Can Rube Goldberg save our highway funding?

Our tax-based highway funding is a mess. Saving it may mean making  its funding path even more complicated. 

In principle, the Highway Trust Fund (HTF) is simple. Drivers pay a federal gas tax when they purchase fuel, the revenue goes to the HTF, and the federal government sends the dollars to states and local governments for highway and transit programs. But in practice the system is a mess and a new proposal by a road builder trade group shows just how tangled this web has become.

Congress flirted with an insolvent HTF again last year in what has become a regular ritual. For 13 years, annual fund spending has exceeded revenues. Last summer, facing yet another deadline, lawmakers stitched together a few budget gimmicks to pay HTF bills until ... May.

There are three problems with the HTF. First, the gas tax base is eroding as Americans drive less, buy more fuel-efficient cars, and thus purchase fewer gallons of gas. Second, Congress has not increased the 18.4 cent per gallon rate since 1993 because voters don't like the gas tax. Three, despite stagnant revenue Congress has no desire to slow transportation spending.

Enter Rube Goldberg in the form of the American Road & Transportation Builders Association's (ARTBA) new "Getting Beyond Gridlock" plan. ARTBA promises to "end the political impasse over how to fund future federal investments in state highway, bridge and transit capital projects."

Here's how:

1. Increase the federal gas tax by 15 cents per gallon and raise an estimated $159.2 billion for the HTF over six years.
2. Give taxpayers with an adjusted gross income of $100,000 or less an annual $90 rebate to cover the estimated cost of the tax hike at a cost of $103.3 billion over six years.
3. Create a one-time federal repatriation transition tax on corporations to pay for the rebates.

The ARTBA plan is well-intentioned but shows just how far we have traveled from a very simple concept: Raise gas tax revenue and spend it on roads.

Congress created the HTF and the gas tax in part to establish a user fee. Put very simply, people who use the roads should pay for the roads. Therefore, if the goal is increasing and stabilizing revenue for the HTF, Congress should just increase the gas tax.

The ARTBA rebate is a great example of poorly targeted tax relief. ARTBA estimates it covers 94 percent of federal income tax filers. But the rebate is disconnected from how much those filers drive. Those who must drive long distances would be hurt on net while those who drive electric/hybrid cars or don't drive at all would enjoy a windfall. And a one-time repatriation tax makes no sense as a stable source of funds for highway and transit programs.

Ultimately, if reviving the HTF requires this much effort then take my colleague Howard Gleckman's advice and end the fund. Using general funds for transportation could expose these projects to spending caps and congressional dysfunction but that's the point. The HTF and gas tax is not the real problem.

That's why I don't mean to criticize ARTBA. They are only trying to navigate past political leaders who would rather play three-card Monte than pass a straightforward gas tax hike. ARTBA got the idea to fund infrastructure with a repatriation tax from President Obama. And the only real plan in Congress to increase the gas tax comes with a promise of unspecified offsetting tax cuts, lest someone like Grover Norquist call it a tax hike.

All of Washington is determined to fund transportation projects. They just want to be sure no one understands who is paying for it. Rube Goldberg would be proud.

The post Can Rube Goldberg Save the Highway Trust Fund? appeared first on TaxVox.