Fixing the Highway Trust Fund
On the cover of the president’s latest budget proposal (PBP) is a picture of an old style, steel girder highway bridge; it was presumably meant to convey the urgency of upgrading the nation’s “infrastructure.” Budget of the US Government, Office of Management and Budget, fiscal year 2016 (download PDF).
The primary source of highway spending at both the federal and state levels has traditionally been motor fuel taxes. This ensures that the people who use the roads will contribute to the cost of building and repairing them. But alas, the federal Highway Trust Fund (HTF) has been operating in the red for years, necessitating periodic transfers from general revenues.
The solution generally proposed is more dedicated tax revenues for the HTF. And since an increase in motor fuel tax rates would be unpopular, less noticeable sources of revenue are being sought. The urge to raise taxes is alive and well, 6/22/15 (section A).
Last week, the Senate passed the DRIVE [Developing a Reliable and Innovative Vision for the Economy] Act, which is seen as the down payment on a longer-term solution. Senate passes multiyear highway funding bill 65-34, Susan Ferrechio, Washington Examiner, 7/30/15.
The Senate's multi-year bill would authorize transportation funding for six years and pay for the first three years by stepping up tax code enforcement and selling off a significant portion of the U.S. Strategic Petroleum Reserve.
The House had already adjourned for the August recess after passing another short-term fix (until October 29). This bill was also passed by the Senate and sent to the White House. Before signing it, the president urged a longer-term solution. Obama scolds Congress for leaving town, Nicole Duran, Washington Examiner, 7/31/15.
We can't have bridges collapsing and potholes not being filled because Congress can't come up with an adequate plan to fund our infrastructure budget for more than three or five or six months at a time. And I hope that members of Congress are listening, and I hope that Republicans can work things out among themselves as well as work out things with Democrats.
But there is far more involved in this situation than the tendency of Congress to put off decisions until the last minute. Let’s take a look at some underlying problems and consider some possible solutions.
A. Follow the Constitution – The Constitution expressly requires (Article I, Section 7)
that bills for raising revenue originate in the House of Representatives; amendments can, however, be offered in the Senate. This was a key compromise at the Constitutional Convention, which helped to persuade the larger states like New York and Virginia to accept disproportionate influence of smaller states like Delaware in the Senate. Our Lost Constitution, Mike Lee, 2015.
Compliance with the origination clause became inconvenient at some point, so a workaround procedure (“amend” a House revenue bill by replacing its substantive content with a bill drafted in the Senate) gained acceptance. It was used in passing GovCare, for example, and also the DRIVE Act. Thomas, search for H.R. 22, download PDF).
Resolved, That the bill from the House of Representatives (H.R. 22) entitled ‘‘An Act to amend the Internal Revenue Code of 1986 to exempt employees with health[care] coverage under TRICARE or the Veterans Administration from being taken into account for purposes of determining the employers to which the employer mandate applies under the Patient Protection and Affordable Care Act.’’, do pass with the following AMENDMENTS: Strike all after the enacting clause and insert the following:[text of an over 1,000 page bill on other subjects].
Sorry, but we think the origination clause should be observed in substance as well as form. The Senate has special powers of its own, such as confirming appointees and ratifying treaties, and it shouldn’t need to horn in on a function (proposing revenue increases) expressly reserved for the House.
B. Scrutinize spending – Some observers seem to think the nation’s roads will crumble and its bridges collapse unless far more money is spent on the system. America’s crumbling roads and bridges, Richard Schlesinger, cbsnews.com, 2/24/11.
• . . . the American Society of Civil Engineers issues a report card every 4 years on the state of America's infrastructure. The last one in 2009 was not good at all. The overall grade was a "D." *** Bridges got a "C" - but even with that average grade, 12 percent of the more than 72 thousand bridges are too old or what's politely called structurally deficient. *** The problem with bridges became impossible to ignore in 2007, when the I-35 bridge collapsed in Minneapolis. Thirteen people died.
•China spends 7 percent of its Gross Domestic Product on its infrastructure. India spends 5 percent. The United States spends less than 2 percent. Engineers think the U.S. will have to spend $2.2 trillion over 5 years to bring the overall grade for infrastructure up to an “A.”
A similar message is conveyed in the president’s budget proposal, e.g., at page 25.
There is certainly enough work to do, with $2 trillion in deferred maintenance on the Nation’s infrastructure. *** In the most recent World Economic Forum rankings, the United States had, in less than a decade, fallen from 7th to 18th overall in the quality of its roads. *** The Budget includes significant investments to repair the existing infrastructure and build the infrastructure of tomorrow in smart, efficient, and cost-effective ways.
Whew! If an additional $2 trillion was made available for “infrastructure” spending, say partly via appropriations and partly via loans & loan guarantees, there’s no telling what the money would be used for. Perhaps our political leaders should lower their sights.
Thus, HTF deficits could be reduced by better controlling outlays versus hiking taxes. Forging a highway funding fiasco, Stephen Moore, Washington Times, 7/26/15.
•Stop using motor fuel revenues for unrelated expenditures. Rapid transit facilities, bike paths, etc. should stand on their own merits rather than being charged to the HTF.
•Save money on highways and bridges by terminating the Davis-Bacon requirement that contractors pay prevailing wage rates determined by the Department of Labor.
•Have the states assume responsibility for more roads and bridges within their respective borders, raising their own taxes or imposing tolls as needed, instead of supplying federal funding.
C. Keep legislation simple – The more subjects a given bill covers, the more difficult it becomes to (1) understand and evaluate what is being proposed, and (2) vote “yes” or “no” on the overall merits. While a one subject per bill rule might be impractical, some bills go to the opposite extreme.
The Affordable Care (GovCare) and Dodd-Frank (GovFinance) acts provided for expanding government power in two key segments of the economy with a host of complex provisions and uncertain results (some of the regulations still remain to be written, let alone put into effect).
The DRIVE Act doesn’t seem quite as bad, but it covers many subjects that one might not expect to find in a highway funding bill, e.g., terms for resurrecting the Export-Import Bank charter and a 467-page tome on “comprehensive transportation and consumer protection” that wasn’t even mentioned in most media reports. Should Americans have to read all this extraneous stuff to decide whether the proposed approach re highway funding should be enacted?
Provisions to “pay for” higher HTF outlays are a mishmash, including adjustments to the basis of inherited property, increased fines for inaccurate reports to the IRS, tax law changes that would take place years in the future (can be counted against current outlays under the “Paygo” rules), and sale of a portion of the strategic oil reserve (at currently low market prices). Watch your wallet!
So far the administration’s proposals for increased taxes on offshore earnings of US earnings have not been worked into the mix. The urge to raise taxes is alive and well, 6/22/15 (Part A).
But Congress isn’t done with its work, and some corporate tax increases (with little logical connection to the highway network) may yet surface to help shore up the HTF. House passes highway funding, sends short-term bill to divided Senate, Tom Howell Jr., Washington Times, 7/29/15.
The House still wants [a] six-year highway bill that would rely on a one-time tax on business income brought back to the U.S. The funds are needed to close a $90 billion gap between anticipated road spending and federal gas tax revenue. But Republican leaders [going on to cite Speaker John Boehner], facing a Friday deadline to keep money flowing from the highway trust fund, delayed those long-term plans to September.
Some Republican senators (e.g., Rob Portman and Lindsay Graham) would not be averse to taxing roundly $2 trillion in accumulated offshore corporate earnings to defray US highway costs. GOP looks to tax overseas profits to fund highways, Joseph Lawler, Washington Examiner, 6/11/15.
And in the House, Ways and Means Chairman Paul Ryan has expressed enthusiasm for corporate tax “reform,” which he apparently assumes could generate a chunk of cash up front and yet make the tax law better in the future. One of the ideas under consideration is an ultra low (10%) US tax on income attributable to patents and other intellectual property, which would supposedly encourage multinational firms to locate their R&D operations in the US. Lawmakers unveil tax plan on intellectual property, John McKinnon, Wall Street Journal, 7/29/15.
Members of the panel, led by its influential chairman Paul Ryan (R., Wis.), are hoping to use the overhaul to make American businesses more competitive compared with foreign rivals, and make the U.S. itself more attractive as a place to do business. With the help of some Democrats, they hope the overhaul can generate enough tax revenue in the short run to take care of another problem—shoring up the troubled federal highway program.
We don’t like the sound of this. The principles and procedures for allocating corporate income between intellectual property and “other” would introduce new complications in a system that is already overly complex and needs to be greatly simplified. Moreover, for reasons previously discussed, (1) an overhaul of the entire income tax system (not just corporate taxes) is needed, and (2) demanding immediate revenue gains for the government would erode the already fragile support for this effort. Five don’t dos for tax reform, 4/20/15.
D. Fix Senate rules – Further to the previous point, why does Congress write lengthy bills covering a host of subjects that are at best loosely connected. The reason, we think, is to build consensus for passage by giving as many legislators as possible something they can claim credit for (while keeping quiet about provisions that might not play as well with their constituents).
The time-honored art of “log rolling” has particular importance in the Senate, where at least 60 votes (out of 100) are required to prevent a filibuster of most bills. This means that a determined minority can block action on proposals that are supported by a majority of senators, triggering a search for offsets and compromises to defuse the opposition. No wonder so many mega bills are drafted, often leaving key issues to be settled by the bureaucrats that will implement the legislation, and proposals that can’t be enacted on a standalone basis wind up being inserted in “must pass” legislation.
However illogically, the DRIVE Act provides for resurrection of the Export-Import Bank. And for all Senator Ted Cruz’s indignation about the matter (he called Majority Leader Mitch McConnell a liar on the flood of the Senate), it appears that McConnell had made an earlier commitment on this point. How Democrats hope to revive the Export-Import Bank, Melissa Quinn, dailysignal.com, 7/8/15.
Democrats in the Senate, though, will likely attach Ex-Im reauthorization to legislation extending the Highway Trust Fund, which expires July 31 and has been dubbed a piece of “must-pass legislation.” The move comes after Senate Majority Leader Mitch McConnell promised Sens. Maria Cantwell, D-Wash., and Lindsey Graham, R-S.C., a vote on Ex-Im last month.
To limit the need for this type of nonproductive maneuvering, we would suggest eliminating the filibuster. The new norm would be that the Senate could pass bills by majority vote after a reasonable amount of time for debate and offering amendments. No constitutional amendment would be required, just a change in the hoary Senate rules.
Although the filibuster may serve a useful purpose in some instances, and there is support for it on both sides of the aisle, we believe the time has come to make this change. Otherwise, the institutional decline of Congress will continue while the Executive Branch grows ever more powerful. Something’s got to give in the US Senate, 2/23/15.
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IN GENERAL, we have suggested (1) respecting the origination clause, (2) putting more emphasis on spending control (a principle applicable to all government programs, not just highways), (3) pushing for across the board, revenue neutral tax reform, and (4) eliminating the filibuster. But these ideas aren’t likely to be accepted quickly, so what should the members of the House do about highway funding when they return to Washington in September?
The DRIVE Act is not deemed satisfactory, but there won’t be a great deal of time to develop and pass a House alternative (particularly one including proposed changes to corporate taxes) and resolve the differences between it and the Senate bill in conference. Bear in mind that the current HTF fix only runs through October 29. Five fights waiting for Congress this fall, Jordain Carney, The Hill, 8/1/15.
At the risk of sounding a bit radical, here is the approach we would suggest:
FIRST, disregard the DRIVE Act on grounds that it is a revenue bill that should not have been proposed by the Senate in the first place.
SECOND, come up with a descriptive title for the House bill, such as the Funding Roads and Bridges Act, and restrict the provisions of the bill to that general subject.
THIRD, before getting to revenue increases, focus on measures that would reduce the amount of expenses being funded with motor fuel tax revenues, e.g., terminate funding of rapid transit facilities, bike paths, etc. through the HTF. See Part B, supra.
FOURTH, if and only if additional revenues still appear necessary, raise motor fuel tax rates to cover the projected shortfall – as Senator Tom Carper (D-DE), for one, has repeatedly urged.
Congress has always used excess road taxes and Social Security to pander for more votes. I don’t think that will stop any time soon. – SAFE director