound too bad. But that only helps through 2016. There are longer term problems.

Funding issues seem to be:

• The excise tax has remained at 18 cents per gallon since 1993. If it had been adjusted for inflation, it would be 30 cents today. Thus, part of the problem is that the tax is not adjusted for the effects of inflation.
• We continue to drive cars that are more fuel efficient. Thus, we may be driving the same amount (or even more), but purchasing fewer gallons of gas. And all electric vehicles buy no gas at all.

A few years ago, Oregon experimented with alternatives to a per gallon tax as they expected people to be buying less gas, but not reducing driving. One alternative is a tax per mile driven (VMT). Many view this as unpopular as it is more complicated to compute (you need to track your miles) and the use of technology that can make it easy to compute and pay raises privacy concerns for some. But those issues are all addressable.  Also, today, many people have fast pass devices in their cars to make it easy to pay road and bridge tolls so perhaps the privacy concern is not high.

The FY2015 House Budget Report notes problems with the HTF, but has no specific solutions. It makes no mention of raising the gasoline excise tax (see pages 43-45).

Congressman Camp's Tax Reform Act of 2014 discussion draft proposes to use funds generated from an international tax changes to support the HTF and mass transit fund (see pages 143-144).

I do not agree with using an income tax change to fund the HTF or not raising the tax. Of course, transfers from the General Fund to the HTF in recent years have had a similar effect to use of income taxes (and helped raise the deficit). The gasoline excise tax is to help fund highways and mass transit and can continue to do so. An increase to 35 cents per mile, even transitioned in over the next two years would be a good start. Long-term, a better remedy, such as the VMT, is needed.  Certainly, if we have more electric cars on the road, which don't generate anything for the HTF, but still use the roads, a funding mechanism tied only to gasoline purchases is outdated.

What do you think?