This morning I testified at a hearing held by the Senate Committee on Environment and Public Works about the long-term solvency of the Highway Trust Fund. My opening statement focused on the trust fund’s status, options for highway spending, and options for generating revenues.
The Trust Fund’s Status
For more than a decade, the government has been spending more each year from the Highway Trust Fund than the revenues collected for it, which are mostly taxes on gasoline and diesel fuel and various taxes on heavy trucks. CBO estimates that the balances in the trust fund’s two accounts, which are for highway and mass transit spending, will be exhausted next year. The total shortfall over the next 10 years is projected to be $195 billion if the taxes that are currently credited to the trust fund remain in place and if funding for highway and transit programs increases annually at the rate of inflation.
If the trust fund’s balances were to be exhausted, the federal government would not be able to make payments to states on a timely basis. As a result, states would face challenges in planning for transportation projects because of uncertainty about the amount or timing of payments from the Treasury.
Options for Highway Spending
In 2019, the federal government spent $47 billion on highways. Almost all of that was through grants from the trust fund to state and local governments for capital projects—that is, building new roads and rebuilding existing ones.
As lawmakers consider options for reauthorizing surface transportation programs, they face many choices about how much to spend.
- For example, if lawmakers wanted to maintain the current conditions and performance of the highway system, the government would need to spend at least $55 billion per year over the next decade.
- If they wanted to fund all projects whose benefits exceeded their costs, the government would need to spend at least $71 billion per year over the next decade.
The amount of money needed to generate those benefits would depend on the quality of the projects selected.
Options for Generating Revenues
Any increase in spending from the trust fund would require additional income to it. One possibility would be to collect more money from users of the highway system. Currently, users impose many costs that they do not pay for, including wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. A combination of taxes on fuel and mileage that made users pay for more of the costs they impose would make use of the system more efficient.
If lawmakers wanted to increase revenues by charging users of the system, they would have various options.
- One option would be to increase existing taxes on gasoline and diesel fuel. Those taxes have been unchanged since 1993. For instance, increasing them by 15 cents per gallon and indexing them to inflation would raise $26 billion in revenues in the first year. That amount would increase gradually over time.
- Another option would be to impose new taxes on users of the system. For instance, the government could impose a tax on vehicle miles traveled (VMT). Some states—Kentucky, New Mexico, New York, and Oregon—already levy VMT taxes on commercial trucks. CBO recently found that each 1 cent per mile of federal tax would raise $2.6 billion per year if it was levied on all commercial trucks and all roads, once the practical steps to implement it were in place.
Among the considerations for policymakers is that implementing new taxes would probably be more costly for the government than increasing current taxes. And some approaches would raise concerns about privacy, especially if applied to personal vehicles.
New approaches to taxing highway use, such as a VMT tax, could be assessed through demonstration projects. Those projects would take different approaches to key components of a tax, allowing lawmakers to assess which approaches were most effective. For example, the projects might tax different vehicles and roads, apply different taxes at different times of day, and assess or collect tax in different ways.
Another possibility for providing money for the trust fund would be to spread the burden of those costs broadly, rather than imposing them only on users of the highway system. For example, since 2008, the federal government has transferred over $150 billion from the general fund of the Treasury to the Highway Trust Fund. Unlike some of the options for increasing the amounts credited to the Highway Trust Fund, such as increasing the gas tax, funding highways through broad-based taxes would have the advantage of not imposing a larger burden, relative to income, on lower-income households.
Joseph Kile is CBO’s Director of Microeconomic Analysis.