Going Beyond the Gas Tax: How to Pay for the Highway Trust Fund?

When it comes to paying for roads and bridges, mass transit and rail improvements and transportation safety, the federal government is going broke. It has been for years.

As cars become more fuel-efficient and people drive less, there’s even more to worry about: The gas tax that pays for those infrastructure improvements won’t generate the kind of money it used to.

Lawmakers have until May 31 to pass a bill that will pay for the Highway Trust Fund, the gas-tax supported account used to pay for state and federal infrastructure projects.

Until 2008, the Highway Trust Fund was paid for exclusively by user fees. That year, Congress authorized an infusion of money to sustain the struggling fund—then did so again in 2009, 2010, 2013 and 2014.

Unless they can agree on a long-term funding plan before the spring deadline, Congress will have to pass another short-term fix. If lawmakers take the short-term route, it will be their 22nd such bill in the past 17 years.

In the meantime, one out of every nine bridges in the country are structurally deficient, nearly one-third of roads are in poor or mediocre condition and more than 43 percent of urban and suburban highways are congested, according to the American Society of Civil Engineers, a nonpartisan lobbying organization which assesses and advocates for U.S. infrastructure.

In its 2013 report card evaluating the state of U.S. infrastructure, the ASCE gave America a D overall.

The politics of increasing the gas tax, which has not been raised since 1993, makes any changes on that front an unpopular choice.

“It’s a bit of a problem trying to pay for 2015 infrastructure with 1993 dollars,” said Rep. Earl Blumenauer, D-Ore.

Blumenauer introduced legislation to nearly double the gas tax, saying that while he doesn’t like the gas tax as a way to fund infrastructure, it has been proven to work, and an increase is long overdue.

The Oregon Democrat’s proposal would bring in enough revenue to allow Congress to pass a comprehensive six-year bill for the first time in 17 years. The bill has 24 co-sponsors, none of them Republican, which doesn’t faze Blumenauer.

“There are Republicans who support raising the gas tax, they’re talking about it,” Blumenauer said. “People are afraid to do things that are controversial because they’re afraid it will be used against them. We’re demonstrating that there’s broad Democratic support so they know they won’t get bushwhacked.”

While Blumenauer’s bill might not have clear bipartisan support, AAA, the American Trucking Association and the U.S. Chamber of Commerce wrote an open letter supporting a gas-tax hike.

Michael Green, a spokesperson for AAA, said the group will back any legislation that can support transportation in a “long-term and sustainable manner.” The group endorses Blumenauer’s plan because it believes the bill meets those criteria, Green said.

Another bill, Gas Tax Replacement Act, introduced by Rep. Jared Huffman, D-Calif., looks to replace the gas tax with one based on lifecycle carbon emissions. It would require the EPA to determine well-to-wheel emissions for fuel sources, however, and has no cosponsors.

Other lawmakers , have ruled out the idea of replacing or raising the gas tax at all. Chairman of the House Ways and Means Committee Re. Paul Ryan, R-Wis., has said he will not support a raise. Even Senate Finance Committee Chairman Orrin Hatch, R-Utah, who previously stated he was not opposed to raising the gas tax, dismissed the idea as too politically volatile.

“We can’t pass that,” Hatch said. “The House isn’t going to take it, so it’s not an option.”

Another funding option that’s found support, particularly within the Obama administration, is repatriation, or taxes on corporate profits held abroad.

In President Barack Obama’s 2016 Budget, he proposed a six-year, $478 billion infrastructure funding plan. Under it, U.S. companies would pay a one-time, 14-percent tax on profits held overseas, estimated at up to $2 trillion. The White House predicted the tax would bring in approximately $238 billion over five years.

The bill — called “Grow America 2.0” after its four-year, $302 billion predecessor that died in the House last year — has yet to be introduced, though Secretary of Transportation Anthony Foxx has been making the rounds of House and Senate committees to drum up support for the president’s plan.

The administration’s plan is the more ambitious cousin of Democratic Rep. John Delaney’s Infrastructure 2.0 bill, also named after an effort that did not pass the last Congress. The Maryland congressman’s bill would tax profits accumulated overseas at 8.75 percent, which Delaney said would meet the funding gap between the trust fund and necessary infrastructure improvements for the next six years. The bill has five co-sponsors from both sides of the aisle.

While Delaney was supportive of the president’s plan, he’s concerned that Obama’s higher tax rate would not find the support necessary to pass.

“I think infrastructure should be our top domestic economic priority, and I like the way he pays for it, with international tax reform,” Delaney said. “I think when you look at the facts, though, and you think about what kind of level would get bipartisan support, it will be much closer to [our proposed rates].”

On the Senate side, Barbara Boxer, D-Calif., and Rand Paul, R-Ky., have jointly proposed a “tax holiday” that would allow companies to pay a tax of just 6.5 percent on money they bring home, with five years to complete the transfer. That money would all be funneled into the Highway Trust Fund, though Boxer and Paul did not provide an estimate of how much revenue the plan would bring in.

While repatriation has many supporters in Congress, Republicans disagree over whether plugging the Highway Trust Fund is the best way to use it. If repatriation did pass, it could potentially end efforts to reform business taxes, an ongoing project of both Congress and the White House, and since tax reform only happens every 25 years, some lawmakers are reluctant to close the door on that possibility.

Neither Hatch nor Senate Finance Committee ranking member Ron Wyden, D-Ore., both of whom are responsible for putting together the funding for surface transportation, support the idea.

Repatriation may even lose money over time. The nonpartisan Joint Committee on Taxation has said that tax holidays generate about $20 billion right away, but would cost the government about $96 billion as corporations are incentivized to keep their profits abroad until the next tax holiday.

While repatriation and the gas tax have been hogging the spotlight, members of Congress have toyed with other sources of funding.

One idea is to use revenue from more drilling on federal lands, as Ryan suggested. Hatch has not ruled out the idea in the Senate, but some lawmakers are concerned that drilling revenue doesn’t pass the litmus test of being dedicated, sufficient and sustainable.

Wyden has come out in favor of bonds, like the Build America Bonds program created in the 2009 stimulus package. In addition to his Infrastructure 2.0 bill, Rep. Delaney introduced the Partnership to Build America Act, which would use $50 billion in bond sales to create the American Infrastructure Fund, a bank to finance state and local infrastructure projects.

Blumenauer also introduced a mileage-based user-fee system based on pilot programs in his home state. The program would have drivers track their total miles traveled and pay a fee per mile, circumventing the issue of losing gas tax revenue with more fuel-efficient cars.

Another contentious idea is to not re-fund the Highway Trust Fund at all, but instead to leave it to the states in a process called devolution.

The Heritage Foundation, a conservative think tank, is a strong proponent of leaving infrastructure funding to the states. Emily Goff, a transportation policy analyst with the foundation, said that with the trust fund running so low, states are already dealing with de facto devolution.

Goff said it is up to Congress and the states to decide on the appropriate role for the federal government, but suggests that Congress reduce the federal gas tax, using the trust fund only for interstate highways and bridges, while giving the states autonomy to plan, fund and build all other infrastructure projects.

“The benefit for the states is that they will be able to set their own priorities,” Goff said. “The federal government, then, will be able to narrow and refocus its priorities in transportation.”

Republican Sen. Mike Lee of Utah intends to reintroduce devolution legislation in the next few months. In the last Congress, his Transportation Empowerment Act had 55 Republican cosponsors.

With no one funding idea garnering broad consensus, lawmakers have already begun discussing another extension, including members of the Senate Environment and Public Works Committee.

Foxx is adamant that a short-term fix can be, and must be, avoided.

“I don’t think [a short-term extension] is inevitable,” Foxx said. “Frankly, if we don’t do something bold here, and long-term, our children are going to hate us because they’re going to be stuck with a much bigger bill.”