Two plans for highway investments, zero plans to pay for them

Pandemic-driven recession forces both parties to rule out gas tax increase

The idea of increasing the gas tax has grown increasingly unpopular since the onset of the coronavirus pandemic.  (Caroline Brehman/CQ Roll Call file photo)
The idea of increasing the gas tax has grown increasingly unpopular since the onset of the coronavirus pandemic. (Caroline Brehman/CQ Roll Call file photo)
Posted June 8, 2020 at 6:30am

As the deadline to renew the current highway bill approaches, so too does one likelihood: It won’t happen unless the federal government prepares itself to go further into debt.

The federal gas tax-fueled Highway Trust Fund, which has not fully paid for highways, roads, bridges and transit since 2008, has borrowed $140 billion from the general revenue since then to meet its expenses. It would need that same amount over the next five years under a House highway bill introduced last week.

Another option is that the federal government finds some sort of financing instrument, such as bonds, and takes advantage of historically low interest rates to borrow the money needed to fix the nation’s roads.

Both President Donald Trump and House Transportation and Infrastructure Chairman Peter A. DeFazio have suggested the latter, with Trump suggesting up to $2 trillion for a massive highway bill and the Oregon Democrat suggesting paying back the bonds by indexing the gas tax to inflation

“We would come out ahead if we did it in that form,” DeFazio said last week.

What both parties appear to have finally ruled out, thanks to the pandemic-driven recession, is a gas tax increase.

“I don’t think you should raise taxes in 2020, and I’m not even sure about 2021,” economist Douglas Holtz-Eakin, a Republican economist who is now president of the American Action Forum, told the Senate Environment and Public Works Committee on Thursday. “This is not the right time to sort of provide additional headwinds to the economy.”

“I don’t think there’s anyone, Republican or Democrat, who wants to go into the elections saying, ‘Yeah, oh, by the way, we just doubled the gas tax,’” said Marc Scribner, a transportation expert with the Reason Foundation.

And the fuel tax itself is quickly becoming passé as vehicles have become more efficient and in some cases not reliant on gasoline at all. The pandemic, with its stay-at-home orders, has crystallized the need for a new kind of vehicle tax.

“Motor vehicle taxes are not the appropriate base any more,” Holtz-Eakin said.

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But the most popular alternative to the gas tax — a mechanism that would charge people based on vehicle miles traveled, or VMT — is nowhere near ready for national deployment. 

Long term, both Democrats and Republicans say they believe a VMT mechanism would be the best route to pay for highways.

But while a handful of states have pilot VMT programs, even proponents agree that the new funding mechanism is not ready for national deployment. A highway bill introduced by House Democrats last week would expand a pilot program, and DeFazio said he backs an eventual transition to a VMT model but believes the method isn’t ready for widespread use. 

House markup

DeFazio’s five-year, $494 billion bill will be marked up June 17, and he hopes to get it on the House floor the week of July 1. His bill does not include a funding mechanism; that’s the jurisdiction of the House Ways and Means Committee. 

The Senate Environment and Public Works Committee, meanwhile, approved a five-year, $287 billion highway bill last July, though at least three other panels, including Senate Finance, have yet to approve their parts of the measure.

With the current law expiring Sept. 30, urgency is growing. 

In addition to beating that deadline, many lawmakers believe activity involved with building roads and bridges may help rejuvenate the economy. 

Holtz-Eakin, who backed the Senate bill last week, argued that infrastructure should be folded into future pandemic response bills, saying that “there’s a place in the response to this pandemic for durable, long-term investments” that might provide employment to some of the hospitality and leisure workers who have lost their jobs during the pandemic.

Others argue that the political will for deficit spending on infrastructure just isn’t there. Adie Tomer, who leads the Metropolitan Infrastructure Initiative at the Brookings Institution, said Senate Majority Leader Mitch McConnell has appeared reluctant to put infrastructure among the legislative solutions to the pandemic, focusing instead on small business loans and protective equipment. 

“These are all higher priority issues on Capitol Hill right now, and for good reason,” he said.

Still, Tomer argued there’s an economic argument to be made for paying for infrastructure to boost the economy, as well as a good case for borrowing the money to do so. 

“In 2024, I would hope it would be paid for and that you would have a good user fee in place,” Holtz-Eakin said.

“But as a matter of doing business in 2020, it’s less important. The response to the crisis is most important right now, and that investment involves taking care of the economy at the expense of tidying up the budget,” he added.

Scribner said the embrace of nontraditional debt funding sources reflects the “overall desperation” of lawmakers who want to pay for infrastructure but are unclear on how to do it.

“They’re sort of running out of traditional ideas that might work there,” he said. “I see it as sort of a sign of desperation.”