House Democrats are talking enthusiastically about passing a big infrastructure bill by summer. President Trump keeps hinting at it, and so do congressional Republicans. Everyone, it seems, acknowledges the need for more money for repairing or building roads, bridges, public transit and the like. Here’s what they don’t agree on: How to pay for it.
Full disclosure: I just spent $800 (!&%!) for two new tires and a front-end repair thanks to some of Maryland’s biggest and best potholes. There are so many, I can’t even tell you which one of the monster ruts did the deed.
Lawmakers seem to put the revenue discussion in one of three buckets, at least when they are willing to talk about it at all: Raising the motor fuels tax in some fashion, rolling back some of the high-income or corporate tax cuts in the 2017 Tax Cuts and Jobs Act (TCJA), or expanding public-private partnerships (P3s).
Bipartisan support
Let’s start by ruling out changes in the TCJA. If there is going to be a bipartisan bill that Hill Republicans will support and Trump will sign, it isn’t going to include changes to the TCJA –the GOP’s centerpiece legislative achievement in 2017. Besides, while Democrats want to reverse some of the law’s tax cuts, many have other plans for the money. For example, presidential hopeful Sen. Kamala Harris (D-CA) would squirrel it away to help pay for her big new refundable tax credit for low- and moderate-income households.
Plan B is a hike in the federal gas tax, which is supposed to support the Highway Trust Fund. But for more than 25 years, the tax has been stuck at 18.4 cents per gallon for gasoline and 24.4 cents for diesel fuel. Congress not only needs money to pay for new spending, it must find $166 million over 10 years just to pay for currently planned projects.
Raising the gas tax terrifies most members of Congress, even those from heavily-Democratic big city districts. Gas prices at the pump fluctuate wildly and many consumers would not notice an extra dime or more of tax. Yet, politicians fear that every time the price at the pump rises, voters would blame it on higher taxes.
Uncharacteristically, many businesses support raising the levy. Even the US Chamber of Commerce, which usually can be counted on for its knee-jerk opposition to any tax, any time, likes this one. Chamber president Thomas Donohue favors a 25 cent per gallon hike in the federal fuel tax.
States on their own
Faced with deteriorating roads and the inability of Congress to act, states have raised the gas tax on their own. From 2013-2018, at least 28 states have raised their levies, according to the National Conference of State Legislatures, though many increases have been modest.
Raising the existing tax is just one option. Another is reforming the levy. And one way to do that is to base a tax on miles driven rather than gallons of fuel purchase. Such a levy would tie a driver’s taxes to his use of the roads. Several states, including Oregon, California, and Colorado, have experimented with such a vehicle miles traveled tax, and Rep. Peter DeFazio (D-OR) has proposed a national demonstration project. Rep. Sam Graves (R-MO) has proposed a similar tax.
P3s
The third alternative is for government to partner with private investors who would finance projects in return for revenue from tolls or other user fees. The idea has been around for years, and was a key element in President Trump’s initial infrastructure proposal—a plan that fell flat with Congress and seemingly generated little enthusiasm even in the White House.
The track record for these partnerships has been decidedly mixed. A few years ago, my TPC colleague Tracy Gordon looked at the pros and cons. Her conclusion: While P3s certainly could play a role and perhaps reduce public costs, governments need to carefully manage them. And, in the end, they’d likely play only a minor role in financing infrastructure since only some kinds of projects can support fees (for example, it is hard to put a toll on city streets). And keep in mind that P3s don’t provide new revenue. The cost of the project still has to be paid back somehow.
President Trump has not made the funding issue any easier by steadfastly refusing to talk about any new tax. That effectively leaves the issue up to a deeply divided Congress. Until lawmakers can find a way to agree on some form of new revenue, don’t count on a major infrastructure bill anytime soon. And watch those potholes.
