With Congress and the Obama administration deadlocked over how to address the nation’s infrastructure crisis and a projected $168 billion shortfall in the Highway Trust Fund over the coming decade, anxious state government’s are beginning to take matters into their own hands.
A dozen states are considering taking advantage of historically low fuel costs by raising their gas taxes to repair decrepit highways, roads and bridges made worse by a harsh, lengthy winter, according to National Public Radio.
The Republican controlled Georgia state legislature, for instance, is debating a proposal to significantly boost the state gas tax to help finance $1 billion worth of long neglected transportation needs.
New Jersey’s transportation commissioner, Jamie Fox, told state planners recently that now is the time to raise gas prices, in part to deal with about 600 structurally deficient bridges and pothole marked streets.
State gasoline taxes and fees average roughly 30 cents per gallon nationwide, on top of the 18.4 cents per gallon federal gas tax, according to American Petroleum Institute figures.
The federal Highway Trust Fund – the main revenue source for construction and repair of highways, bridges and mass transit projects – has been in crisis mode for years because of the inadequacy of its funding source. Most trust fund revenues come from the 18.4-cents per gallon gas tax that hasn’t been raised since 1993, during the Clinton administration.
Congressional leaders were optimistic at one time of passing a six-year $100 billion transportation-funding bill. Last summer, lawmakers had to settle for a short-term measure that averted a calamity in the states’ infrastructure construction program.
Many state officials, business and labor groups and highway and bridge safety advocates argue that the simplest and most effective way of resolving the problem before temporary spending runs out this spring is to raise the federal gas tax.
Former Transportation Secretary Ray LaHood told The Fiscal Times recently he agreed with groups like the U.S. Chamber of Commerce and the AFL-CIO that Congress should increase the federal gas tax by 10 cents a gallon and index it for inflation to underwrite highway and infrastructure spending.
“Without a big pot of money, we are never going to get back to being number one in infrastructure,” said LaHood, co-founder of the bipartisan Building America’s Future fund.
However, the Obama administration and congressional leaders including House Speaker John Boehner (R-OH) and Senate Majority Leader Mitch McConnell (R-KY) have been decidedly cool to the idea of raising the gas tax and are exploring other options.
Obama proposed a one-time 14 percent tax on nearly $2 trillion of overseas U.S. corporate earnings to raise an estimated $238 billion in the coming years to supplement current gas tax revenues. Meanwhile, House Ways and Means Committee Chair Paul Ryan (R-WI) said recently that Congress might be able to find additional revenues for infrastructure as part of comprehensive tax reform.
These and other proposals attempting to link increased highway spending to an overhaul of the tax code face major obstacles from business groups and other special interests. Moreover, passage of any one of them would require an extraordinary degree of bipartisanship that is sadly lacking on Capitol Hill.
A new study by the conservative leaning Tax Foundation dismisses those tax reform approaches as wrongheaded and makes a strong case for doing what LaHood and other highway activists recommend: simply raising the federal gas tax from 18.4 cents per gallon to 28 cents a gallon and annually adjusting it for inflation.
Arguably, one of the biggest problems that has plagued the highway trust fund for years has been the steady erosion of the value of the gas tax, the Tax Foundation study notes. Unlike other taxes, which are levied as a percentage of the value of goods, such as a sales tax, the gas tax is applied at a fixed value.
As a result, when adjusted for inflation, the federal gas tax has lost about 36 percent of its value since the last time the tax was raised.
The Tax Foundation proposal for raising the gas tax differs from others, however, because of the added wrinkle of making the increase “revenue neutral” by reducing other taxes – such as capital gains or the top marginal income tax rate – by an equivalent amount.
Revenue neutral tax increases, popular among many Republicans, might ease the challenge of selling this highly visible plan to voters.
The gas tax, more than most other federal taxes, provides a direct benefit to U.S. motorists in the form of improved highways and bridges.
“Although not perfect, the gas tax is better aligned with related government spending than, for example, the individual income tax, which is not associated with any specific benefit,” the study said. “Lowering taxes that do not conform to the benefit principle of taxation and raising the gas tax is an opportunity to connect government revenue to related expenditures.”
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