May 19, 2015

Since this week Congress is once again considering the insolvency of the Highway Trust Fund (caused by the inadequacy of its dedicated revenue sources ability to support the spending levels set by Congress), it is worthwhile to look back at this history of this problem, not just in the United States, but in other countries.

This week’s ETW Document of the Week is a January 1923 memo to the Cabinet (of the United Kingdom, not the United States) by John Waller Hills, at the time a Liberal Unionist MP representing Durham City who was also serving as the Financial Secretary to the Treasury.

Hills’ memo on the UK’s Road Fund (created in 1909 with a dedicated revenue stream from motor vehicle taxes) deals with a number of issues we are facing today, including:

  • Should individual revenue sources be dedicated to specific fund accounts within the Treasury, or should all taxes be pooled to offset all expenditures?
  • Does the fact that a previous Parliament or Congress in years past made one bargain with taxpayers (promising to dedicate certain revenues to a certain fund) really bind future Parliaments or Congresses to keep faith with that bargain?
  • Should surpluses in dedicated funds, when not needed, be transferred to other pressing causes?
  • Should spending limits on such hypothecated revenue accounts be implemented?

The debate went on for several years, but Hills’ argument won over a later Chancellor of the Exchequer named Winston Churchill, who began appropriating Road Fund surplus balances back to general revenues in 1926. Parliament formally abolished the dedicated revenue stream for the Road Fund in the Finance Act of 1936.