President Joe Biden has thrust a dagger into the heart of the federal motor fuels tax and, with it, the trust fund that’s long been dedicated to paying for highway projects.
So says Randy Mullett, a multidecade veteran of the inside-the-beltway transportation wars and head of a Virginia-based consultancy. Biden’s staunch opposition to an increase in the federal fuels tax — which hasn’t been raised since 1993 — sends a clear message to Congress that the Highway Trust Fund, which for decades has used fuel tax proceeds to funnel money to states for road infrastructure projects, has reached the end of its useful life, Mullett said. The Trust Fund was created in 1956 to fund the interstate highway system and other road projects.
“The days of a dedicated highway trust fund are finished,” Mullett said Tuesday afternoon during a virtual session at the SMC3 annual summer meeting.
House Democrats had been tinkering with the idea of raising the fuel tax by indexing it to inflation, Mullett said. Biden’s pronouncement quashed those efforts, he said. From now on, every infrastructure project will compete with other federal spending initiatives for the same pot of money, a prospect no one in the transport ecosystem relishes, Mullett said.
Bereft of federal money, states will be pressured to continue hiking their fuel taxes, Mullett said. Over the past three decades, states have repeatedly raised fuel taxes and related fees to pay for necessary infrastructure improvements.
Perhaps the oldest unresolved issue in official Washington has been how to pay for infrastructure improvements absent any increases in the federal fuels tax. The tax has sat at 22.4 cents per gallon on diesel and 18.4 cents per gallon on gasoline since President Bill Clinton’s first year in office. Groups including shippers, carriers and the 3 million-strong U.S. Chamber of Commerce have repeatedly endorsed measures to raise fuel taxes. However, the Obama administration consistently rejected it as a regressive tax, a position that Biden, who served as Obama’s vice president, has adopted. The Trump administration talked early on about supporting a fuel tax hike, but nothing ever materialized.
Adding to the cost squeeze is the administration’s refusal to support taxes or user fees on the use of electric-powered vehicles (EV), which currently escape levies because they don’t require fossil fuels. Though still a distinct minority of the nation’s truck and auto fleets, EVs will become much more commonplace on American roads over the next 20 years. Hardly anyone disputes the need to capture EV activity and tax their use. The question is how it will be done.
The urgency behind the “how-do-we-pay-for-this” question has reached a crescendo, with the administration and a bipartisan group of senators agreeing to an eight-year, $1.2 trillion infrastructure package, and with the House and Senate dueling over how to reauthorize the 2015 FAST Act, the last federal transport-spending bill. It is expected that the legislation, if a version gets enacted, will cost an additional $500 billion to $600 billion depending on its duration.
With costs running far ahead of revenues due to years of inaction at the federal level, the trust fund regularly runs out of money and requires periodic capital transfers from the general treasury to meet its commitments. The House’s reauthorization bill, which is set to be voted on by the full chamber later this week, contains $148 billion in transfers over the next five years. The Senate is still putting together its version.
It is unclear whether the administration-backed initiative and the reauthorization legislation will be consolidated or will move forward on different tracks. Either way, there is more infrastructure funding on the table than at any time in recent history.
Panelists at the session said transport and business interests need to be on guard for any form of revenue-raising coming out of both branches. The Biden administration has proposed hiking the corporate income tax rate to 28% from 21% to pay for infrastructure programs, a move that would be a “huge hit” on retailers, said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation (NRF), the world’s largest retail industry trade group.
There has also been bipartisan talk of a bill-of-lading tax, which would have a direct and enormous impact on all of logistics. Mullett said the broad strokes of the measure are “ill-defined” and that it’s unlikely to go anywhere. However, anything is possible when the executive and legislative branches are “scrambling for dollars,” he said.