The United States will start running out of money for highways, roads, and bridges in August — and Congress is now scrambling for a fix.
To recap: The federal government is responsible for about 25 percent of all spending on highways, roads, and bridges in the United States — and that money comes from the Highway Trust Fund. But the trust fund is now running low, not least because the 18.4-cents-per-gallon federal gas tax, last raised in 1993, is no longer enough to cover all spending.
Once the highway portion of that trust fund runs out in August, the US federal government will have to scale back the payments it makes to states by about one-third. Billions of dollars worth of state transportation projects could get put on hold.
That's why the House and Senate are racing to figure out ways to make up the shortfall. Many politicians prefer a short-term fix for now: They'd have to scrounge up at least $8.1 billion to fill the fund and maintain transportation spending through December 31. But after that, Congress would need to come up with a longer-term fix.
So here's a rundown of the five major ideas right now to avert a crisis:
1) The House Ways & Means bill: A short-term fix until May
House Republicans have crafted a bill in the Ways and Means Committee to transfer $10.5 billion into the Highway Trust Fund — enough to push back the funding crisis until May 31, 2015.
What the bill does: How does the House muster up $10.5 billion without increasing the deficit? About $1 billion of the money comes from a different trust fund that was set aside to deal with leaking underground storage tanks.
Another $3.5 billion would be raised through fees on travelers who use US customs facilities. (These fees have been in effect since 2012, with the money going toward transportation.)
Finally, the bill would raise $6.4 billion over 10 years by extending "pension smoothing" — a provision that was first enacted in the 2012 transportation bill to plug the trust fund shortfall. This move basically allows companies to delay contributions to their pension plans. Since those contributions are tax deductible, this increases the amount of revenue that companies pay to the federal government, at least in the short term.
The obstacles: Critics of the House bill have raised a couple of different objections. For one, the Ways and Means proposal would only avert the crisis until next May — making it likely that Congress will just resort to yet another hasty short-term fix next year rather than addressing the underlying structural problems with the Highway Trust Fund.
Some Democrats would prefer to deal with the highway problem this December, in the lame-duck session right after the midterm elections. But Rep. Dave Camp (R-MI), the chairman of the Ways and Means Committee, is against this approach. "We all know what lame-duck deals look like, and more importantly, how they come together," Camp said on Thursday. "They are not done in this room and they are not done by the members of this committee."
Other tax experts have criticized the "pension smoothing" provision. As Len Burman points out, the move may not actually raise any money: Yes, companies can reduce their pension contributions now under the rules. But the amount those companies will eventually owe in pensions doesn't change — which means they'll have to increase their contributions later (and tax revenues will fall). Meanwhile, the Bipartisan Policy Center argues that the move increases the odds that companies will underfund their pensions.
2) The Senate Finance bill: A (different) short-term fix until May
Over in the Senate Finance Committee, Sen. Ron Wyden (D-OR) and Sen. Orrin Hatch (R-UT) put together a different bipartisan bill to transfer $10.8 billion into the highway fund and fend off a crisis until early next year. This has a few tweaks that appear to less palatable to many Republicans.
What the bill does: The Wyden-Hatch bill is pretty similar to the House bill in some respects — it also transfers $1 billion from that leaking storage tank fund and raises $2.9 billion through custom fees. But there are some important differences.
For one, the Senate bill only raises $2.7 billion through "pension smoothing" — in part because Wyden wanted to keep that option open for other legislation. But that means Wyden had to find other sources of revenue.
So the Senate bill raises the rest of the money through a variety of tax-enforcement measures, fines, and penalties. It gets $3.4 billion through tweaks meant to improve tax compliance from some taxpayers, such as homeowners. It increases fines on Medicare providers with delinquent tax debt. And extends penalties on tax preparers who don't comply with rules for the child tax credit. You can see the full list here.
The obstacles: House Republican leaders are opposed to many of those additional methods of raising revenue — which raises the possibility of a clash between these two stopgap bills. Meanwhile, some Senate Democrats don't like the fact that this bill would punt the issue until next May — at which point there's a real chance Congress will punt again. Sen. Tom Carper (D-DE) has said he'd oppose the bill for this very reason.
3) The Murphy-Corker bill: Raise the gas tax!
Another approach would be to address the long-term shortfall in the Highway Trust Fund by raising the gas tax. This is the approach favored by a few politicians like Sen. Bob Corker (R-TN).
The logic is that federal transportation spending has traditionally been paid for by federal gas taxes — and Congress should bring back that system.
In recent years, the arrangement has fallen apart: The federal gasoline tax, currently at 18.4 cents per gallon, hasn't been raised since 1993 and wasn't indexed to inflation. As a result, gas-tax revenues have fallen over time — particularly as Americans drive less and buy fuel-efficient cars. Hence the current shortfall.
What the bill does: Corker and Sen. Chris Murphy (D-CT) have a proposal to hike both the gas tax and diesel tax by 6 cents per gallon each in 2015 and another 6 cents per gallon in 2016. The gas tax would then be indexed to inflation so that it didn't decline over time. This move would raise some $164 billion for infrastructure over the next 10 years — essentially eliminating the shortfall in the Highway Trust Fund.
There's a catch, however. The senators' proposal would also use the money to make permanent a number of tax breaks on corporations that Congress tries to renew every year. That last move is a bit odd: as Danny Vinik points out, the Murphy-Corker bill would essentially use the gas-tax revenue to pay for two different things at once — infrastructure and corporate tax cuts.
The obstacles: Raising the gas tax is wildly unpopular among politicians. Even the Obama administration has shied away from supporting a gas tax hike. Many members of Congress find it more palatable to vote for things like "pension smoothing."
4) The Boxer-Vitter bill: A six-year highway bill
There are also a few members of Congress who would prefer enacting a long-term transportation bill that set clear priorities for years — rather than chug along with stopgap bills. That, the argument goes, will allow states to engage in long-term planning.
Back in April, Sen. Barbara Boxer (D-CA) and Sen. David Vitter (R-LA) passed a bill out of the Senate Environment and Public Works Committee to do just that with a six-year transportation bill.
What the bill does: The Boxer-Vitter bill would essentially keep federal transportation spending at current levels for the next six years, adjusted for inflation (current federal spending is around $55 billion per year). The bill only makes a few small changes to current transportation policy, like providing a bit more money to address bottlenecks around freight construction.
But here's the catch: The bill doesn't say anything about how to pay for that spending. That question essentially gets punted to the Senate Finance Committee, run by Ron Wyden. So this bill doesn't address the really difficult question around transportation right now.
The obstacles: It's easy to say 'let's maintain current transportation spending for another six years.' But the tricky part is figuring out how to pay for it. That's why House Speaker John Boehner has said there's little chance of a long-term transportation bill passing Congress anytime soon.
It's worth noting that the Obama administration has put forward a similar proposal to spend $302 billion on infrastructure over the next four years. The funding shortfalls would be made up through a corporate income tax hike that would raise $150 billion. The only problem? This proposal has no chance whatsoever of passing the Republican House.
5) The do-nothing option: Bring on the transportation spending cuts!
There's, of course, another conceivable option here: Congress could simply do nothing and let transportation spending drop, starting in August, once the Highway Trust Fund runs out.
Once the Highway Trust Fund is exhausted, the government can only use existing gas-tax revenues to pay for spending — which would lead to a roughly 28 percent cut in federal payments to states.
Some conservative groups don't think this would be the end of the world — and would be preferable to tax hikes or spending increases. Last week, Dan Holler of Heritage Action noted that federal government only provides about 25 percent of total US transportation spending — so total transportation spending would only fall by 7 percent. "Bottom line," Holler concluded, "America is not facing 'a transportation government shutdown,' and lawmakers should stop trying to create an artificial crisis which they can use as an excuse to raise taxes or increase spending."
The obstacles: Letting transportation spending fall also seems to be wildly unpopular. Indeed, House Republicans tried to cut transportation spending sharply in 2012, and ended up backing down under criticism from state officials, Democrats, and even a few members of their own party.