Pressure is building. On May 31, the one-year extension of MAP-21, the federal surface transportation law that funds roads, bridges and transit across the nation, will expire. In a flashback to last year, the federal government will start running out of transportation dollars by July, and will need to cut back on payments to the states. With no clear solution materializing in D.C., states have already started delaying and cancelling projects—despite the fact that the limited window for construction season is beginning to open.
Thankfully, there appears to be bi-partisan agreement that an interruption in funding should not be an option. There also appears to be a general understanding that short-term patches—what Transportation Secretary Anthony Foxx calls the “legislative duct tape and chewing gum” approach—makes transportation planning difficult, especially for long-term projects. A draft six-year bill is in the works in the Senate, and although the funding mechanism hasn’t been nailed down, it’s not for lack of bi-partisan effort. The two options that have garnered the most attention were also discussed during last year’s congressional transportation funding debates: raising the gas tax and repatriating dollars from companies that have moved overseas.
The federal government currently spends about $50 billion a year on transportation, and the gas tax—the main source of funding since the 1930s—only brings in $34 billion, leaving an annual shortfall of over $15 billion. Currently, the U.S. gas tax is the lowest among developed nations, in part because the lack of indexing: If the tax had originally been indexed to inflation, it would be bringing in 30 cents per gallon by now, not 18.4 cents.
This makes the case for the Bridge to Sustainable Infrastructure Act, introduced last week by Representatives Jim Renacci and Bill Pascrell, which indexes the gas tax to inflation and provides some breathing room for congress to find a long-term solution by establishing a bipartisan, bicameral commission to brainstorm solutions. The benefits of this bill are that it has the support of eight Republicans and would raise an estimated $27.5 billion over 1.7 years. There is also an automatic trigger increase after three years if there is no action.
The Invest in Transportation Act—soon to be introduced as a bi-partisan bill by Senators Rand Paul and Barbara Boxer—relies on repatriation, which would provide a tax holiday to companies that bring their foreign earnings back to the US. Instead of paying the usual 35 percent tax on these earnings, they would pay 6.5 percent and would also be given a pass on penalties for avoiding prior unpaid taxes. Currently, there are almost $2 trillion in foreign earnings that could be repatriated, but it is unclear how much this effort would raise; revenue estimates will vary substantially based on whether the Paul-Boxer bill calls for a mandatory or voluntary program.
Repatriation has been critiqued as a one-off, and as a revenue source that will ultimately lose more money than it brings in. The nonpartisan Joint Committee on Taxation estimates that it will initially bring in about $20 billion, but will end up costing $96 billion as companies attempt to game the system. According to Senate Finance Committee Chairman Orrin Hatch, “Tax holiday proposals designed to pay for the transportation bill sound great until you look at the details.”
Despite the potential downsides of these proposals, others aren’t much better: a wholesale tax on barrels of oil; an attempt to ditch the estate tax repeal; a straight-up 15 cent increase in the gas tax; and perhaps the most radical idea: an outright repeal of the federal gas tax, leaving the states to come up with their own solutions. According to an analysis by Transportation for America, New York would have to compensate by raising their gas tax by 41 cents, Connecticut by 35 cents and New Jersey by 30 cents.
