The model for fixing the federal transportation funding shortfall may lie just across the Potomac River.
Virginia enacted a plan this year that is projected to bring in $5.9 billion for transportation projects over the next five years — without increasing the per-gallon gasoline tax.
In fact, Virginia did away with its statewide 17.5 cents-per-gallon tax at the gas pump entirely, in favor of a new wholesale tax of 3.5 percent on gasoline and 6 percent on diesel, along with an increase in the state’s general sales tax. In the heavily populated Washington suburbs and Tidewater area, motorists pay an extra 2.1 percent sales tax on gas purchases. Drivers of electric vehicles pay a $64 annual fee.
The idea of a wholesale tax replacing a fee assessed at the pump is getting close attention in Congress, as lawmakers preparing to write a new surface transportation authorization next year look for creative ways to shore up the Highway Trust Fund. The fund relies primarily on per-gallon taxes on gasoline and diesel, which have slumped as motorists drive less and embrace fuel-efficient vehicles. In recent years, Congress has supplemented the trust fund with direct appropriations.
A wholesale tax on motor fuels would solve one of the central problems facing the trust fund by naturally adjusting for inflation. The per-gallon tax of 18.4 cents for gasoline and 24.4 cents for diesel hasn’t been increased since 1993, so the trust fund’s buying power has steadily eroded with rising prices. Taxing a percentage of wholesale motor fuels costs would boost revenue as prices rise without forcing lawmakers to revisit the question with politically painful votes to raise taxes.
“Several states are turning to a percentage highway fee that is paid for at the refinery level,” Senate Environment and Public Works Chairwoman Barbara Boxer, D-Calif., said last month at a hearing on highway financing. “This could bring in more than all of the other taxes bring in for transportation.”
Sean T. Connaughton, Virginia’s Transportation secretary, says the wholesale tax should provide more long-term stability than the cents-per-gallon tax that it replaced.
“We were able to show our legislature that we weren’t going to have enough money, even for federal matches, by 2017,” he said.
Making sure the federal side of those matches is still there is one of the pressing funding issues facing Congress in the next year. The two-year surface transportation authorization passed last year (PL 112-141) relied on more than $21 billion in general fund transfers to keep the Highway Trust Fund solvent through fiscal 2014. Senate Finance Chairman Max Baucus, D-Mont., has said tax-writers won’t be able to find enough budget offsets to pay for a similar general fund subsidy in the next highway bill. But raising motor fuels taxes — even if the levy is assessed at the wholesale, rather than the retail level — continues to face strong opposition in Congress.
“I don’t think it’s fair or reasonable to expect middle-class families to endure a net tax increase,” said Sen. David Vitter of Louisiana, the ranking EPW Republican. “And I don’t agree with that, don’t support that and I don’t think that’s doable in terms of this Congress at all.”
Likewise, energy-producing groups such as the American Petroleum Institute generally oppose increasing taxes on motor fuels, which range from a low of 30.8 cents per gallon for gasoline in Alaska — when state and federal taxes are combined — to 71.6 cents per gallon in California.
Also opposing the Virginia tax changes was anti-tax activist Grover Norquist and his group, Americans for Tax Reform.
“Gov. Bob McDonnell should have known better,” Norquist said in a statement when the tax became effective in July. “He walked down a dark alley with tax and spend Democrats and got mugged.”
Supporters note that while the public generally balks at paying higher taxes, there tends to be support for boosting revenue as long as tangible improvements to transportation infrastructure are obvious.
While policymakers investigate a variety of ideas — including vehicle-mileage taxes — for raising more transportation infrastructure revenue, lobbyists such as Janet Kavinoky of the U.S. Chamber of Commerce contend that none can replace the existing gas and diesel taxes in the short run. Because there already is a well-established system for collecting the current gas and diesel taxes, raising those levies could serve as an efficient bridge to a new form of financing in the future, they say.
“There are multiple revenue options that could work alone or in combination,” Kavinoky said. “But we continue to believe the simplest, most straight-forward and effective way to generate enough revenue for federal transportation programs is through increasing federal gasoline and diesel taxes.”