A U.S. trust has become so depleted of funds that it is having difficulty fulfilling its role: financing the repair and construction of roads and highways. Its source of funding, a federal tax on fuel, has been reduced to a pittance because it has not been raised since 1993. To address the problem, the White House is considering supporting an increase in the tax. The additional funds raised would support an $1 trillion investment plan to improve infrastructure across the United States. Gary Cohn, chief economic adviser to President Donald Trump, spoke to a group of lawmakers in a meeting in October of the possibility of a proposed increase in the infrastructure bill to be presented to Congress early next year.
Although Cohn and the White House declined comment, several news outlets such as Politico, The Hill and Bloomberg quoted sources on October 25 saying that a tax increase was discussed at the meeting. The Hill cited an industry source as saying the White House would support an increase of $0.07 per one gallon of gas.
Trump, which made fixing the country’s potted roads and broken bridges a key issue during the election campaign last year, has expressed interest in the idea of raising the tax.
An increase would meet growing calls from transport and other sectors for the federal government to provide more funding for the Highway Trust Fund, which supports federal spending on the construction, maintenance and repair of roads. The Fund is responsible for about a quarter of public spending on roads and highways, the remainder of which is covered by state and local governments.
Established in 1956, the Fund’s first role was to finance the construction of the Interstate Highway System, the vast network that covers the entire country. The Fund’s remit was later expanded to include the funding of mass transit.
The fuel tax is only one of the ways in which the Fund gets its funding. It also gets money from taxes on truck tires, sales of trucks and trailers, and heavy vehicle use. The Congressional Budget Office calculates that the Fund will receive $40.9 billion in tax revenue in fiscal year 2017, according to the Tax Policy Center, a joint-venture between the Urban Institute and Brookings Institution that analyses tax issues.
Since the tax has not changed since 1993, the amount of revenue that it has been generating for the Fund has diminished over the years. Inflation and the growing number of fuel-efficient cars on the road have made the tax virtually anachronistic. The tax on the sale of gasoline at the pump is $0.184 per gallon. For diesel, it is $0.244. If both of them had been indexed for inflation since 1993, they would have risen to about $0.31 for gasoline and about $0.42 for diesel, according to the Tax Policy Center.
Since this has not occurred, the Fund has had to rely on funding from other sources to avoid becoming insolvent.
The state tax on fuel varies from state to state. The highest is in Pennsylvania, according to a January blog post by the Tax Foundation, a non-profit outfit that studies tax policy. The lowest is in Alaska. These figures exclude the federal tax.
Meanwhile, some states, aware of the difficulties faced by the Fund, have gone ahead and raised their own taxes on fuel. Last year, for example, voters in 24 states approved measures to support $207 billion of spending on highways, bridges, ports and other infrastructure for the next 40 years.
The American Road & Transportation Builders Association (ARTBA) expects investment in the transport sector to increase by 1.3% to $247.8 billion this year.
The funding gap for sector is nevertheless huge. One reason is the Fund’s depleted resources.
