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Gas tax a stable way to fund US highways?

Hydrocarbon Engineering,

Fitch Ratings has said that the American Road & Transportation Builders Association (ARTBA)’s proposal to increase the gas tax is a pragmatic, much needed source to fund investments through the Highway Trust Fund (HTF). The gas tax is the fastest and most reliable method to provide much needed resources for road and rail infrastructure projects in the US. A solution is imperative as the latest extension of funding for the HTF is due to expire on 31 May this year.

Last week, Fitch Ratings has reported that the ARTBA proposed a plan that would increase the HTF by US$27 billion /y over the next six years. The plan would increase the federal gas tax by US$0.15 and offset that increase with a tax credit. The credit would be US$90 rebate for single filters with adjusted gross income (AGI) less than US$100 000 and US$180 000 for joint filters under AGI US$200 000. The tax credit would be funded by a one time repatriation tax on US corporate foreign earnings.

The proposal

The six year proposal is a much needed multilayer stabiliser to facilitate long term infrastructure planning after more than a decade of stop gap measures that have created an atmosphere of instability and inefficiency, incongruent with planning for long lived assets. However, the tax credit offset in this proposal subjects it to the political uncertainty that has resulted in a decline in transportation infrastructure. The effects of infrastructure maintenance and development on the overall economy, job growth, higher incomes, are well known, as is the importance of withstanding natural disasters such as Superstorm Sandy. Such disasters have increasingly weighed heavily on national security through loss of life and physical and economic damage.

The lack of stability is said to be one of the main factors contributing to the estimated SU$3.6 trillion that the American Society of Civil Engineers forecasts will be required in infrastructure spending through 2020. Using the gas tax, which remains the most reliable source for surface transportation infrastructure projects through the medium term, provides the ability to plan for a smoother transition to a more sustainable and efficient funding source for the long term.

Fitch’s view

In the view of Fitch Ratings, longer term solutions for the HTF could include a combination of different funding forms. These include taxes and fees and tolling of existing interstates that could be phased in over time. These is also some risk that a gas tax extension and increase could intensify the inherent inefficiencies in the current system of policy making and procurement. New legislation needs to wean the system off the ways of the past and begin building a more disciplined, outcome driven, performance based accountable framework that better links the beneficiaries of transportation assets to those that pay for it. This will not be easy, but the public needs to understand that taxes and fees are being used efficiently to garner the long term support needed for a 21st century transportation infrastructure.

Edited from press release by Claira Lloyd

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