Bipartisan Senate Highway Bill Needs Offsets
The Senate Environment and Public Works (EPW) Committee recently marked up and unanimously passed a bipartisan highway reauthorization bill. The bill spends $303.5 billion over five years on highway programs, billed as a 34 percent increase over the last long-term highway bill in 2015.
The Highway Trust Fund (HTF) is set to become insolvent next year after the latest general revenue transfer runs out. Though the trust fund is financed by the gas tax and other transportation-related taxes, revenue has fallen short of spending for the last several years, and the shortfall has been papered over with revenue transfers since 2008. In addition, due to a budgetary quirk in how trust fund spending is treated, increased spending or revenue transfers aren't subject to budgetary rules like pay-as-you-go (PAYGO).
We estimate the EPW bill would increase spending by $65 billion over five years over the baseline amount, or $165 billion over ten years if the proposal is extended another five years. Given the existing $70 billion shortfall in the HTF over five years and $195 billion shortfall over ten years, any highway bill should at the very least offset any increased spending and also take steps to fill in the shortfall. EPW's jurisdiction does not include potential offsets so it could not offset the spending in the bill, but the Finance Committee has the jurisdiction to propose new revenue.
Lawmakers need to at least offset the cost of any increased highway spending, but they also need to make changes to the trust fund's financing or spending levels so they don't continue papering over shortfalls with general revenue transfers. Ensuring five-year solvency, including the extra cost of the highway bill, would require $135 billion in offsets. Earlier this year, we highlighted ten revenue and spending options to secure the Highway Trust Fund, and our Budget Offset Bank has numerous other options to eliminate the shortfall or offset another general revenue transfer. As with other trust funds, securing Highway Trust Fund solvency on a lasting basis will provide greater certainty about funding levels and help reduce deficits.
Revenue Options to Ensure Five-Year Highway Trust Fund Solvency
|Policy||Five-Year Savings||Ten-Year Savings|
|Increase the gas tax by 20 cents and index to inflation||$135 billion||$310 billion|
|Impose a 2 cent per mile Vehicle Miles Traveled tax||$150 billion||$300 billion|
|Impose a freight tax of 25 cents/mile for trucks and 10 cents/mile for rail||$135 billion||$290 billion|
|Impose a $15 per barrel oil tax||$135 billion||$450 billion|
|Increase the corporate tax rate by 4 percentage points to 25 percent||$160 billion||$400 billion|
|Memorandum: Highway Trust Fund Shortfall Under Current Law||$70 billion||$195 billion|
|Memorandum: Highway Trust Fund Shortfall Under Senate Bill||$135 billion||$360 billion|
Source: CRFB calculations based on Congressional Budget Office data
Lawmakers have just four months to reauthorize surface transportation spending and not much longer than that until the Highway Trust Fund goes insolvent. As they consider proposals to increase transportation spending, they should offset any increases and focus on policies to address the trust fund's long-standing solvency issues.