Freight-related Taxes

The Commission explored several revenue options that specifically target freight-related activities. These options, evaluated in Exhibit 3-6 and discussed further in Chapter 5, include new mechanisms such as a national container fee and freight-related sales tax, as well as the expansion or diversion of existing sources, such as customs duties and the harbor maintenance tax. While the Commission's focus is on identifying overall federal revenue sources and not on suggesting how funds might be allocated, the discussion of these options includes recognition that a significant portion of the revenues from any or all of these sources would likely need to be dedicated to freight-oriented projects and programs. For all of these sources, either individually or in some combination, it is anticipated that dedicating the resulting funds would greatly improve their viability. For the port-related options, it is also assumed that a further targeted intermodal investment fund would be the appropriate mechanism.

• Container Fees-A national container fee could be established on some or all containers moving through a U.S. port. A $10 fee on every container moving through a U.S. port would currently raise about $500 million annually; thus a $20 fee per container would be required to raise $1 billion annually.17 If the charge is only assessed on imports, it can be expected to raise approximately one-third less revenue.

CONTAINER FEES

Pros

• Raises a moderate level of funding

• Moderate implementation, administration, and compliance costs

• Strong sustainability

• Justifiable as a flexible, dedicated transportation funding source

• Description - Fee on containers moving through U.S. ports

• Yield - $10/container =$500 million

• Tax to raise $1 billion annually = $20/container

• Conclusion - Strong option

Cons

•  Does little to promote efficient system use

•  Potential constitutional and international trade law conflicts

•  Could be viewed as discriminating against international shippers

•  Limited applications of tax; benefits mostly limited to states with large port facilities

• Freight Waybill Tax-A freight waybill tax essentially would be a sales tax on freight shipping costs. It estimated that a tenth of a percent tax on all truck freight waybills would raise about $620 million annually and a similar tax on waybills for all modes would raise $740 million. The tax rates to raise $1 billion per year would thus be 0.16 percent and 0.14 percent, respectively.

FREIGHT WAYBILL TAX

Pros

• Small percentage tax rate raises significant revenues

• Strong sustainability

• Justifiable as a flexible, dedicated transportation funding source

• Description - Sales tax on freight bills

• Yield - 0.1 % truck/all modes = $620 million/$740 million

• Tax to raise $1 billion annually = 0.16%/0.14%

• Conclusion - Moderate option

Cons

• Does little to promote efficient investment or system use

• Would require significant effort to implement and administer tax, particularly if applied to private carriers, as discussed further in Chapter 5

• Weak relationship between tax and adverse impacts/user benefits, in part because of potential difficulty of imposing on captive freight activities, but also because shipping costs, and thus the tax, more tied to value of goods shipped than their weight, while weight determines wear and tear on the system

• Could lead trucks to pay more than their fair share

• Harbor Maintenance Tax-The harbor maintenance tax was established in 1986 as the source of funding for the Harbor Maintenance Trust Fund, which provides funding for, among other things, U.S. Army Corps of Engineer harbor activities (particularly dredging) and St. Lawrence Seaway Development Corporation operations and maintenance costs. The tax is currently applied as a 0.125 percent ad valorem fee on the value of passenger tickets and declared commercial cargo loaded onto or unloaded from vessels using federally maintained harbors. (As a result of a court challenge, the export portion of the tax was found to be unconstitutional and halted in 1998.) The current tax raised $1.4 billion in 2007. Increasing the tax to 0.135 percent (an additional one one-hundredth of a percentage point) would raise another $110 million per year; thus an additional tax of 0.089 percent would be required to raise $1 billion annually.18 Another option is to reallocate a portion of existing funds, which have historically been underutilized for surface transportation.

HARBOR MAINTENANCE TAX

• Description - Ad valorem fee on passenger tickets and declared value for commercial cargo

• Yield-0.01% = $110 million

• Tax to raise $1 billion annually = 0.089%

• Conclusion - Moderate option

Pros

• Strong sustainability

• Few if any incremental implementation, administration, and compliance costs of increased tax

Cons

• Does not raise significant revenues

• Existing tax has faced several legal challenges

• Adverse incentive effects, potentially encouraging diversion of cargo that could be carried by coastal shipping onto already crowded coastal highways and encouraging construction of ever-larger vessels that require expensive dredging of harbors

• By taxing waterborne activities, potential weak connection to surface transportation unless strictly dedicated to port-related investments

• Customs Duties-A transportation infrastructure surcharge could be added to the existing customs duty fee schedule, with the associated revenues dedicated to transportation. Customs duties are imposed at varying rates on various imported goods passing through U.S. international gateways and currently go to the General Fund of the U.S. Treasury. Total customs duty receipts are expected to grow by nearly 7 percent per year for the next 10 years, which could create room for dedicating a portion of these funds to transportation. The imposition of a 1 per- cent transportation surcharge on customs duties would provide approximately $286 million annually for transportation; thus a 3.5 percent allocation or surcharge would be required to raise $1 billion per year.19

CUSTOMS DUTIES

• Description - Surcharge on all customs duties

• Yield-1% = $286 million

• Tax to raise $1 billion annually = 3.5%

• Conclusion - Strong option

A number of interest groups, as well as the Policy Commission, have suggested that given the role transportation infrastructure plays in facilitating the import of goods, a portion of current customs duties should be allocated to support transportation investment. Although there are certainly justifications for doing so, such an approach would not raise additional revenues for the government and would thus effectively be a General Fund transfer.

Pros

• Small percentage diversion/increase provides significant revenues

• Sustainable and potentially justifiable for dedication to surface transportation

• Little or no additional cost of implementation, administration, or compliance

• High geographic equity if funding is spent on infrastructure to support ports

Cons

• Potential to raise international trade and tariff issues

• Does little to promote efficient investment or system use

• Little or no relationship between tax and adverse impacts/user benefits

• Diverts or expands a mechanism that is currently used and viewed as an important U.S. General Fund revenue source

WEIGHT AND DISTANCE TAXES

• Weight and Distance Taxes-Freight-related use also could be taxed through the imposition of an excise tax based on either the weight of freight moved (a ton-based tax) or as a function of both weight and distance (a ton-mile tax). Variations of these taxes have been imposed by a few states in the past, but there has not been an equivalent tax imposed at the federal level. It is estimated that a 1¢ per ton assessment on freight moved by trucks would raise $107 million annually; a similar tax on freight moved by all modes would raise $155 million. Thus a tax of 9.45¢ per ton or 6.35¢ per ton (respectively) would be required to raise $1 billion per year. A tenth of a cent per ton-mile assessment on freight moved by trucks would raise $1.2 billion annually; a similar tax on freight moved by all modes would raise $4.2 billion. Thus a tax of 0.08¢ or 0.02$ per ton-mile (respectively) would be required to raise $1 billion per year.

• Description-Tax on truck freight movements

• Yield - 1¢/ton = $107 million

• Yield-0.1¢/ton-mile = $1.2 billion

• Tax to raise $1 billion annually = 9.45¢/ton; 0.08¢/ton-mile

• Conclusion - Weak option

Pros

• Potential for both approaches to raise a reasonable amount of revenues (as discussed further in Chapter 5)

• Justifiable as a flexible transportation funding source dedicated to surface transportation

• Potential positive impact on efficient system use

• Strong link between impacts on the system and taxes paid; however, less so for a ton tax, since tax is only tied to vehicle weight and not also to distance vehicle is driven

Cons

• Likely to face strong political opposition from truckers/rail companies and shippers

• Impact of tax heaviest on shipment of low-value bulk items (e.g., natural resources and agricultural products); as a result, could cause mode shifts due to high price sensitivity for bulk goods movement

• The ton tax, since not distance-based, would shift disproportionate share of bur- den to short-haul truckers

• Significant implementation, administration, and compliance issues/costs

• Not likely to be a short-term option due to political and administrative hurdles

• Does little to promote efficient investment

EXHIBIT 3-6: EVALUATION OF FREIGHT-RELATED REVENUE OPTIONS*
	Revenue Option
	Container Fees		Freight Sales Tax		Harbor Maintenance Tax		Customs Duties		Freight Ton-Based Tax		Freight Ton- Mile Tax
Criteria	Raw	Weight	Raw	Weight	Raw	Weight	Raw	Weight	Raw	Weight	Raw	Weight
Revenue Stream Considerations
Revenue potential	❷	0.28	❺	0.70	❷	0.28	❹	0.56	❹	0.56	❹	0.56
Sustainability	❹	0.32	❺	0.40	❹	0.32	❺	0.40	❸	0.24	❸	0.24
Flexibility	❹	0.18	❺	0.225	❸	0.09	❹	0.18	❹	0.18	❹	0.18
Justification for dedication	❹	0.18	❺	0.225	❸	0.135	❹	0.18	❺	0.225	❺	0.225
Implementation & Administration Considerations
Public acceptance/ political viability	❹	0.36	❷	0.18	❸	0.27	❸	0.27	❷	0.18	❷	0.18
Appropriateness for federal use	❹	0.28	❹	0.28	❺	0.35	❺	0.35	❹	0.28	❹	0.28
Ease/cost of implementation & administration	❹	0.28	❷	0.14	❺	0.35	❺	0.35	❶	0.07	❶	0.07
Ease/cost of compliance	❹	0.18	❷	0.09	❹	0.18	❹	0.18	❶	0.045	❶	0.045
Economic Efficiency/Impact Considerations
Promotion of efficient investment	❸	0.21	❷	0.14	❸	0.14	❸	0.21	❷	0.14	❷	0.14
Promotion of efficient use	❷	0.28	❷	0.28	❷	0.28	❷	0.28	❸	0.42	❹	0.56
Creates/mitigates side effects	❸	0.105	❷	0.07	❷	0.07	❷	0.07	❸	0.105	❸	0.105
Equity Considerations
User/beneficiary equity	❹	0.40	❷	0.20	❸	0.30	❸	0.30	❷	0.20	❷	0.20
Equity across income groups	❸	0.105	❸	0.105	❸	0.105	❸	0.105	❸	0.105	❸	0.105
Geographic equity	❹	0.14	❸	0.105	❸	0.105	❸	0.105	❸	0.105	❸	0.105
Overall Score/ Weighted Rating	49	3.30	44	3.14	45	3.09	50	3.54	40	2.855	41	2.995
Applicability to level of government		F,S		F		F		F	F,S		F,S
5 = Excellent , 4 = Very Good, 3 = Good, 2 = Fair, 1 = Poor; F = Federal, S = State, L = Local

*For revenue options that are dependent upon utilization of a targeted investment fund as a basic premise for feasibility, such a fund is assumed for evaluation purposes (e.g., for all freight-related funding mechanisms and more specifically those more narrowly targeted to intermodal port and harbor-related investment).