Tax Analysts Blog

High Hopes for Highway Funding: A Bridge to Nowhere

Posted on Mar 2, 2015

We are driving more efficient vehicles and burning less fuel. Like longer life expectancy, this should be a good thing. But it is awful for government finances. That we live longer means more spending on healthcare. Burning less gas means lower fuel tax collections. As a result, the Highway Trust Fund is chronically short of cash—about $17 billion per year over the next decade.

Congress must act soon. The highway and transit accounts will reach their minimum prudent balances in May or June. Without replenishment, these accounts would reach absolute zero at about the end of fiscal 2015 (at the end of September).

There are some decent ideas out there for solving the problem. You may not agree with them all, but they are real solutions.

• We can increase the gas tax. The highway lobby and big business likes this, but the more conservative wing of the Republican Party, especially members of Congress from rural districts, refuses to consider the idea.

• We can cut spending from the Highway Trust Fund not dedicated to highways. But transportation lobbyists, who have vowed to stick together, reject the idea. And Republicans from suburban districts, with voters who commute by mass transit, won’t go along.

• We can tax unrepatriated foreign profits of U.S. multinationals. This treasure trove is now over an astounding $2 trillion and growing. The road lobby favors this approach and so does the Obama administration. And there is a variation on it from Rep. John Delaney that would use a portion of tax-favored repatriated profits to capitalize an infrastructure bank. But businesses and the powerful chairs of the taxwriting committees—Rep. Paul Ryan and Sen. Orrin Hatch--are dead set against a repatriation tax to fund highways. They want to use revenue from such a tax to help pay for a lower corporate tax rate, the centerpiece of their plans for tax reform.

• We can put more juice into municipal bonds for road building. The Obama administration and Sen. Ron Wyden the leading Democrat on the Finance Committee, advocate providing direct government payments to holders of state and local government bonds. But after a lot of initial enthusiasm, the municipal bond markets are lukewarm because government payments on similar bonds issued during the recession had been cut because of a government sequester. Anyway, Republicans hate what they view as more stimulus-related spending.

Now, it would be nice to have a grown-up debate about these ideas. They all have merit, both political and economic. They all have their weaknesses. But if history is any indicator, Congress will not adopt any of these long-term solutions.

In 2008 when the Highway Trust Fund (as now) was running low, Congress transferred $8 billion to it from the general fund. In 2009 Congress transferred $7 billion. In 2010 it transferred $19.5 billion. In 2012 Congress transferred $18 billion from the general fund and $2.4 billion from the Leaking Underground Trust Fund. And most recently, on August 8, 2014, the Highway and Transportation Funding Act of 2014 became law and transferred $10.8 billion from the general fund to the Highway Trust Fund.

Though there is great hope and much talk about finding a long-term solution to perennial Highway Trust Fund shortfalls, the more likely outcome is that Congress will enact another short-term patch late this spring with transfers from the general fund offset by some gimmicky and obscure revenue raiser. This would be consistent with the golden rule of forecasting federal legislative outcome: Congress will do the minimum at the last minute.

If by chance our lawmakers do agree on a long-term solution—and at this time the best bet among these alternatives is a provision that would channel tax revenue from unrepatriated foreign earnings to the Highway Trust Fund—it would be a momentous event. Not only would much-needed certainty be restored to infrastructure funding that is critical to the economy, but it would also provide an unexpected boost to business and consumer confidence because it would be tangible evidence that partisan gridlock can be overcome and Congress can get things done.

Read Comments (3)

robert goulderMar 2, 2015

A tale of self-inflicted rot. At times like this I long for a parliamentary
system of governance.

Whether we're talking infrastructure or funding DHS, the level of congressional
gridlock on display is mind numbing. And that applies regardless of which party
occupies the White House or controls Congress. Put 10 lawmakers in a room and
they probably wouldn't be able to agree on what day it is. Discord is fine, it
may even serve a valuable purpose, but not at the expense of progress. Other
countries must find it laughable that a nation as wealthy and powerful as the
U.S. can't manage to get very basic things accomplished.

True, parliamentary systems have their drawbacks as well. But the more years I
spend in Washington, the more I believe the pros generally outweigh the cons.

travis rechMar 3, 2015

Increasing the gas tax is the only real solution, but as you say politics is
standing the way of good government.

We apparently are not considering the nuclear option of eliminating the gas tax
and the trust fund and paying everything out of the general fund.

edmund dantesMar 4, 2015

I would cheerfully accept an increase in the gas tax if it came with an end to
the subsidization of mass transit, nearly all of which has been going to just
six cities. Each transportation option should stand on its own. If railroads
are not economically viable but we still want them, the subsidy should come
from the general fund, per Mr. Rech's suggestion, not only from the pockets of
those who use the roads.

The reason Congress can't act is a failure of leadership, not structure. The
hyperpartisanship of the press doesn't help, either.

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