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Lawmaker Introduces Federal Gas Tax Reform

3 min readBy: James Davis

At the end of this month, the Highway Trust Fund, the mechanism by which the federal government provides states and localities with transportation funding, will run out of money. If this happens the trust fund will no longer be able to cover its obligations. With the trust fund facing a cumulative $168 billion shortfall over the next 10 years, lawmakers are looking for ways to keep the trust fund from going broke.

Last week, Representative Tom Rice (R-SC) introduced legislation that would raise the federal gas taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. by 10 cents per gallon and set the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. to increase with inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. going forward in order to finance the Highway Trust Fund. The proposal would offset the gas tax increase with a federal income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. of $133 dollars per person.

This revenue-neutral proposal represents a reasonable option for maintaining the Highway Trust Fund. The gas tax conforms to the benefit principle on which the highway trust fund is based, meaning those who benefit from the spending are the ones that pay. The gas tax has a relatively small impact on the economy compared to other taxes such as corporate and income taxes. And offsetting the gas tax increase with an income tax credit would avoid the political drawbacks of a higher tax.

This proposal would also save Congress from having to revisit the Highway Trust Fund’s shortfall every few months. Since 2008, Congress has passed 33 stopgap measures to replenish the Highway Trust Fund — totaling approximately $60 billion in transfers from the General Fund. Without a permanent solution, the CBO estimates that another $14 billion in transfers will be necessary in the next two years. The necessary transfers may be larger than this estimate, however, now that the Senate Environment and Public Works Committee introduced the DRIVE Act, which — if passed — could authorize transportation expenditures totaling $275 billion from FY 2016 to FY 2021.

Lastly, a permanent solution would also prevent lawmakers from pursuing taxes on multinational corporations’ offshore earnings in order to fund the Highway Trust Fund. Lawmakers have proposed both a “repatriationTax repatriation is the process by which multinational companies bring overseas earnings back to the home country. Prior to the 2017 Tax Cuts and Jobs Act (TCJA), the U.S. tax code created major disincentives for U.S. companies to repatriate their earnings. Changes from the TCJA eliminate these disincentives. holiday” and a “deemed repatriation.” The repatriation holiday, although it appears to be a tax cut, would actually have no real economic benefits. Instead, it provides a retroactive subsidy for multinational corporations for past behavior and would likely lose revenue over the next decade. Conversely, the deemed repatriation tax from President Obama’s budget is a retroactive tax and unfairly taxes companies on past behavior. Since it is levied on all overseas assets (reinvested or cash), the tax could put a financial strain on multinational corporations with substantial overseas investments.

Although Rice’s proposal is reasonable, it still faces political obstacles. House Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. Chairman Paul Ryan (R-WI) has already taken a gas tax increase off the table. At a June 17th hearing, Representative Ryan declared “We’re not going to raise the gas tax,” concluding that another stopgap measure may be the inevitable solution to FY 2015’s transportation deficit. House Majority leader Kevin McCarthy (R-CA) has echoed similar political concerns.

Read more on the Highway Trust Fund here and here