By Mike Kastner, NTEA Managing Director
This article was published in the June 2018 edition of NTEA News.
The 12 percent federal retail sales tax on heavy-duty trucks, trailers, tractors, bodies and chassis is collected to help pay for maintaining existing roads and bridges as well as build new ones. These funds go into the Highway Trust Fund (HTF), along with fuel taxes and other taxes and fees. Since it is based strictly on retail sales, Federal Excise Tax (FET) has proven an unreliable revenue stream for long-term planning purposes. Those who deal with FET know it’s a notoriously complex tax to apply.
NTEA has long championed for FET repeal while recognizing lost revenue must be replaced. Today, Congress and the White House are looking at how to pay for the aging and often inadequate infrastructure. While it may seem illogical, now is the best time to consider FET repeal as alternative funding mechanisms can be concurrently debated.
Rep. Doug LaMalfa introduced legislation to repeal FET. H.R. 2946 has 15 bipartisan co-sponsors.
In order for such legislation to pass, it will need to be considered in the context of overall transportation infrastructure needs and how to pay for them. The White House previously released a 55-page proposal calling for a $1.5 trillion spending package relying heavily on state and local spending coupled with public-private partnerships. The federal government contribution would be $200 million.
Regardless of the federal government’s contribution, any new infrastructure program will require more sustainable revenue streams than currently exist. HTF outlays have exceeded revenues since 2008, only remaining solvent via congressional transfers from the general fund. Without additional revenue, this fund will become insolvent by fiscal year 2021, according to the Congressional Budget Office.
As stated in a Congressional Research Service report, HTF was established in 1956 as a temporary mechanism that would terminate when the national highway system was finished.
Today, HTF receives approximately 55 percent of its revenues from the gasoline tax, 30 percent from the diesel tax, 11 percent from the annual heavy vehicle use fee, 3 percent from FET and 1 percent from the tire tax.
The first motor fuel tax (1 cent per gallon) was levied in 1932 to reduce debt caused by the Great Depression. It was raised to 1.5 cents to help pay for World War II, and increased to 2 cents for the Korean War. Since 1956, motor fuel taxes have climbed only four times — in 1959, 1983, 1990 and 1993.
The current fuel tax (last raised in 1993) is 18.4 cents on gasoline and 24.4 cents on diesel. Between inflation, higher fuel mileage and electric vehicles, the tax lost 40 percent of its purchasing power since its last increase.
Given the fuel tax is dedicated to highway and bridge construction and maintenance, it may be better termed a user fee. In the future, motor vehicle owners will likely pay something closer to a mileage fee — probably linked to vehicle weight — often referred to as a VMT (vehicle miles traveled) tax.
Currently, the fuel tax (or user fee) is the easiest, most cost-effective means to collect highway revenue. Given that HTF is facing insolvency, additional funds are required.
President Trump has endorsed raising the gas tax by 25 cents shortly after releasing the infrastructure plan. It’s estimated a 25-cent hike phased in over five years and indexed for inflation could generate close to an additional $400 billion over the next 10 years. Another proposal would add 20 cents per gallon to the wholesale fuel tax over four years to generate $340 billion in 10 years.
FET collects approximately $4 billion per year, which can vary greatly based on annual truck sales.
There are several options to make HTF solvent (and possibly repeal FET). As mentioned, the simplest would be to increase the current fuel tax and index it for inflation, whether at the retail or wholesale level. We could also switch from a per-gallon tax to a sales tax, which would arguably account for inflation. While simple, it may not be entirely fair. Alternatively fueled vehicles (electric) would receive the benefits of better roads without contributing to their cost. Legislators would need to decide if the possible overall societal benefits of electric propulsion outweigh the need for additional highway funding from electric vehicles.
Another possibility is VMT. Such a tax would presumably apply to all vehicles and could be based on both miles traveled and weight — perhaps making it the most user fee-based method of revenue generation. While the technology exists to make this a reality, it is unlikely the public is ready for such a drastic change in revenue collection.
One other idea (particularly as related to the diesel tax) is a shipper’s fee. This would be a tax on freight movement by trucks. A Congressional Budget Office report analyzed a possible 30 cents per mile fee on freight transport by heavy-duty trucks (Classes 7 and 8). An additional rail freight fee of 12 cents per mile, per railcar would be included. The tax would not apply to miles traveled without cargo. It’s estimated this option would increase federal revenues by $343 billion over a 10-year period.
Another option being discussed is to make permanent a contribution from the general Treasury fund to HTF.
NTEA is encouraging the House Transportation and Infrastructure Committee to hold hearings considering these options and FET repeal before the August recess. Recognizing the difficulty of voting to raise any tax, regardless of the value, it may be easier for legislators to hold such votes after the mid-term elections during the lame duck session.
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