With Americans driving less, the federal government has been unable to generate enough revenue from gasoline taxes to keep pace with the cost of highway construction and repair. A Congress-appointed commission is proposing a tax hike to make up for lost revenue.

As manufacturers buckle down to stem their transportation expenditures, a proposal by the National Surface Transportation Infrastructure Financing Commission due later this month may put a snag in their plans. The 15-member panel is reported to be calling for a 50 percent increase in gasoline and diesel fuel taxes to finance highway construction and repair, according to the Associated Press.

Members of the infrastructure financing commission say they will urge Congress to raise the gasoline tax by 10 cents a gallon and the diesel fuel tax by 12 to 15 cents a gallon. The increase would bring the tax for gasoline to 28.4 cents a gallon and as much as 39.4 cents a gallon for diesel fuel. Additionally, the commission allegedly will recommend tying the tax rate to inflation, Outsourced Logistics says.

Extra money must be generated because the current gas tax doesn’t pay enough for the upkeep of the U.S. transportation system, Adrian Moore, vice president at the Reason Foundation and a member of the commission, explains to the AP.

As the commission laid out in a February 2008 interim report, the current funding system suffers from three main flaws:

1. Insufficient revenue to maintain and improve the transportation network;
2. Misalignment between current funding mechanisms and transportation system use, resulting in costs growing faster than revenue; and
3. Investment of revenue not cost effective.

The Highway Trust Fund, which is the primary source for transportation infrastructure and is majority-funded by federal gasoline taxes, has been unable to generate enough revenue because Americans have been driving less and reducing fuel use.

Plus, “as vehicles become more fuel-efficient, Americans will be able to drive more miles as they pay less in fuel taxes, making a highway maintenance system that depends on gasoline taxes unsustainable,” Moore said to Reuters.

According to the commission’s draft report, the tax increase is a short-term measure to raise nearly $20 billion more each year than currently collected, Reuters notes. A study by the Transportation Research Board of the National Academies (via the AP) estimated that the annual gap between revenues and the money needed for highway and transit system improvements will increase to $134 billion in 2017 under current trends.

Moore does not support the tax hike, but adds that it’s the only solution that can be immediately implemented. He and the rest of the financing commission believe that the long-term solution is a mileage-based revenue system where the vehicle is billed on the number of miles driven, on what type of roads and the time of day. The creation and installation of such a system would take about 10 years, the AP reports.

The tax-hike proposal will be the second increase recommendation made to Congress in a year. Though the first was opposed, an emergency bill in late 2008 moved through Congress and the Bush Administration to pass and sign the needed legislation to prop up the Highway Trust Fund, Outsourced Logistics adds.

If the upcoming tax-increase proposal passes, it will pose more monetary challenges for manufacturers who were already looking to reduce fuel costs. A September 2008 survey of 450 manufacturers in the U.S. and Canada by manufacturing online marketplace MFG.com showed that 28 percent have begun buying materials from suppliers closer to their plants to stem fuel costs. Another 25 percent were reviewing their transportation and logistics contracts to find ways to trim fuel use. Only 14 percent said they would absorb the higher fuel costs and accept lower profits.

Whether the proposed tax hikes will change some manufacturers’ minds about absorbing higher fuel costs is yet to be seen.

Another question that remains unanswered is whether tax hikes or usage fees will be more effective in keeping the Highway Trust Fund solvent while keeping costs reasonable for American drivers and businesses. What’s your take? Would you rather a tax hike or pay a usage fee?

Resources

Panel Wants Fuel Taxes Hiked to Fund Highways
by Joan Lowy
The Associated Press, Jan. 1, 2009

The Path Forward: Funding and Financing Our Surface Transportation System
National Surface Transportation Infrastructure Financing Commission, February 2008

U.S. Gas Tax Needs Hike, Overhaul: Commission
by Ayesha Rascoe
Reuters, Jan. 3, 2009

Gas Tax Hike or Use Fee?
Outsourced Logistics, Jan. 6, 2009

Manufacturers Seek to Reduce Fuel Costs
by Jeff Moad
Managing Automation, Nov. 7, 2008