• Short-term and Medium-term Revenue Potential-Despite the immediate impacts of fuel price volatility and economic turmoil and the growing use of high efficiency and alternative fuel vehicles, current motor fuel tax rates will continue to provide significant levels of funding for surface transportation in the near and intermediate term. This is particularly true for diesel tax revenues, since growth in truck travel will be more sustained through fuel price cycles, since fuel efficiency for freight trucks will improve more slowly than for automobiles, and since there is less potential for shifting trucks to alternative fuels. The latest available HTF projections-from the FY 2009 Budget Mid-session Review and the CBO Summer 2008 Baseline, as well as the Commission's own estimates- show fuel receipts mainly steady in nominal terms at about $35 billion per year through 2013 (Budget Review) or 2018 (CBO). Based on these estimates, an across-the-board increase of 1¢ per gallon in federal MFTs (increases of 5.4 percent in the current federal tax for gasoline and 4.1 percent for diesel) would raise an estimated $1.8-1.9 billion annually for the next 5-10 years.
• Historical Basis for Tax-Dating back to the early parts of the twentieth century at the state level and to 1956 at the federal level, motor fuel taxes have been viewed by the public and political leaders as an appropriate way to fund transportation investment. Although the level of public and political support for these taxes has declined in recent years, there is still wide-ranging recognition and appreciation of the transportation investments that MFTs have facilitated.10 This in turn serves to bolster support for federal fuel taxes to continue as a dedicated source of funding for transportation purposes.
• Flexible Use of Funds-Federal motor fuel tax receipts are determined by motor fuel consumption, meaning travel on all highway system elements, including local roads, contributes to revenue levels. The fact that tax revenues are not directly attributed to individual facility or system component use (and are thus an indirect user charge) provides strong justification for the revenues to be used in a wide variety of ways that provide highway user benefits, including investments in non-highway modes that improve the performance of the overall surface transportation system.
• Administrative Costs/Ease-Because federal MFTs are paid at the fuel terminal level rather than at the pump (and tax costs are then passed onto the consumer), collection of taxes is both straightforward and inexpensive. Estimates of the cost to administer and enforce federal motor fuel taxes range from 0.2 percent11 to 1.0 percent of gross receipts.12 (By comparison, the national personal income tax requires an estimated 0.4 percent of gross receipts to administer and more than 3.2 percent to enforce.)13 In addition, since the costs of administering the federal MFTs are relatively fixed, increasing fuel tax rates would create no additional ongoing administrative burden.
• Ability to Charge for Negative Environmental Impacts, Particularly Carbon Di- oxide Emissions-Historically, the sole purpose of federal motor fuel taxes has been to raise revenues for highway and transit spending purposes. However, the costs of some negative impacts from vehicle use could easily be imputed into the overall tax amount. In particular, the social cost of carbon emissions or other negative environmental impacts from the burning of liquid fossil fuels could be added to the price of gasoline and diesel in the form of an increase in the current federal fuel taxes. This would be appropriate, since the cost of carbon emissions (and to a lesser degree other pollutants) per gallon of fuel consumed is the same, regardless of the time of day or location where travel occurs. Using fuel taxes to charge for other negative impacts, such as adding to congestion during peak hours or pavement damage by vehicles, would not be feasible since there is little correlation between fuel consumption (and thus tax paid) and time-of-day travel decisions or pavement damage.
• User Pay/Benefit Correlation-Although many experts call the fuel tax an indirect user fee, there is a better connection between the benefits a system user receives (i.e., how much they use the system) and the amount of fuel taxes he or she pays than with some other funding options or proposals, such as using general sales tax proceeds or General Fund revenues. There also is a strong public perception that fuel taxes (at least at current levels) are an appropriate source of funding for the Highway Trust Fund.14