The current sources of dedicated HTF funding, evaluated in Exhibit 3-2, include federal motor fuel taxes and several truck-related user fees. The clear strength of these sources is their well-established history of raising flexible yet dedicated revenues for highways and transit and their easily and inexpensively implemented rate increases (despite political unpopularity).
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• Motor Fuel Taxes—Federal motor fuel tax rates are currently 18.4$ per gallon for gasoline, gasohol, and special fuels and 24.4¢ per gallon for diesel.1 The tax is collected at fuel distribution points rather than at the pump, and the cost of the tax is incorporated into the fuel price paid by consumers at the pump. Federal motor fuel taxes were last increased, by 5$ per gallon, in 1993. A 1$ per gallon increase on all motor fuels would raise approximately $1.8 billion annually (based on 2007-08 average), thus a 0.56$ rise in motor fuel taxes (3 percent increase for gasoline, 2.3 percent for diesel) would raise $1 billion per year.2 A detailed assessment of motor fuel taxes is provided in Chapter 4. |
MOTOR FUEL TAX |
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• Description - ¢/gallon tax on gasoline, special fuels, and diesel • Yield-1¢/gal= $1.8 billion • Tax to raise $1 billion annually = 0.56¢/gallon • Conclusion - Strong option |
Pros
• Yields significant revenue with a small percentage impact on total motor fuel price
• A user fee (the tax is not paid unless motor fuel is purchased), with an indirect relationship between tax and user benefits/impacts
• Strong history as a dedicated, flexible source of funding that is easy and cost- effective to administer
• Opportunity for increased motor fuel taxes to encourage users to conserve, which has positive effects with respect to environmental, congestion mitigation, and national security goals
Cons
• Sustainability issues: in short term, fixed-rate structure of motor fuel tax leads to reduced purchasing power; in long term, shift to high efficiency and alternative fuel vehicles will reduce motor fuel consumption
• Strong public opposition to motor fuel tax increases (particularly when oil price spikes occur)
• Limited relationship between tax revenues and infrastructure investment, thus does not encourage sound investment practices
• Comparatively regressive tax
• Tax only indirectly related to use—that is, closely related to the amount of use (tax cost per mile) but not to type of facility or time-of-day choices; further, poor proxy for pavement damage costs since there is no weight-based characteristic to the motor fuel tax charge except for poorer fuel efficiency (e.g., for heavy trucks) or for congestion costs
• Adverse geographic equity considerations, since people in rural areas generally travel more
• Truck and Trailer Sales Tax—A federal sales tax of 12 percent is imposed on the retail sales price for the first sale of all tractors and trucks over 33,000 pounds gross vehicle weight (GVW) and trailers over 26,000 pounds GVW, including parts and accessories associated with the sale. A 1 percent increase in the tax rate would raise about $219 million annually (based on 2007-08 aver-age), thus a 4.57 percentage point rise in the tax rate to 16.6 percent (an increase of 30 percent in the total tax imposed) would be required to raise $1 billion per year.3 | TRUCK AND TRAILAER SALES TAX |
• Description - Excise tax as • Tax to raise $1 billion annually = 4.57% • Conclusion - Strong option |
Pros
• Strong sustainability: sales tax yields generally rise with inflation, and changes in vehicle technology unlikely to reduce revenues
• Strong history as a dedicated, flexible source of funding that is easy and cost- effective to administer
• Reasonably acceptable from a public/political perspective (although strongly op- posed by those directly affected)
• Tax at national level creates a level playing field (as opposed to taxing state-by-state)
• Focus of tax on heavy vehicles helps recover costs of their impact on the system
Cons
• Revenue potential limited by the large percentage increase in tax rate required to raise significant revenues (the existing 12 percent tax is already perceived as high) and the large impact of the tax on individuals and businesses
• Unstable and highly cyclical revenues that will become less sustainable in the near term if the economic recession continues
• No relationship between tax paid and either the extent of system use and facility or travel time decisions
• Federal sales taxes generally not popular
May reduce ability of state and local governments to raise their sales taxes
• Potential impact of increased taxes on new truck/trailer sales and undesirable con- sequences, such as increased use of older vehicles and disincentives to purchase add-on equipment, which could have adverse safety and/or environmental impacts
• Raising truck taxes without a corresponding new fee imposed on light vehicles (e.g., a gasoline tax increase) potentially viewed as discriminating against trucks
TRUCK TIRE TAX | • Truck Tire Tax—A federal tax is imposed on the purchase of all tires with a maximum rated load over 3,500 pounds. The tax is justified in part because it helps to recover some of the additional system damage costs caused by heavier vehicles. The current tax rate is 9.45¢ for every 10 pounds of maximum capacity that exceeds 3,500 pounds. An in- crease of 1¢ per 10 pounds of maximum capacity would raise about $45 million annually (based on 2007-08 average), thus the current rate would need to be increased by 22.2¢ per 10 pounds of maximum capacity to raise an additional $1 billion per year.4 |
• Description - Excise tax on new truck and trailers • Yield -1₵/10 lbs load capacity = $45 million • Tax to raise $1 billion annually = 22.20/10 lbs capacity • Conclusion - Strong option |
Pros
• Moderately strong correlation between tax and user benefit/impact; while tax does not consider time of travel or facility choice, does charge increased taxes for greater wear on roads
• Strong history as a dedicated, flexible source of funding that is easy and cost- effective to administer
• Reasonably acceptable from a public/political perspective (although strongly op- posed by specific interests) Tax at national level creates a level playing field (as opposed to taxing state-by- state)
Cons
• A large percentage increase required to raise significant revenue
• Potential undesirable consequences of increased taxes, such as discouraging timely replacement of worn-out tires, which could adversely affect safety
• Some sustainability issues: current fixed-rate structure of tax nonresponsive to inflation and potentially eroded further if technological advances extend tire life
• Not fully related to system costs since trucks with more axles (i.e., tires) would pay higher tax but may cause less pavement damage
• Raising truck taxes without a corresponding new fee imposed on light vehicles (e.g., a gasoline tax increase) potentially viewed as discriminating against trucks
• Heavy Vehicle Use Tax (HVUT)—An annual fee is imposed on all trucks 55,000 pounds GVW or greater. The tax rate is $100 plus $22 for each 1,000 pounds of GVW in excess of 55,000 pounds, up to a maximum annual fee of $550 (thus, all trucks with GVW greater than 75,000 pounds pay the maximum). This tax is justified in part because it helps to recover some of the system damage costs caused by heavier vehicles. A 10 percent increase in both the base rate and the fee for vehicle weights in excess of 55,000 pounds (assuming a concurrent in- crease in the ceiling) would yield about $103 million annually (based on 2007-08 average), thus the base and variable tax rates would need to be nearly doubled (an increase of 97 percent in the total tax imposed) to raise an additional $1 billion per year.5 | HEAVY VEHICLE USE TAX |
• Description - Capacity- based tax on trucks 55,000 GVW and greater • Yield - 10% increase (base and variable amount) = $103 million • Tax to raise $1 billion annually = 97% increase in existing rates • Conclusion - Strong option |
Pros
• Strong correlation between tax and user benefit/impact (charges for nega- tive impacts)
• Strong history as a dedicated, flexible source of funding
• Tax at national level creates a level playing field (as opposed to taxing state-by- state)
Cons
• Large percentage increase required to raise significant revenues
• Some sustainability issues: current fixed-rate structure of tax nonresponsive to inflation
• Raising truck taxes without a corresponding new fee imposed on light vehicles (e.g., a gasoline tax increase) potentially viewed as discriminating against trucks
• History of compliance and administration issues, since it requires fairly extensive self-reporting by owner-operators and/or trucking firms; raising rates could lead to increased compliance issues
• Indexing Existing Sources - Three of the four primary HTF funding sources (the motor fuel tax, the tire tax, and the Heavy Vehicle Use Tax) are flat rate taxes, which means revenues do not rise with inflation or keep up with other factors that influence revenue levels and investment needs (e.g., improvements in vehicle fuel efficiency or growing capacity and reconstruction needs). One option considered in the past but never implemented at the federal level is to index the tax rates for one or more of these mechanisms to inflation and/or some other barometer of funding needs. At a minimum, such an approach would ensure the purchasing power of the HTF is maintained. Broader indexing approaches could adjust rates based on the funding levels needed to sustain a selected level of sys-
EXHIBIT 3-2: EVALUATION OF EXPANDING EXISTING REVENUE MECHANISMS` | ||||||||||||||
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| Revenue Option |
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| Moter |
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| Truck & Trailer |
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| Truck Tire Taxes |
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Criteria | Raw | Weight | Raw | Weight | Raw | Weight | Raw | Weight | ||||||
Revenue Stream Considerations |
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Revenue potential | ❺ | 0.70 | ❷ | 0.28 | ❶ | 0.14 | ❷ | 0.28 | ||||||
Sustainability* | ❷ | 0.16 | ❹ | 0.32 | ❸ | 0.24 | ❹ | 0.32 | ||||||
Flexibility | ❺ | 0.225 | ❺ | 0.225 | ❹ | 0.18 | ❹ | 0.18 | ||||||
Justification for dedication | ❺ | 0.225 | ❺ | 0.225 | ❺ | 0.225 | ❺ | 0.225 | ||||||
Implementation & Administration Considerations |
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Public acceptance/political viability | ❷ | 0.18 | ❹ | 0.36 | ❹ | 0.36 | ❸ | 0.27 | ||||||
Appropriateness for federal use | ❺ | 0.35 | ❹ | 0.28 | ❹ | 0.28 | ❺ | 0.35 | ||||||
Ease/cost of implementation & administration | ❺ | 0.35 | ❺ | 0.35 | ❺ | 0.35 | ❹ | 0.28 | ||||||
Ease/cost of compliance | ❹ | 0.18 | ❺ | 0.225 | ❺ | 0.225 | ❸ | 0.135 | ||||||
Economic Efficiency/Impact Considerations |
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Promotion of efficient investment (production) | ❷ | 0.14 | ❷ | 0.14 | ❷ | 0.14 | ❷ | 0.14 | ||||||
Promotion of efficient use (consumption) | ❸ | 0.42 | ❷ | 0.28 | ❸ | 0.42 | ❸ | 0.42 | ||||||
Creates/mitigates/charges for side effects | ❸ | 0.105 | ❷ | 0.07 | ❷ | 0.07 | ❸ | 0.105 | ||||||
Equity Considerations |
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User/beneficiary equity | ❹ | 0.40 | ❹ | 0.40 | ❹ | 0.40 | ❹ | 0.40 | ||||||
Equity across income groups | ❷ | 0.07 | ❸ | 0.105 | ❸ | 0.105 | ❸ | 0.105 | ||||||
Geographic equity | ❷ | 0.07 | ❸ | 0.105 | ❸ | 0.105 | ❸ | 0.105 | ||||||
Overall Score/Weighted Rating | 49 | 3.575 | 50 | 3.365 | 48 | 3.24 | 48 | 3.315 | ||||||
Applicability to level of government | F,S,L | F,S | F,S,L | F,S | ||||||||||
5 = Excellent, 4= Very Good, 3= Good, 2 = Fair, 1 = Poor; F = Federal, S = State, L = Local | ||||||||||||||
*As noted earlier, for the purposes of a baseline comparison, the scores on Sustainability do not assume indexing (unless built into the mechanism, as with sales taxes). Indexing is discussed separately in this chapter as an overall strategy that is applicable to many funding mechanisms.
tem performance. Indexing all three flat taxes yields the same pros and cons described above for each, with the exception that sustainability issues are substantially resolved (except in relation to the impact of alternative fuel vehicles). A broader description of indexing is provided in Chapter 4.
• Ending HTF Diversions and Exemptions - Over the last two decades, the level of revenues that should have been allocated to the HTF has been reduced because some motor fuel tax receipts have been used to support the General Fund and because of certain tax exemptions. Since 1998, the allocation of motor fuel tax revenues to the General Fund has stopped, but there are still numerous provisions that provide exemptions from paying motor fuel taxes, such as those for fuel used by state governments and political subdivisions, nonprofit education organizations, and emergency vehicles; for fleet operator evaporation allowances; and for motor fuels used off-road for agricultural purposes (on the assumption that most agricultural fuel use does not reflect use of the transportation system).
In 2007, combined exemptions and rebates reduced potential motor fuel tax receipts by more than $1.5 billion.6 These exemptions both add to the growing surface transportation funding deficit and, in some instances, diminish the user/beneficiary pay aspect of federal HTF sources. Exemptions, moreover, may reduce the incentive for exempt users to conserve energy, either by driving less or by driving more fuel-efficient vehicles. These considerations, however, must be balanced against the public policy objectives that serve as the rationale for the various exemptions, considering each specific exemption individually because of the differences in rationale associated with each one. For example, exemptions for governments and political subdivisions (which include many emergency vehicle operators) are based on a long-standing principle of intergovernmental relations— that governments do not tax each other. Because some of these policies and associated rationales for exemption go beyond its purview, the Commission simply raises the issue of competing demands here for consideration by Congress.