Friday, August 05, 2011

If You Thought the FAA Tax Debacle Was Bad, Wait For Forthcoming The Gas Tax Mess

If you thought that the FAA tax funding mess was bad (and it was resolved today with Congress finally extending the tax that funds FAA operations for another couple of weeks), wait for the mess that will ensue with the coming expiration of the federal gas tax.
The federal gas tax of 18.4 cents a gallon expires at the end of September. In order to keep the gas tax, lawmakers would need to vote to extend the highway funding bill, which is what the gas tax is tied to.

There are no official efforts to scrap the tax yet but as first noted in the journal Politco, momentum appears to be moving in that direction.

A bill was recently introduced by Senate Republicans that would allow states to opt out of the federal highway program. The highway program uses $32 billion each year collected by the gas tax, plus a handful of smaller fees and some borrowing to distribute some $50 billion a year to the states for road construction, maintenance and mass transit projects.

That represents about 28% of all road and transit spending nationwide, with the rest coming from states or towns in the form of tolls, registration and user fees, state gas taxes or their general funds.
Some people will question why a federal tax needs to be imposed and then redistributed to the states for work on highway projects.

For starters, we're talking about an interstate highway system and mass transit projects (many of which are also interstate in nature). Transportation is by its nature generally interstate commerce (federally designated Interstate highways, federal routes, etc.). Shifting the burden back to the states means that some of those critical routes will not get sufficient funding to maintain and/or improve roads, bridges, or mass transit operations.

Is the current system cumbersome? Yes. Does it shift money away from states that need such funds to those that don't? Possibly (there's a funding formula that always seems to shortchange states that have built up significant infrastructure and need to maintain it).

Yet, there are some interests that are looking to have the gas tax raised - and they're not the usual suspects. GM and the US Chamber of Commerce want to see the gas tax raised by $1 per gallon, which would go to infrastructure improvements.

With the current economic situation, that would be a no-go. Even in good economic times, an increase of $1 per gallon would be untenable and impossible because gas prices remain significantly above what they were just a few years ago (and would put New Jersey at above $4.65 per gallon - it's currently about $3.65 in Northern NJ). That would not only be a significant drag on the economy, but it would be even more detrimental to lower income taxpayers and businesses that are already hard hit by high energy costs.

The practical costs of not extending the tax would be similar to the problems with the FAA stalemate - a cessation of vital infrastructure projects and a slowdown in improvements that are vital to keeping transportation flowing around the country.

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