Politics

Fixing the Highway Trust Fund

A few weeks ago, I wrote an article highlighting the legislation passed by the House of Representatives to providing funding for the Highway Trust Fund. At the behest of the President of American Action Forum, this week I will be writing a follow-up piece discussing a few possible solutions to the funding problem.

On July 15th, the House of Representatives passed the Highway and Transportation Funding Act of and on July 31st the Senate approved and passed the bill on the last day; it has since been presented for President Obama to sign. The trust fund thus has secured capital in the short-term, however the long-term must be attended to as well. Here are a few solutions regarding the latter:

  1. Reform the corporate tax code and use proceeds from corporate taxes to fund the Highway Trust Fund. The strategy for funding the Highway and Transportation Funding Act used pension smoothing, an accounting technique that reduces required pension contributions in the short term and raises them in the long term. However, with so many U.S. corporations performing “inversions,” or moving their company headquarters overseas in search of lower tax rates, the tactic of pension smoothing and bringing down their income statements in the long term could provide additional incentive to move abroad. Instead, by lowering the tax rate, closing loopholes, and switching to the territorial system for corporations, we could stop the number of companies moving abroad and entice many to make the U.S. the location of their headquarters. These corporations would then be taxed and a portion of these tax revenues could be used for the Highway Trust Fund.
  2. Raise the federal gasoline tax. The Highway Trust Fund was originally financed with a 3 cent tax per gallon, but as the number of federal highways, the cost of construction, and the cost of maintenance has increased, the tax has risen to 18.4 cents per gallon for regular gasoline and 24.4 cents per gallon for diesel gasoline. These taxes were established in 1993, the last time they were raised. Adjusted for inflation, 18.4 cents in 1993 is equal to 30.4 cents in 2014, and 24.4 cents is equal to 40.3 cents in 2014. An obvious solution for financing the trust fund is to raise the tax that funds it. However, due to non-partisanship in Congress and upcoming midterms, this is unlikely to happen before November. Hopefully the new members of Congress that will be elected this November will be more willing to work with those across the aisle to pass this legislation.
  3. Simply fund the Highway Trust Fund through an appropriations bill. The Highway Trust Fund could perhaps be funded by a yearly appropriations bill. Congress could simply write up a template for a bill that would raise the monetary difference between the revenue raised by the current 18.4 and 24.4 cent taxes and the revenue needed to keep the fund solvent for another year, then every year vote on the bill and finance the trust fund through government borrowing or deficit spending. Another alternative would be to completely abolish the federal gasoline tax. This decrease would make gasoline cheaper and could potentially boost the economy as more people decide to go on trips or vacations and inject more money into the economy through purchases on these trips or simply by using the saved gasoline money on other purchases.

Here are three possible solutions for financing the Highway Trust Fund. The first solution deals with an overall reform of the corporate tax code to bring in more tax revenue, and then allocating a portion of it to providing for the trust fund. The second solution deals with increasing the tax that was originally created to supply the trust fund, both raising the tax along with pinning it to inflation or periodically updating it to reflect increased inflation. The third solution would be to simply forget trying to find ways to keep the trust fund supplied by ongoing tax collections, and simply appropriate money through legislation.

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