Business & Investment

How does the Highway Trust Fund work?

As Congress attempts to negotiate a multi-year ground transport reauthorization bill to replace the FAST Act, which expires on September 30, finding funding to pay it will be the most controversial issue. .. At the heart of payment questions is the Highway Trust Fund (HTF).

Congress established the Fund in 1956 as a way for the federal government to fund the construction of interstate highway systems. After much work on the system was completed, spending from HTF shifted to financing ground transportation infrastructure.

In 1982, HTF was split into a highway account and a mass transit account. Programs funded through highway accounts are managed by the Federal Highway Authority, and programs funded through transportation accounts are managed by the Federal Public Transport Authority.

Federal funding accounts for approximately 25% of total highway and transportation project spending, most of which flows through HTF and the rest funded by state and local governments.

Source of income

Taxes on gasoline and diesel fuel generate most of the income flowing into HTF (see graph). Gasoline, diesel and other motor fuels accounted for 82% ($ 36 billion) of the revenue funded in 2019, according to the latest data from the Congressional Budget Office (CBO).

Receipts from taxes of 18.4 cents per gallon on gasoline and ethanol blends contributed to the fund’s largest revenue of $ 26 billion. Receipts from taxes of 24.4 cents per gallon on diesel and other fuels totaled $ 10 billion. Taxes on gasoline and diesel fuel have been in force since 1993, and the tax rate has not been adjusted since then.

Note: “Other sources” include interest income, civil penalties and fines, and intra-government transfers.
Source: CBO, FHWA, IRS

Income from three other taxes specific to heavy vehicles will also be credited to HTF. Excise tax on trucks and trailers, which is equivalent to 12% of the selling price of trucks, and trailers over a certain weight accounted for 12% of the fund’s revenue in 2019. The fund also collects taxes on the use of heavy vehicles (up to $ 550 per year for trucks over $ 100 55,000 pounds), and certain tires on heavy trucks are taxed. Taxes specific to these three trucks accounted for $ 6.9 billion collected in 2019.

The looming shortage

A balanced CBO project for both Highway Trust’s highway and transit accounts will be exhausted in 2022. If the taxes currently credited to the Trust Fund remain unchanged and funding for highway and transit programs increases at inflation rates each year, the CBO’s February 2021 baseline budget forecast shows that between 2022 and 2031. The total shortfall accumulated on the Highway Trust’s highways and mass transit accounts totals $ 195 billion.

“Improved fuel efficiency means drivers use less fuel to travel the same distance and therefore pay less fuel tax,” CBO economic expert Joseph Kile said on April 14. Testified at a parliamentary hearing. Numerous decisions on how to design and implement new taxes to achieve intended revenue targets and address highway user equity and privacy concerns in managing those taxes. “

Save money

Kile pointed out several options for maintaining HTF solvents, such as raising existing taxes on gasoline and diesel fuel. The CBO analyzed two options. Increase taxes by 15 or 35 cents per gallon and adjust for subsequent inflation.

Using the 15-cent growth scenario, HTF revenue increased $ 26 billion in 2023. This will close the fund’s shortfall and generate an additional $ 95 billion in revenue by 2031. In the 35 cents growth scenario, the fund’s earnings will grow. It increased by $ 60 billion in 2023, and cumulative fuel tax revenue from 2023 to 2031 was estimated to be $ 627 billion higher than the CBO’s February 2021 baseline forecast.

However, tax increases that have a direct impact on consumers are by no means popular, and many believe that Congress is unlikely to choose this alternative this year. Parliamentarians can also impose new taxes on mileage and freight movements, and charge electric vehicles.

Another option, which may eventually be another option, is to send money from the Treasury’s general resources to HTF. Since 2008, the federal government has sent more than $ 150 billion to HTF from its Treasury account, according to the CBO.

Click here for more Freight Waves articles by John Gallagher.

How does the Highway Trust Fund work? How does the Highway Trust Fund work?

Back to top button