Congress and the president need to step up on highway funding

The two-month authorization for operation of the Highway Trust Fund (HTF) expires July 31, leaving Congress and the president with an urgent need to cooperate to find a longer-term solution. Without further authorization, the Department of Transportation (DOT) will be unable to undertake new obligations, meaning delays for new transportation projects and in reimbursements to states for their expenditures on various ongoing ones.

There is bipartisan agreement in support of federal subsidies for road construction.  The difficulty is how to pay for it.  There is no widespread agreement on what to do next, but the best hope may reside with a bipartisan proposal from Sens. Rob Portman (R-Ohio) and Charles Schumer (D-N.Y.) to levy a modest tax on corporate profits currently held abroad.  Their proposal follows in principle the Obama administration’s, but with a more “corporate friendly” tax rate that may attract support from pragmatic Republicans. There is widespread support for this general approach among innovative lawmakers across the political spectrum, from liberal Sen. Barbara Boxer (D-Calif.) to libertarian Sen. Rand Paul (R-Ky.) to the conservative chairman of the House Ways and Means Committee, Rep. Paul Ryan (R-Wis.).

{mosads}The trust fund’s fiscal problems have been building for a decade, and in part are a consequence of a decay in its relatively unique funding structure, which protected it for many years.  The HTF originated in 1956, as part of the Eisenhower Administration’s development of the Interstate Highway System, with a three cent per gallon tax on gasoline.  This excise tax increased over time and it constitutes a stable dedicated revenue stream that generates about $34 billion a year for highways, and $5 billion more to mass transit.   

But the levy rate has not increased in over twenty years, and increasing fuel economy and less driving means the HTF is unable to rely on fuel consumption to keep pace with inflation and infrastructure needs.  As electric and other alternative energy vehicles increasingly come into use, this problem will simply get worse.  Since 2008, Congress has supplemented the fund by about $10 billion annually to keep the trust fund solvent, using a variety of short-term fixes, but has increasingly struggled to find a way to restore the long-term stability that is needed to plan multi-year construction projects.

Increasing the gas tax rate may seem an obvious solution, but is a political nonstarter. The gas tax, which disproportionately hits rural voters, lower-income workers with long commutes, and families with older and larger vehicles, would be particularly painful to raise. A “mileage” or vehicles mile traveled (VMT) tax, which has been used internationally and is being piloted by the state of Oregon, is somewhat more equitable and captures the costs of electric and fuel-efficient vehicles.  But a VMT faces the same political problem: introducing a new tax on almost everyone can hardly be expected to be popular with either party.

The Obama administration proposes to help fund highways through corporate taxes on existing “repatriated” profits (at a rate of 14 percent) and on new profits going forward. There is obvious political appeal to heavily taxing big companies to fund roads driven by millions of hard-working voters, but Republicans are not going to support it at that level.  The Portman/Schumer plan does not specify a tax rate, creating space for negotiation, but they appear to have in mind something like that earlier proposed by Sens. Boxer and Paul, at around 6.5 percent. 

The advantage Democrats see in this approach is that at least some new taxes will come into the government for needed spending — and programs which might otherwise be cut by a Republican majority to shore up the HTF will be protected.  The advantage Republicans see is a step toward a more internationally competitive corporate tax rate, as well as a way to indefinitely confine any new federal revenue to a function — the highways — they support.

A negotiated link between these two issues is almost certainly too complex to negotiate in the next few weeks.  But if there is good faith willingness to compromise on the corporate tax, a temporary support for the HTF now could be crafted, with an opening for a longer-lasting solution in the Fall.  To support this process, the administration needs to clearly signal it is ready to do business in this area, which will require direct presidential leadership and commitment. This approach is likely the only way to convince an understandably skeptical Republican leadership that there really is what we believe there to be: a policy window for some creative bipartisanship that will keep America moving.

Keckler serves on the Board of the Legal Services Corporation and is former deputy assistant secretary for policy and senior adviser in the Department of Health and Human Services Administration for Children and Families. Rozell is acting dean and professor of public policy at George Mason University.