Finance Committee Considers Short Term Highway Extension

Jun 25, 2014 | Other Spending

As we've been writing about various ways to improve the state of the Highway Trust Fund (HTF), the Senate Finance Committee has been discussing options to do just that. Yesterday, Chairman Ron Wyden (D-OR) introduced a Chairman's mark – the Preserving America's Transit and Highways (PATH) Act – to extend the life of the trust fund through the end of of 2014. Although the plan falls well short of the goal to identify a long-term solution, it encouragingly proposes real offsets to the costs of transferring general funds. As we explained in our recent paper Trust or Bust: Fixing the Highway Trust Fund, such temporary funding may be needed as Congress works toward a long-term solution.

Fully paying for the cost of any short-term general revenue transfer without gimmicks is an important and responsible aspect of the PATH Act. As the committee marks up the bill, they should make sure to avoid "double-counting" one of the provisions in a way that could undermine the fiscal integrity of the package.

The PATH Act includes five revenue provisions – one source of long-term revenue for the Highway Trust Fund and four sources of general revenue  that can offset the costs of transferring money to the highway fund. The long-term HTF provision would increase the tax on heavy trucks, which currently raises $1 billion per year. As GAO noted in 2012, "Heavier trucks generally pay less than their share of damage costs" because the current tax does not increase beyond a cap as trucks become heavier.  This provision would maintain the current tax amounts on trucks weighing up to 75,000 pounds, but it would double the cap for heavier trucks to $1,100. This money is a slight improvement in long-term solvency: the $1.4 billion raised would flow to the Highway Trust Fund, addressing less than 1 percent of the $170 billion shortfall.

The other four provisions would increase tax compliance and change rules governing certain retirement accounts. The proposals would require more reporting on information related to the mortgage interest deduction, clarify the current law six-year statute of limitation for overstatements of capital gains basis, and revoke passports for taxpayers with at least $50,000 in delinquent taxes. The proposal would also expand the requirement that inherited IRAs be paid out within five years, similar to proposals in the President's Budget and the Tax Reform Act, which would limit some estates that stretch out tax benefits over decades by leaving IRAs to young beneficiaries.

Options To Reduce Highway Spending
Policy Ten-year savings Dedicated To
Increased mortgage reporting $2.2 billion General Fund
Clarification of statute of limitations on overstatement of basis $1.3 billion General Fund
Revoke passports for seriously delinquent taxpayers $0.4 billion General Fund
Require inherited IRAs to be paid within 5 years $3.7 billion General Fund
Subtotal, Funds Available for General Revenue Transfer $7.6 billion General Fund
Increase heavy vehicle tax for very large trucks $1.4 billion Highway Fund
Total Revenue Raised $9.0 billion General and Highway Funds

Source: JCT

Although most of the revenue goes directly into the general fund, lawmakers should be wary of attempts to double-count the money which does not. Of the $9 billion raised by the proposal, $1.4 billion from the heavy vehicle tax is already devoted to the HTF and cannot therefore be used to offset a transfer to the fund. Only $7.6 billion can be transferred without double-counting. That $7.6 billion is sufficient to keep a positive balance in the Trust Fund through the end of 2014, though it may not be enough to maintain the necessary $5 billion cushion to ensure smooth reimbursements to the states.

It is encouraging that lawmakers are offering real offsets to pay for the cost of transferring general fund revenue, rather than deficit-financing or gimmick-financing the transfer. If Congress takes this approach, they should follow it with an immediate move to a discussion over the tax and spending solutions to get to a long-term fix, so they are ready to act by the end of the year.

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Update 6/30/14: We previously reported the necessary cushion for smooth reimbursements to the states at $6 billion, but a more recent letter from CBO indicates the actual figure is $5 billion.