Many people are beginning to wrap their minds around the House Republicans’ proposed destination-based cash-flow tax and what it means for tax reform. Most people are still looking into the tax’s impacts on trade and how...
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- Congress Reaches Deal on Five-Year Highway Funding Bill
Congress Reaches Deal on Five-Year Highway Funding Bill
In the first time in more than a decade, Congress has reached a deal on a bill that would provide funding to the Highway Trust Fund for more than a year. The Fixing America's Surface Transportation (FAST) Act would authorize five years of Highway Trust Fund spending. It would pay for it by transferring approximately $70 billion in general fund revenues to the Highway Trust Fund and by enacting a number of minor revenue raising provisions, such as increasing motor vehicle penalty fees. The bill would also reauthorize the controversial Export-Import Bank.
Recently, the Highway Trust Fund has been spending more annually than it receives in tax revenue. This results in its fund’s balance to deplete. Under current law, the Highway Trust Fund cannot borrow money. When its balance reaches zero, it needs to operate on a cash-flow basis, which can disrupt funding to state and local infrastructure projects. Congress has needed to address this issue nearly every year with an annual patch.
This five-year deal would ease the pressure on Congress to quickly find patches to extend funding for the Highway Trust Fund. The problem, however, is that this plan, like others in the past, does not address the fund’s underlying problem. The Highway Trust Fund will continue to spend more than it receives in revenue. The CBO projects that each year the fund will spend between $56 billion and $62 billion, but will only receive about $40 billion in tax revenue. As a result, the trust fund will run out of funds and need to be revisited by Congress in 2020. The fund will require nearly $100 billion in additional revenue to sustain current spending through 2025.
Another problem with this bill is that it strays away from the benefit principle, on which the Highway Trust Fund is based.
Taxes and spending associated with the Highway Trust Fund are based on the benefit principle of taxation. This principle states that the taxes one pays to the government should be connected to the benefits one receives. This principle is seen as an equitable way to finance government projects—in this case, roads and infrastructure. Those who drive on roads and cause wear are the ones who should pay for future repairs. This type of taxation also sets a price for driving on the road in order to prevent overconsumption in the form of congestion. As such, any increases in funding for the trust fund should come from these types of taxes, such as the gas tax.
Instead, this plan uses transfers from the general fund and other completely irrelevant revenue raisers such as revoking the passports of U.S. citizens abroad who are currently tax delinquent to pay for U.S. roads.
A more permanent and reasonable solution would be to either permanently increase funding to the highway trust fund through a tax that conforms to the benefit principle, such as the gas tax, or to permanently reduce the level of highway spending to match projected revenues.
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