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Gas Taxes Could Explode Under New Highway Plan

A new transportation proposal would allow gas taxes to rise as high as necessary to cover funding shortfalls, unless Congress agrees to an alternative solution by the end of 2016.

The Bridge to Sustainable Infrastructure Act “would index gas and diesel user fees to inflation, which officials expect would raise $27.5 billion,” and would also create a bicameral Transportation Commission to determine “a path forward for sustainable funding,” Equipment World reports.

The commission would submit recommendations to Congress for a funding mechanism that keeps the Highway Trust Fund (HTF) solvent for at least three years. Congress would not be required to implement the commission’s specific suggestions, but failure to meet the solvency goal in some way by Dec. 31, 2016, would trigger gas taxes to increase “to a level that would sustain the Trust Fund for a three-year period.”

The HTF is the primary vehicle for federal transportation spending, and is funded by a tax on gasoline and diesel fuels. Revenue from gas taxes only provide about 60 percent of the $50 billion disbursed annually by the HTF, however, and the fund is set to run out of money on May 31 unless Congress acts to fill the gap. (RELATED: Highway Trust Fund Almost Broke, Senators Propose Gas Tax)

Previously, lawmakers have passed temporary fixes replenishing the fund with general tax revenues, but many have complained that this approach creates uncertainty for states that rely on federal monies for infrastructure projects, and also exacerbates the federal budget deficit.

Republican Rep. Jim Renacci, one of the bill’s lead sponsors, criticized last year’s fix via press release, saying it only sustained “the fund until the end of May, when Congress will again have to act to ensure it remains solvent.”

The Bridge to Sustainable Infrastructure Act, the sponsors claim, would ensure HTF solvency for at least 10 years. In the near-term, they say that indexing gas taxes to inflation would secure funding for 1.7 years, after which the three-year solvency mandate starts. If Congress still fails to implement a long-term solution at the end of that period, gas and diesel user fees would increase again to meet the next five-year Highway Trust Fund shortfall.

Other transportation funding proposals currently before Congress avoid gas tax increases altogether by supplementing those revenues with a money from a “repatriation holiday,” whereby American companies would be able to repatriate foreign earnings at a reduced tax rate. Supporters of the idea say a repatriation holiday would bring in hundreds of billions of dollars over the next six years—more than enough to make up the HTF shortfall.

One such plan, the Grow America Act, was proposed by President Obama, and calls for increasing transportation funding from $50 billion to $80 billion per year. Another proposal, the Infrastructure 2.0 Act, would maintain current funding levels, but would also create a $50 billion “American Infrastructure Fund” to provide funding to states that is not subject to federal control. (RELATED: Rep. Delaney Seeks Bipartisan Support for Highway Funding Bill)

Transportation experts, however, anticipate that none of the proposals will pass before the May deadline. According to an editorial in Transportation Topics, “It looks like we’re headed for another temporary funding patch.”

Although the editors say they like the Obama plan’s six-year approach with increased funding, for instance, they also argue that, “using a tax holiday as a funding source is at odds with reality,” because the Republican-controlled Congress would likely not accept such a deal. (RELATED: Obama Proposal Would Almost Double Federal Highway Spending)

More generally, the editorial notes that any long-term plan to fund the HTF would involve significant compromise from both parties, and would almost certainly have to include unpopular tax increases of some sort. “We would be dumbfounded if Congress and the president agreed on such a complicated plan in just a month and a half,” the editors conclude.

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