Highway Trust Fund Needs Funds : Permaent Solution Needed

If politicians were really serious about the revenue gap in the Highway Trust Fund, it would have been fixed a long time ago. But the fact of the matter is there is no over riding need to fix anything these days, especially our highways. What's important is building and increasing the voter base by taking money from the trust fund for others things that are not related to the our transportation needs.

It really make sense if the funds that are made available to highways was used solely for this purpose, there wouldn't be a problem. But too many politicians find their ability to divert funds to support pet projects that will make them look good back home is just too easy and profitable.

I believe a proposal that would eliminate the transference of funds out of the fund to support other projects is a sure fire solution. Raising the gas tax is too easy and not a permanent solution under any circumstances. States need to have more control over how the funds are spent and the tax rate as well. Taking the federal tax money out of the hands of Washington and returning it back to the states as block grants is a winner for sure.

But given how politicians operate, there isn't much chance of actually getting a solution of any kind any time soon. Actually do the right think for the country is nonsense, where's their profit in that?

Permanent Solution for the Highway Trust Fund
Source: Kyle Pomerleau, "Options to Fix the Highway Trust Fund," Tax Foundation, March 05, 2015.

March 17, 2015

The Highway Trust Fund does not raise sufficient revenue to cover its obligations. One of the main reasons is the constant erosion of the value of the gas tax, its largest source of funding.

Some members of Congress and the President are pursuing unsound tax policy as a temporary fix. Lawmakers looking for additional revenue to replenish to trust fund should devise permanent provisions that conform to the trust fund's long-standing, user-pays standard. One option to fix the trust fund is to raise the gas tax while offsetting that tax increase with an equal reduction in another tax.

There are good policy reasons to raise more revenue from the gas tax in exchange for lowering the revenue received from other taxes.

• The gas tax is a relatively less distortive tax. Lowering more distortive taxes and raising the same amount of revenue from non-distortive taxes would lead to a larger economy.
• The gas tax conforms to the benefit principle more closely than other taxes levied by the federal government. Lowering taxes that do not conform to the benefit principle of taxation and raising the gas tax is an opportunity to connect government revenue to related expenditures.
• Closing the funding gap in the Highway Trust Fund would grant lawmakers additional time to focus on other priorities.

The Taxes and Growth Model reveals a number of tradeoffs.

• If Congress would like to make this change pro-growth, one option would be to lower the capital gains tax rate.
• If Congress would like to address distributional concerns with the gas tax but are not concerned with economic growth, an option would be to expand the earned income tax credit.
• If Congress would like to maintain neutral distribution and growth while fixing the trust fund, one option would be to expand the standard deduction.