The Fuel Tax and Alternatives for Transportation Funding Special Report 285 (2006) / Chapter Skim
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6 Finance Reform Proposals: Reforms Within the Present Framework
6 Finance Reform Proposals: Reforms Within the Present Framework
Pages 158-178
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From page 158... ...
Never theless, it will be necessary to continue to rely on present finance arrangements for most of the next 20 years and to take every opportunity to reinforce the proven features of the system, in particular, user fee finance in the highway program. This chapter describes several kinds of finance reform measures that do not depend on developing major new revenue sources or on fundamentally altering institutional arrangements: · Measures to increase available resources: Reducing evasion and limiting exemptions Indexing tax rates Reforming use of debt finance 158
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From page 159... ...
The descriptions in this chapter organize the proposals, somewhat arbitrarily, into three categories according to their main objectives: measures to increase available funds (including accelerating spending with debt financing) , to improve pricing (that is, adjusting existing user fees to bet ter match the costs of travel)
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From page 160... ...
, but the rates in the majority of states and the fed eral tax rates can be changed only by legislation. Consequently, although revenues from cents-per-gallon fuel taxes and dollars-per-vehicle registration fees rise with increasing highway use, they decline with inflation until the legislature acts.
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From page 161... ...
States that enacted ad valorem taxes in the 1970s saw revenues plunge along with fuel prices in the early 1980s, and states enacting such taxes in the 1980s, anticipating 45,000 40,000 35,000 millions) 30,000 25,000 (2002 20,000 15,000 Dollars 10,000 5,000 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 Tax computed from existing rates Tax indexed to CPI Tax indexed to FHWA construction index Ad valorem tax Tax on light vehicle mileage FIGURE 6-1 Federal gasoline tax revenues under various indexing methods.
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From page 162... ...
The review concluded that indexing to the CPI had proved to be the best way to keep revenue in pace with inflation and that limiting annual changes, by indexing an increment of the gas tax rather than the entire tax or by capping the annual change in the rate, would increase public acceptance. Figure 6-1 shows annual constant-dollar revenue of the federal excise tax on gasoline since 1960 and estimates of annual revenues if the tax had been indexed to the CPI or the FHWA highway construction cost index in 1960.
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From page 163... ...
It enacts multi year authorizations to allow the states to plan, but the rate of disbursement of fed eral grants is governed by the rate of federal user fee collections (because the balance in the Highway Trust Fund is usually kept to less than 1 year's spending)
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From page 164... ...
The objective would be to allow highway agencies to recover some costs that current fees do not fully recover and to provide incentives for more cost-conscious use of highways. User fees, which were described in Chapter 2, include federal and state fuel taxes; state registration, license, and permit fees; the federal excise taxes on tires and on new heavy trucks and trailers; and the federal Heavy Vehicle Use Tax.
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From page 165... ...
The revenue from the tax is dedicated to the Highway Trust Fund. It raised $940 million in 2003, 3 percent of federal high way user fee revenue (FHWA 2004, Table FE-9)
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From page 166... ...
There is no federal excise tax on light vehicles. Three possible refinements to federal and state user fee schedules merit con sideration: · Graduating the federal Heavy Vehicle Use Tax and state annual truck reg istration fees to correspond more closely to relative cost responsibility as indi cated in federal and state cost allocation studies.
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From page 167... ...
Whether they receive special subsidies or not, operators of high-mpg vehicles will pay less in user fees per mile of travel than operators of conventional vehicles as long as cents-per-gallon fuel taxes are the main component of the fees. An incentive that subsidizes road use by forgiving payment of highway user fees can unnecessarily increase the cost of meeting the conservation or emissions goal.
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From page 168... ...
. Excise taxes or registra tion fees would be other mechanisms for charging road user fees to operators of advanced-technology vehicles.
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From page 169... ...
Distributions from the mass transit account of the Highway Trust Fund 4.7 Distributions from highway account of the Highway Trust Fund and devoted to transit 1.1 State and local highway user revenue devoted to transit 4.4
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From page 170... ...
. In addition to the highway user fee revenues dedicated to transit by fed eral law (and deposited in the mass transit account of the Federal Highway Trust Fund)
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From page 171... ...
The possible revenue sources evaluated were the gasoline tax or other highway user fees, transit fares, the property tax, income taxes, and sales taxes. Raising property, sales, and income tax rates will cause economic dislocations that have costs.
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From page 172... ...
Support for devolution sometimes has come from states that historically have received less in federal transportation aid than the federal highway user fee tax revenues collected within their boundaries
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From page 173... ...
, the 1996 report of the Commission on Transportation Investment recommended that the state seek to have the federal government repeal the federal gasoline tax and return to California its share of the balance of the Federal Highway Trust Fund (CTI 1996)
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From page 174... ...
Under one reasonable definition of the scope of federal responsibility for highways, the federal government should ensure the supply of capacity that is ben eficial from a national perspective but that state and local governments would not adequately supply on their own. State and local governments will have little inter est in providing capacity to serve through traffic if it contributes little to local taxes and local residents' incomes.
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From page 175... ...
· A category of essential federal highway programs would be retained: The Interstate Maintenance Program, a federal categorical grant program now funded at $6 billion per year, Federal spending for roads on public lands and Indian reservations, Surface transportation research, and Certain highway safety and motor carrier safety programs. · During the transition period, the difference between spending each year on the essential federal programs and federal highway user fee revenues would be distributed to the states proportionally to tax collections in each state.
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From page 176... ...
Among the measures listed, several appear to hold promise for improving the stability of transportation funding and the performance of the transportation sys tem. They include adjusting fees according to the cost of providing service to dif ferent kinds of road users, in particular, large trucks; improving tax compliance and limiting exemptions from payment of user fees; providing additional dedi cated funding sources for transit; and better aligning the responsibilities of federal, state, and local governments with the character of the transportation services pro vided.
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From page 177... ...
2000. Cheating Our State Highways: Methods, Estimates, and Policy Implications of Fuel Tax Evasion.
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From page 178... ...
Peters, Administrator, Federal Highway Administration, Before the Committee on Finance, United States Senate: Hearing on Schemes, Scams, and Cons: Fuel Tax Fraud. Senate Finance Committee, July 17.
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