Transportation news: Gas tax may need to increase to prevent Highway Trust Fund shortfall

Jeff Berman, Group News Editor -- Logistics Management, 7/21/2008

WASHINGTON—A few months after Presidential candidate John McCain proposed suspending the federal tax on motor fuels from Memorial Day to Labor Day, it appears that member of Congress may be considering raising the tax, according to media reports.

The current motor fuel federal tax is 18.4 cents per gallon for gasoline and 24.4 cents for diesel, and it has not been raised since 1993.

The main objective for Congress potentially raising the tax is due to a major shortfall in the Highway Trust Fund, which goes toward road construction, repairs, and maintenance.

When McCain initially proposed suspending the motor fuel federal tax in April, the notion was dismissed by House Committee on Transportation and Infrastructure Chairman James L. Oberstar and Subcommittee on Highways and Transit Chairman Peter A. DeFazio, whom said that the proposal would save most drivers less than $30 for the summer and cost states billions in highway construction, highway safety, and public transit funding, and force the elimination of hundreds of thousands of construction jobs across the country.

They added that temporarily halting the tax would bring the Highway Trust Fund to the “edge of insolvency” by trimming Highway Trust Fund Revenues by nearly $3 billion per month and creating an estimated $12 billion shortfall in the funds by the end of fiscal year 2009. 

An Associated Press report noted that Congress, faced with the possibility of having $9 billion less to spend on highways, could not sign off on suspending the fuel tax which may “create a pre-election specter of thousands of lost jobs,” and the report cited Oberstar and DeFazio explaining that the losses ranged from $30 million and 1,000 jobs in Vermont to $664 million and 23,000 jobs in California.

Although the Highway Trust Fund has a $10 billion surplus in 2005, it is projected to end 2009 with a $3 billion deficit, the AP said. And this figure could rise if Americans continue to drive less and curtail spending money on gasoline, it added. And the current six-year, $286 billion highway-transit act expires in September 2009.

Various industry experts have told LM in the past that suspending the motor fuel federal tax would not make sense.

 “It is my understanding that highway taxes go to the [HTF], which is in dire financial shape,” said Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies. “Now why would you advocate compounding the plight of the highway tax of the [HTF] when we already have more projects and things for those funds than you have funds to do them with? If this was not an election year you would be hearing nothing about highway gas tax.”

And at the National Shippers Strategic Transportation Council’s annual conference in April, U.S. Chamber of Commerce President and Chief Executive Officer Thomas J. Donohue blasted the fact that the motor fuel federal tax has remain at the same level for 15 years. He added that the U.S. needs to “quit fooling itself,” when it comes to the tax, which, if raised, he said, could help fund transportation infrastructure projects.

“We have not passed a fuel tax on the federal level in this country for 15 years,” said Donohue. “Infrastructure is the deal, and unless our fellow citizens look at it and deal with it, we will continue to have a problem.”