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...
- The Tax Policy Blog
- Secretary Lew Pushes Flawed Plan to Fund Highway Trust Fund
Secretary Lew Pushes Flawed Plan to Fund Highway Trust Fund
Currently, the Highway Trust Fund is projected to run out of money by the end of May. If Congress does not either raise taxes, cut highway spending, or transfer general fund revenue to the trust fund, the trust fund will no longer have enough money to cover current expenses. As a result, it will have to operate on a cash-flow basis, which will delay the amount of funding that states and localities will receive for their transportation projects.
With the coming insolvency, there is growing political pressure to fix the issue. The most recent comment comes from the Secretary of the Treasury Jack Lew. According to Tax Analysts (Subscription Required), Lew stated that Congress should “partner with the Obama administration to pass business tax reform before its Memorial Day recess to replenish highway funding.”
You may be asking: “what does business tax reform have to do with fixing the highway trust fund?”
The odd marriage between the two issues comes from President Obama’s FY2016 budget. In his budget, the President proposes an international tax reform that would raise about $238 billion in the next decade. That extra revenue would be allocated to the highway trust fund.
As I wrote when the budget was originally released, there are serious concerns with the President’s approach to international tax reform. It moves us farther from the territorial ideal and imposes an unfair retroactive tax on multinational corporations in order to raise revenue.
In regard to the highway trust, the issue with the plan is that the one-time retroactive transition tax does not fix the underlying insolvency of the trust fund. It only kicks the can down the road.
The underlying problem with the highway trust fund is that it continuously spends more than it receives in revenue. This trend will continue forever as the gas tax continues to lose value, but spending continues to grow. In the next ten years, the trust fund will run a deficit of $168 billion.
Infusing it with $238 billion will temporarily close the gap, but the trust fund will continue to run a deficit each year. We will eventually return to where we started: an insolvent trust fund.
Secretary Lew is correct that the United States needs both business tax reform and a fix to the highway trust fund. However, lawmakers should be careful about pairing them.
A permanent fix for the highway trust fund means either an increase in the gas tax, a reduction in spending, or some combination of the two. Imposing a tax on multinational corporations to pay for roads violates the benefit principle on which the highway trust fund is based and won’t fix the trust funds solvency.
More on the Highway Trust Fund here.
Get Email Updates from the Tax Foundation
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.