How Much of a Gas Tax Increase Would the Trump Reauthorization Plan Require?

How Much of a Gas Tax Increase Would the Trump Reauthorization Plan Require?

February 14, 2020  | Jeff Davis

After we had a couple of days to digest the Trump Administration’s ten-year, $810 million surface transportation reauthorization proposal, we asked the question – if the Highway Trust Fund portion of the plan were to be funded solely by increasing federal gasoline and diesel fuel excise taxes, how much would those taxes have to be increased?

The plan would provide $755 billion in contract authority from the Trust Fund over the ten year period of fiscal years 2021-2030 and would assume obligation limitations in each fiscal year equal to that contract authority. The Office of Management and Budget estimates that the amount of extra cash that would go out the doors of the Treasury over the ten-year period (outlays) from increased obligations over the (inflation-adjusted) baseline level would be $75.4 billion.

The Congressional Budget Office last month released its updated Highway Trust Fund cash flow forecast, which estimated that, under current tax rates and FY2020-plus-annual-inflation spending levels, the Trust Fund would need $188 billion to get to zero balances every year through the end of 2030 ($133.9 billion for the Highway Account and $54.1 billion for the Mass Transit Account). Add to that the need to have a small cash “cushion” on hand at the end of every year so that neither account runs out of cash on a day-to-day basis at the height of warm-weather construction season while waiting for twice-monthly tax deposits), and the size of the “revenue hole” increases to $193 billion or so at baseline.

Add the extra $75 billion from the Trump plan, and you get $263.5 billion in extra tax receipts of other transfers needed.

(Yes, we know you’re not supposed to mix estimates, but CBO is the only year-by-year Trust Fund baseline we have so far, and OMB’s outlay estimates for the Trump plan are the only ones we have, so we are forced to mix CBO tax and current law spending estimates with OMB new spending estimates. The budget does say that the OMB estimated for the Trust Fund end-of-2030 baseline revenue hole is $185 billion, which is only $3 billion off from CBO, and being only 1.6 percent apart at the end of ten years is pretty close, actually.)

If one wanted to fill the revenue hole entirely with increased excise taxes on highway users, and if you did the whole thing by raising the tax rates on gasoline and diesel fuel (and no one – not the Trump Administration, and not any party leader in Congress, is specifically endorsing this), we calculate that you would need:

A 17.5 cent-per-gallon tax increase, phased in over three years:

  • 5.0 cents per gallon increase in FY 2021
  • 6.0 cents per gallon increase in FY 2022
  • 6.5 cents per gallon increase in FY 2023

Split 75 percent for the Highway Account and 25 percent to the Mass Transit Account.

Using the January 2020 CBO revenue baseline, each penny of federal gasoline and diesel taxes is currently projected to bring in $17.7 billion over the next decade ($1.84 billion per penny in 2021, sliding steadily to $1.71 billion per penny in 2030). We have to assume complete inelasticity of demand (assume that increases in price will not decrease demand in the slightest) because we aren’t economists, and we decided not to split tax increases below half-cent increments.

At those CBO multipliers, a 17.5 cent per gallon fuels tax increase, phased in via the above schedule, would bring in $274.5 billion over ten years. A 75-25 split would leave the Highway Account with a projected end-of-2030 balance of $7.5 billion and leave the Mass Transit Account with a projected balance of $3.6 billion at that time. (Our original run had the 2023 increase at only 6.0 cents, but that would have left the Trust Fund with only $2 billion in year-end balances – too low.) Going to a 6.25 cent increase in 2023 instead of 6.5 cents would probably get the end-of-2030 balances closer to the bare minimum, and you might be able to shave a penny or two off of the 2022 and 2023 increases by doing indexation instead, but re-basing the whole tax and then putting in inflation factors each year was more Excel work than we wanted to do.)

Share

Related Articles

White House Shows Flexibility on Taxes on Under-400K Earners

White House Shows Flexibility on Taxes on Under-400K Earners

The Biden Administration opened the door this week to increases in excise tax increases on persons making under $400,000 per year. At...

30 Years Ago: The Failure of the

30 Years Ago: The Failure of the "Nickel for America"

(I meant to revisit this on August 1, on the 30th anniversary of the event, but the rollout of the bipartisan infrastructure bill bumped...

As electric vehicles take off, Washington considers how to tax them

As electric vehicles take off, Washington considers how to tax them

The fuel tax “doesn’t come close to paying for all of the federal transportation spending,” said Robert Puentes, president of the Eno...

How the gas tax could help pay for a $1 trillion infrastructure proposal

How the gas tax could help pay for a $1 trillion infrastructure proposal

Jeff Davis, a fellow at the Eno Center for Transportation, a policy analysis group, estimates the tax would need to be more than...

Looking  Back - When Amtrak Almost Got its Own Trust Fund in 1997

Looking Back - When Amtrak Almost Got its Own Trust Fund in 1997

The discussion in this week’s House high-speed rail hearing of a possible federal trust fund to support Amtrak capital expenditures...

Senate Hearing Kicks Tires on Federal Mileage Fee

Senate Hearing Kicks Tires on Federal Mileage Fee

A Senate hearing on April 14 wound up focusing on what needs to happen next in order to begin the transition from a system that finances...

A gas tax? A mileage tax? Biden wary of user fees to pay for roads, bridges and highways

A gas tax? A mileage tax? Biden wary of user fees to pay for roads, bridges and highways

Eno's Jeff Davis suggests that if the government isn’t willing to increase taxes on highway users, it should reduce spending from the...

What’s Doable If Democrats Go It Alone on Infrastructure

What’s Doable If Democrats Go It Alone on Infrastructure

Congress could tweak the rate of the motor fuels tax -- the main source of money for the Highway Trust Fund -- under reconciliation since...

How Imbalanced Will Another Large Bailout Make the Highway Trust Fund?

How Imbalanced Will Another Large Bailout Make the Highway Trust Fund?

With Democrats holding the White House and both chambers of Congress, a clear appetite exists for significantly increased funding on...

New Census Data Shows State/Local Revenue Loss from COVID Uneven and Less than Anticipated

New Census Data Shows State/Local Revenue Loss from COVID Uneven and Less than Anticipated

New data from the Census Bureau released last week shows that the aggregate state and local tax revenue losses this year from COVID and...

Final Highway Trust Fund Tax Receipts Were Robust in FY 2020 - Suspiciously So

Final Highway Trust Fund Tax Receipts Were Robust in FY 2020 - Suspiciously So

The books have closed on federal fiscal year 2020, which ended on September 30, and despite coronavirus and its effects on travel and the...

Gasoline Production Plateau Continues at 10 percent Below 2019

Gasoline Production Plateau Continues at 10 percent Below 2019

Data from the Energy Department through the end of September continue to support the hypothesis that, post-lockdowns, U.S. gasoline...

Be Part of the Conversation
Sign up to receive news, events, publications, and course notifications.
No thanks