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The US Highway Trust Fund and Federal Fuel Tax

The Highway Trust Fund (HTF) is the main source of funding for American transportation programs. Despite a gradual increase in funding, HTF has shown signs of insolvency. The current paper provides an overview of the existing issues and identifies several solutions that may address the problem.

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History

Prior to the second half of the twentieth century, the funds for federal highway programs were obtained directly from the General Fund of the Treasury. While federal taxes on automobile products and fuels were used as a source of financing, their receipts were not connected to the support of bridge and road infrastructure. The funding process was conducted through the use of appropriations, authorizations, reimbursements, and obligations. However, obligations that had been incurred were liquidated using money from the General Fund. With the establishment of Federal Aid Highway Act of 1956, a federal fuel tax was established that provided an exclusive source of financing for the construction and maintenance of bridges and roads. Set initially at three cents per gallon, the tax was increased in 1983 to nine cents, with one cent intended to support public transportation. The tax was further increased to 14 cents in 1990 and 18.5 cents in 1993, primarily for deficit reduction (Federal Highway Administration). Throughout the existence of this fund, attempts have been made to suspend the gas tax. However, none of the attempts have been successful.

Funding

The HTF was created as a fund supported by users of the nation’s highway infrastructure. Simply put, the taxes paid by users are expected to flow into the Fund, after which highway projects and other surface transportation projects are funded from its balances. While the central concept has remained relatively unaltered since the establishment of the fund, the structure of taxes has undergone several changes. Currently, the income of the Fund comes from three main sources. The first is federal fuel taxes, which have been increased and redirected throughout the years to maintain the solvency of the Fund. The second is federal taxes aimed specifically at the drivers of heavy trucks. These include the tax on heavy-duty truck sales of certain manufacturers, an annual fee for heavy vehicles that use public roads, and a tax on several types of truck tires. The third is from non-tax sources, such as interest and penalties. Currently, the penalties in question include those imposed for the violation of safety requirements and by the Internal Revenue Code (Congressional Budget Office).

Sustainability Concerns

Despite the increases in the fuel tax and adjustments to the financing scheme, the funding sources have been unable to match the expenses associated with road construction and maintenance. Several reasons can be identified for the decline in HTF solvency. First, the use of transportation infrastructure has grown substantially in the decades following the establishment of the Fund. Understandably, the increase in load has resulted in a corresponding surge in demand for maintenance, repair, and construction of new bridges and roads. In addition, increasing traffic congestion has created a need for a substantial upgrade of the existing infrastructure. At the same time, the cost of essential materials has grown. For instance, steel and iron products have increased in price by 70 percent, and the cost of asphalt has grown by more than 150 percent (ARTBA). Finally, labor has become more expensive, with the average hourly wages of construction workers increasing by approximately 85 percent. As can be seen, the various increases in the gas tax are insufficient for covering the expenses incurred.

Potential Alternatives

One of the most feasible options for addressing this issue is an increased gas tax. Such an option has two advantages. First, it will provide the necessary increase in revenues to the Fund. Second, the rising cost of gasoline will create demand for more fuel-efficient vehicles, making them more attractive to highway users. It is also worth mentioning that the externalities created by highway use, such as traffic accidents, air pollution, and carbon emissions, are not currently covered by gas taxes. However, an increase in gas tax rates may be perceived as an undue burden by some users (Pomerleau). Another option would be to eliminate the gas tax entirely and introduce a mileage-based fee instead. This fee, known as vehicle miles traveled (VMT) tax, is expected to address most of the current system’s gaps. However, its feasibility has not been conclusively established and it would require additional research before implementation on a federal level.

Other Sources of Funding

It is also possible to suggest a scenario where the expenses for infrastructure maintenance would be covered from the Treasury’s General Fund. In order to implement this solution, the funding for transportation programs would need to be maintained at a certain average level. However, unless broad-based taxes are increased or other spending was eliminated, such an approach may increase federal borrowing by adding to the budget deficit (Krupnick et al.). Another alternative would be to achieve solvency by taxing multinational corporations. However, this approach contradicts the Fund’s benefit principle and may indirectly contribute to an increase in congestion (Bastian).

Conclusion: Observations and Thoughts

As can be seen from the information above, no definitive solution has been proposed that would address the current HTF insolvency issues. While many approaches seem intuitively plausible, an in-depth inquiry usually results in the identification of potential risks. In addition, the existing political differences will further complicate the implementation of a permanent solution.

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Works Cited

ARTBA. ““Getting Beyond Gridlock” Offers Viable Policy Solution.” ARTBA. 2015, Web.

Bastian, Elizabeth. “The Highway Trust Fund: It’s a Millennial Problem.” Eno, 2015, Web.

Congressional Budget Office. “Testimony on the Status of the Highway Trust Fund and Options for Financing Highway Spending.” Congressional Budget Office, 2015, Web.

Federal Highway Administration. “The Highway Trust Fund.” FHWA. 2017, Web.

Krupnick, Alan, et al. “Financing the Highway Trust Fund: The Case for Higher Fuel Taxes.” Resources for the Future. 2015, Web.

Pomerleau, Kyle. “Options to Fix the Highway Trust Fund.” Tax Foundation. 2015, Web.

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StudyCorgi. (2020, December 25). The US Highway Trust Fund and Federal Fuel Tax. Retrieved from https://studycorgi.com/the-us-highway-trust-fund-and-federal-fuel-tax/

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"The US Highway Trust Fund and Federal Fuel Tax." StudyCorgi, 25 Dec. 2020, studycorgi.com/the-us-highway-trust-fund-and-federal-fuel-tax/.

1. StudyCorgi. "The US Highway Trust Fund and Federal Fuel Tax." December 25, 2020. https://studycorgi.com/the-us-highway-trust-fund-and-federal-fuel-tax/.


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StudyCorgi. "The US Highway Trust Fund and Federal Fuel Tax." December 25, 2020. https://studycorgi.com/the-us-highway-trust-fund-and-federal-fuel-tax/.

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StudyCorgi. 2020. "The US Highway Trust Fund and Federal Fuel Tax." December 25, 2020. https://studycorgi.com/the-us-highway-trust-fund-and-federal-fuel-tax/.

References

StudyCorgi. (2020) 'The US Highway Trust Fund and Federal Fuel Tax'. 25 December.

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