Transportation Secretary Vague About Funding $556 Billion Proposal

Published May 19, 2011

While some state lawmakers consider alternatives to the current motor fuel tax system, including taxing motorists based on the number of miles they drive instead of charging a flat excise tax on gallons of fuel purchased (see accompanying article, p. 14), some federal lawmakers are pressing Obama administration officials on how to pay for the president’s $556 billion transportation proposal.

The president introduced a six-year transportation plan with a $556 billion price tag this spring.

Transportation Secretary Ray LaHood has appeared at several Congressional hearing and has been vague about possible funding sources. At a Senate Environment and Public Works Committee hearing in April, he told Senator Barbara Boxer (D-Calif.) only that he looks forward to working with Congress on finding funding.

Favors Tax Indexing
This came after Boxer said she opposes raising motor fuel taxes – but favors indexing them to inflation, which would raise the taxes unless there is no inflation.

“We don’t even know if the president would go that far with us,” Boxer told LaHood regarding indexing the taxes to inflation.

Federal motor fuel taxes are 18.4 cents a gallon on gasoline and 24.4 cents a gallon on diesel. States and many local governments also add their own taxes. The American Petroleum Institute in May reported the 50-state average for state, local and federal taxes combined was 49.5 cents a gallon on gasoline and 55 cents a gallon on diesel.

Boxer said during the hearing, “It’s a good news, bad news story. Good news, because people are getting better fuel economy; bad news because the Highway Trust Fund is slipping. And I’m looking for ways to get more money in there but they’re hard to come by.”

‘Up to Congress’
After the hearing reporters pressed LaHood after for an answer on how to fund the administration’s transportation proposal. He answered: “It’s up to Congress now . . . to come up with their plan and do their debate. We’ve given them an extraordinary blueprint — one that people haven’t seen in a long time.”

A vehicle miles traveled tax would have an advantage over the current tax system, said transportation expert C. Kenneth Orski, editor and publisher of the Innovation NewsBriefs transportation report.

“The VMT fee would provide a more stable measure because it would not be subject to fluctuating demand for fuel nor to the long-term trend of declining fuel consumption because of improvements in vehicle fuel efficiency and transition to hybrids and electrics,” Orski said.

‘Not the Silver Bullet’
But he added, “Once set, raising the VMT fee would be subject to the same political resistance as raising the gas tax. So, in the end, a VMT fee is not the silver bullet that some VMT proponents would have us believe.  It would still be vulnerable to Congressional aversion to raising the cost of driving — just as the gas tax is vulnerable today.”

“The tendency in Washington and in state houses would be to use a VMT fee as a cash cow to fund all sorts of other programs,” said Sam Staley, director of urban growth and land use policy at Reason Foundation. “A change to a VMT fee makes sense if it is a substitute for current taxes, and these fees are dedicated to transportation infrastructure based on demand, so they are a true user fee.”

He added VMT revenues should also be used “to leverage public-private partnerships and other forms of private investment and management of infrastructure.”

‘Huge Privacy Issues’
Staley also addressed the concern that the government could track our movements in vehicles if a vehicle miles tax is adopted.

“Privacy issues are huge, and appropriately so,” Staley said. “In fact, privacy concerns killed a VMT fee initiative in the Netherlands recently. But this is solvable if we put clear restrictions on the use of the information gathered and used, embrace technology as a way to limit government use of this information rather than give it more power, and commercialize the process so that the information is handled by private companies in the same way they are used by cell phone providers and credit card companies.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.