Other Spending_Infrastructure_Crane

Representative Blumenauer Introduces Bill to Shore Up the Highway Trust Fund

May 23, 2019 | Other Spending

Representative Earl Blumenauer (D-OR) has introduced the Rebuild America Act, which would raise the excise taxes on gasoline and diesel fuel five cents each year through 2024 (a total 25 cent increase), index them to inflation, and then ultimately would replace them with a new funding source. Among other effects, this proposal would improve the tenuous finances of the Highway Trust Fund. The proposal, which resembles former House Transportation Chairman Representative Bill Shuster’s (R-PA) plan, is a welcome addition to the conversation over infrastructure financing. And together, the two proposals demonstrate bipartisan support for options that could pay for infrastructure spending instead of deficit-financing it. 

Under current law, the Highway Trust Fund will run out of reserves by 2022 and will face a cumulative shortfall of about $170 billion over the coming decade. While the trust fund is largely funded by the current 18.3-cent-per-gallon gas tax (and 24.3-cent-per-gallon diesel tax), recent general revenue transfers have kept the trust fund afloat without dealing with the structural imbalance between spending and revenue. The structural imbalance will grow over time, as highway spending continues to grow at about the rate of inflation while the gas tax remains frozen in nominal dollars, as it has been since 1993. 

Blumenauer’s proposal would increase revenue to keep the Highway Trust Fund solvent. It would raise the gas tax to 43.3 cents per gallon (diesel to 49.3 cents per gallon) by 2024 – a 25 cent increase – and then index both to inflation. We estimate that by 2029, the gas tax would total 48.1 cents (54.8 cents for diesel), a 29.8 cent (30.5-cent for diesel) increase from current law. By our calculations, if the gas tax has been indexed to inflation from 1993, it would be 31.7 cents (42.1 cents for diesel) today and 40.2 cents (53.4 cents for diesel) in 2029.*

Over time, as vehicles become more fuel efficient and electric vehicles become more common, fossil fuel taxes will raise less revenue. The proposal suggests the gas tax be replaced with a more stable funding source by 2029. Future Highway Trust Fund revenue could come from a vehicle mileage traveled (VMT) fee, a carbon tax, or an alternative source of revenue (see our recent options table here). 

In total, we estimate this proposal would raise an additional $370 billion over the next decade – enough to cover the Highway Trust Fund shortfall and produce a $200 billion surplus, which could be used for further infrastructure spending and/or deficit reduction.

With a $2 trillion infrastructure package currently under discussion, it is important that lawmakers offset the cost of any spending increases, and make sure to shore up the Highway Trust Fund before it becomes insolvent. Representative Blumenauer deserves praise for putting forward a plan that could help do both.


 

*  Blumenauer's bill which would index the gas tax to the inflation measure used for the tax code. For our calculations, we used the tax code's inflation index, which was the Consumer Price Index (CPI) before 2018 and the "chained CPI" after that.

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