Tax Analysts Blog

Obama Abandons the Gas Tax – Just Like Everyone Else

Posted on Feb 3, 2015

President Obama’s 2016 budget includes a predictably bad solution for fixing the nation’s infrastructure crisis: a one-time tax on the foreign earnings of U.S. corporations. The idea is predictable because lots of people in Washington have proposed similar solutions to the looming bankruptcy of the Highway Trust Fund. It’s bad because it breaks with a long-established — and generally successful — fiscal tradition of using gas taxes to pay for roads.

The Highway Trust Fund has been flirting with bankruptcy for a while now. The shortfall has been long anticipated and much discussed. When the crisis first arrived last summer, it surprised exactly no one. But politicians can’t deal with slow-moving disasters -- they need a good old-fashioned crisis to get the juices flowing.

Or at least that’s the way it used to be. Nowadays, a single crisis is never enough. Instead, lawmakers prefer serial crises, with deadlines extended, disasters avoided, and fresh calamities always in the making. It’s a three-step process: posture, patch, and punt. Wash, rinse, and repeat.

That’s why lawmakers fixed last year’s crisis with a cobbled-together, short-term fix. The trust fund’s current lease on life is expected to run out in late May or early June. As always, there is plenty of talk about long-term solutions, and even some hints of bipartisan compromise around the notion of raising the gas tax. But there are plenty of reasons to be skeptical. Republicans, in particular, seem deeply conflicted, in the way that majority parties are always conflicted: Torn between talking points and actual governing, they have a hard time getting down to business.

Into this mix, Obama has inserted his plan for international tax reform, which includes a one-time tax on the deemed repatriation of foreign earnings. The provision is expected to raise $238 billion, which would then be earmarked for the Highway Trust Fund.

Obama’s plan has virtues. First, and most important, it might actually find some traction on Capitol Hill. In an era when genuine compromise is hard to find, an idea with bipartisan support is worth taking seriously. Second, the repatriation solution is no short-term drop in the bucket – it would ensure the security of infrastructure funding for a good long while (measured in years, not months).

But it’s not worth it. The Obama plan would break with the long tradition of using gas taxes to pay for roads (and some mass transit, as conservatives are quick to point out). Over the decades, this tradition has served the nation well, funding the construction and maintenance of the interstate highway system, among other things. And it has assigned the cost of building all those roads to the people and businesses that actually use them. That’s been the dominant (if not quite exclusive) model for infrastructure funding for decades, both at the federal level and in the states.

Sure, the gas tax has needed some tinkering every now and then. It’s been raised numerous times, by both Democrats and Republicans, to keep pace with inflation and changing national needs. And it may need some serious rethinking in the not-so-distant future, since technology (in the form of better auto mileage) is always threatening to make it obsolete. It’s time to consider some alternatives better suited to the Prius era – perhaps a tax on the number of miles actually driven by a taxpayer.

But replacing the gas tax with a modernized user fee would take a while. In the meantime, we should make do with the imperfect gas tax we already have, which still manages to correlate road usage with taxes paid. By simply raising the gas tax modestly (something that hasn’t been done in more than 20 years), lawmakers could honor the successful tradition of user-fee funding and buy time in their search for a better, more permanent solution.

Read Comments (1)

edmund dantesFeb 3, 2015

If we simply stop stealing from the highway trust fund to pay for mass transit
and bike trails, the funding problem disappears. There should be no tax hike
until the highway trust fund is rededicated solely to highways, as originally

I believe that there are serious constitutional issues with deemed
repatriation, unless it is prospective only--in which case there is no money
for highways.

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