Broad-based Taxes and General Fund Revenues

As a contrast to targeted transportation-related taxes and fees, the Commission also looked at potential broad-based funding strategies, including a general national sales tax, dedicated personal and business income taxes, a national property tax, and a dedicated annual transfer from the General Fund of the U.S. Treasury. These options, evaluated in Exhibit 3-5, are spread over a large base and thus have the potential to raise large amounts of revenue with relatively small new or expanded taxes. They also, however, exhibit poor direct beneficiary/user pay correlation attributes. As part of its deliberation, the Commission dismissed a dedicated national property tax from consideration given (among other reasons) the implementation challenges associated with such a tax.

•  National General Sales Tax-A broad-based national sales tax would presumably operate similarly to general sales taxes imposed at the state and local levels, with the tax based on a percentage of net purchase prices for retail items. Such a tax would likely require a complex set of policy decisions about what goods and services should be excluded from the tax base (e.g., foods, clothing, health care, etc.). It is estimated that a tenth of a percent national sales tax would raise $3.3 billion annually; thus a tax of only 0.03 percent is required to raise $1 billion per year.15

Cons

•  General nature of tax makes it more difficult to justify dedicating revenues to surface transportation

•  Major implementation, administrative, and compliance costs/hurdles; unlikely to be viable unless implemented in conjunction with a major overhaul of U.S. tax policy

•  Complexity and challenges of imposing tax means an unlikely near-term option

•  Concept of a national sales tax historically unpopular Highly regressive tax

•  Sales tax revenues more susceptible to volatility than other revenue mechanisms

•  Very weak with respect to economic efficiency and equity criteria; bears no relationship to system use, geographic considerations, etc.

•  No direct relationship between tax and transportation use and thus little opportunity to create efficient system investment or use

•  No relationship to the cost of adverse side effects

•  Dedicated Income Taxes-A national income tax for transportation could be created fairly easily and inexpensively by adding an across-the-board increase to current personal and/or corporate income tax rates. A tenth of a percent increase in the personal income tax rate (or diversion of existing taxes) would currently provide $1 billion in annual revenues for transportation.16 A tenth of a percent increase or diversion of business income taxes would provide approximately $350 million annually; thus an increase or diversion of 0.3 percent would be needed to provide $1 billion annually.

Cons

•  General nature of tax makes it more difficult to justify dedicating revenues to surface transportation

•  Strong public and political opposition

•  Very weak with respect to economic efficiency and equity criteria; bears no relationship to system use, geographic considerations, etc.

•  Potential for dedication to have negative impacts on the federal budget if taken from existing revenues or if it limits increases in general taxes that could address other needs

•  General Fund Revenues-Congress could allocate revenues from the General Fund of the U.S. Treasury to the HTF, either based on pre-established levels or determined through the annual appropriation process. In fact, portions of the federal-aid highway program have at times been financed through the General Fund (e.g., demonstration projects and the Emergency Relief Program), and the transit program continues to receive General Fund allocations. The amount of funding that could be provided for transportation from the General Fund is obviously large, but it also must be considered in light of the current significant overall budget deficit of the United States government. The same pros and cons as listed for dedicating a portion of income taxes apply, except for political viability, which is much higher since it would not be associated with a tax increase.