Restoring Highway Solvency with New Revenue Sources
As we approach the twin deadlines to reauthorize surface transportation spending and shore up the Highway Trust Fund (HTF), policymakers should note the importance of addressing the structural imbalance between highway spending and dedicated revenue. There are a number of options for both reducing highway spending and increasing revenue from existing sources dedicated to the HTF.
Previously, we discussed options to raise revenue by increasing gas, diesel, and other smaller taxes which currently fund the HTF. Below are other options for new revenue related to surface transportation use. They can be redesigned in a number of ways to raise different amounts of revenue.
|Options For New Sources of Highway Revenues|
|Policy||Ten-year savings||Percent of Shortfall Closed|
|Institute 1% motor fuel sales tax||$55 billion||39%||37%||34%|
|Impose $1 per barrel tax on oil||$50 billion||30%||30%||30%|
|Impose $10 per-tire tax on car tires||$25 billion||15%||15%||15%|
|Impose 2% vehicle sales tax||$15 billion||11%||10%||9%|
|Institute $20 fee on containers in U.S. ports||$10 billion||5%||5%||5%|
|Institute 0.05 cent per ton-mile tax on freight||$20 billion||12%||12%||12%|
|Apply 3.5% surcharge to customs duties||$10 billion||7%||7%||6%|
|Impose vehicle registration fee of $10 on light vehicles and $20 on trucks||$35 billion||20%||20%||20%|
|Institute $10 driver's license surcharge||$20 billion||12%||12%||12%|
|Impose 0.5 cent-per-mile VMT fee||$150 billion||90%||90%||90%|
|Replace current taxes w/1.85 cent-per-mile VMT fee||$170 billion||100%||100%||100%|
|Replace current taxes w/ carbon tax (rebate ~50%)||$170 billion||100%||100%||100%|
Sources: National Surface Transportation Infrastructure Financing Commission, and CRFB calculations.
Numbers are rounded and calculated very roughly by CRFB.
Estimates are intended to include the effect of income and payroll tax offsets under the assumption that revenue losses are compensated with reverse revenue transfers.
Percentages represent average effect over the time period and do not address timing issues.
Most of these options come from a 2009 report from the National Surface Transportation Infrastructure Financing Commission, who looked at a number of different revenue sources. The table above presents some illustrative options, but the taxes or fees could have a variety of rates or structures. A table of all the options the NSTIFC examined -- including the revenue raised, the Commission's evaluation of the option, and a brief description -- is available here. You can also view the table in the appendix below.
Vehicle Miles Traveled Tax
An oft-discussed new revenue source for the HTF is a vehicle miles traveled (VMT) tax, which would assess a tax based on the miles a vehicle travels rather than the fuel it consumes. The NSTIFC noted the advantages of a VMT tax over the gas and diesel taxes in its report:
Unlike fuel taxes, direct user fees are a way to charge users a price better aligned with the full cost of their travel. Specifically, prices (whether for targeted tolling and pricing or comprehensive pricing) can be varied to incorporate both the costs of providing, maintaining, and operating the infrastructure and some or all of the costs of other considerations such as system damage associated with vehicle weight, congestion impacts, and vehicle emissions. This, in turn, can better inform the individual about the true cost of their travel choices—that is, the price for highway travel can help travelers make more efficient decisions about how and when they use existing transportation infrastructure.
We estimated that a 0.5 cent per mile VMT fee would close 90 percent of the ten-year HTF shortfall, while a 1.85 cent per mile tax could replace all existing fuel sources and fully fund the HTF through 2024. Note that these estimates assume that the VMT fee is applied uniformly, but policymakers could apply different fees based on the weight of the vehicle or the time of day the vehicle is traveling (which would enhance the efficiency of the tax).
Although many academics and policy experts support using a VMT tax instead of fuel taxes, they see it more as a long-term replacement rather than a near-term solution. It would take several years of study, administrative set-up, and much more public buy-in to adopt a VMT.
Congress could also impose a number of vehicle-related taxes which would be a less direct way of charging for the cost of using surface transportation. Using data from the NSTIFC, we estimate that a vehicle registration fee of $10 for light vehicles and $20 for trucks would raise $35 billion over ten years, enough to close one-fifth of the shortfall. Having a separate 2 percent vehicle sales tax could raise $15 billion, reducing the ten-year imbalance by just under 10 percent. Instituting a $10 surcharge on all new or renewed driver's licenses – arguably the least direct user fee – would raise $20 billion and close about one-eighth of the shortfall.
There could be a sales tax on motor fuels, which would be imposed at the time of sale along with or instead of the excise tax which is built into the price. We estimate a 1 percent sales tax could raise $55 billion over ten years. Of course, policymakers could make the tax higher, lower, or use it to replace the current fuel taxes.
There is currently a tax on truck tires which funds a small part of the HTF, but lawmakers could go further. Imposing a $10 tax on car tires as well would raise $25 billion over ten years, closing 15 percent of the shortfall. The tax could be accompanied by a similar increase in the truck tire tax to maintain the fact that trucks pay more to account for their increased share of road damage. A tax on bike tires could be considered, although it would raise only a small amount.
Other Transportation-Related Taxes
There are other taxes which are more broadly transportation-related which could fund the HTF. Currently, an 8 cent (increasing to 9 cents in 2017) tax per barrel of oil funds the Oil Spill Liability Trust Fund. Lawmakers could increase that tax by $1 per barrel and dedicate it to the HTF, raising $50 billion and reducing the shortfall by 30 percent.
They could also charge freight companies for containers moving through U.S. ports; a $20 per container fee could raise $10 billion, reducing the ten-year shortfall by 5 percent. Adding a 3.5% surcharge to customs duties could also raise $10 billion.
Another option would be to charge freight (truck or otherwise) based on distance and weight; a 0.05 cent per ton-mile tax could raise $20 billion over ten years. This would incorporate a VMT element and a "heavy vehicle use" element.
Another possibility would be to use a portion of revenue from a carbon tax, which would be a form of fuel tax for transportation. By CBO's estimate, a $25 per metric ton tax on emissions, increasing at 2 percent per year, would raise $1.1 trillion over ten years. Dedicating about half of that revenue to the HTF would allow policymakers to replace all current revenue sources and keep the fund solvent through 2024 at current spending levels. The other half could be used for rebates to consumers, clean energy spending, broad-based tax cuts, and/or deficit reduction.
If lawmakers do not want to raise revenue from existing sources, a number of new taxes and fees could get the HTF to balance. Later in the week, we will look at ways lawmakers could use to offset general revenue transfers to the HTF in the short-term before addressing the structual problem.
Many of the options we mention in this blog come from the 2009 report of the National Surface Transportation Infrastructure Financing Commission. We have compiled a list of all the options the NSTIFC mentions and quantifies, showing how much a certain rate would raise, what rate it would take to raise $1 billion per year, the Commission's evaluation of the quality of the option (based on efficiency, revenue-raising ability, and other criteria), and a brief description of the option.
|Revenue Option||Size of Tax/Fee Increase||Annual Revenue Raised||Required Increase to Raise $1 Billion||Evaluation of Option||Description|
|Vehicle-Related Taxes and Fees|
|Vehicle Registration Fee||$1 for autos / $2 for trucks||$366 million||$2.75 for light duty vehicles, $5.50 for trucks||Strong||Annual national registration fee for cars and trucks|
|Driver's License Surcharge||$1||$208 million||$4.81||Weak||Charge per license|
|Vehicle Sales Tax||1 percent||$828 million||1.2 percent||Moderate||Tax on new and used light duty vehicle sales|
|Auto-Related Sales Tax||1 percent||$400 million||2.5 percent||Weak||Sales tax on vehicle-related products and services|
|Auto-Related Tire Tax||$1||$280 million||$3.60||Strong||Tax on new tires for light duty vehicles|
|Bicycle Tire Tax||$5||$75 million||n/a||Weak||Tax on new bicycle tires|
|New Motor Fuel-Related Taxes|
|Carbon Tax / Cap and Trade||n/a||n/a||n/a||Strong||Tax on carbon in motor vehicle fuels|
|Imported Oil Tariff||$1||$4.4 billion||$0.23||Strong||Per barrel tax on imported oil|
|Motor Fuel Sales Tax||1 percent||$3.6-$7.2 billion||0.14-0.28 percent||Strong||Tax imposed on full retail cost of motor fuels|
|Broad-Based Taxes and General Revenues|
|National General Sales Tax||0.1 percent||$3.3 billion||0.03 percent||Weak||Tax on net purchase price for all retail items|
|Personal Income Tax||0.1 percent||$1 billion||0.1 percent||Weak||Increase in personal income tax rate|
|Business Income Tax||0.1 percent||$350 million||0.3 percent||Weak||Increase in business income tax rate|
|General Fund Revenues||n/a||n/a||n/a||n/a||Allocate revenues from General Fund|
|Container Fees||$10||$500 million||$20||Strong||Fee per container moving through U.S. ports|
|Freight Waybill (Trucks)||0.1 percent||$620 million||0.16 percent||Moderate||Sales tax on truck freight bills|
|Freight Waybill (All)||0.1 percent||$740 million||0.14 percent||Moderate||Sales tax on all freight bills|
|Harbor Maintanence Tax||0.01 percent||$110 million||0.089 percent||Moderate||Tax on value of passenger tickets and commercial cargo at federally maintained harbors|
|Customs Duties||1 percent||$286 million||3.5 percent||Strong||Surcharge on all customs duties|
|Weight Tax (Trucks)||1 cent||$107 million||9.45 cents||Weak||Per ton tax on truck freight movements|
|Weight Tax (All)||1 cent||$155 million||6.35 cents||Weak||Per ton tax on all freight movements|
|Weight and Distance Tax (Trucks)||0.1 cent||$1.2 billion||0.08 cents||Weak||Per ton-mile tax on truck freight movements|
|Weight and Distance Tax (All)||0.1 cent||$4.2 billion||0.02 cents||Weak||Per ton-mile tax on all freight movements|
|Tolling and Road Pricing Options|
|Facility Level Tolling and Pricing||n/a||n/a||n/a||Strong||Application of tolls and/or pricing to fund specific investments|
|Cordon Pricing||n/a||n/a||n/a||Weak||Access charges for designated urban areas|
|Mileage-based user fee (VMT)||1 cent||$30 billion||0.033 cents||Strong||Cent per mile charge on all vehicles and roads|
|Passenger Facility Charges (PFC)||n/a||n/a||n/a||n/a||Increase the cap on PFCs and/or broaden activities eligible for PFC funding|
|Development and Impact Fees||n/a||n/a||n/a||n/a||Targeted taxes on beneficiaries of transport investments|