Yahoo Finance Raising Corporate Taxes Isn't the Only Way to Fund Infrastructure Projects
In some ways, the 18.4 cents that the federal government collects on each gallon of gasoline sold in the United States is the ideal tax. Martin Wachs, a professor emeritus with UCLA's department of urban planning, goes so far as to call it "kind of magical."
It's an excise tax, meaning the government gets paid at the point of manufacture rather than the point of sale. By the time you pull up to the pump, the cost of the tax has been rolled into the sticker price, and most people, Wachs says, have no idea how much they pay. There's no personal data collected along with the tax, so there's no way for anyone to track your behavior based on fuel use or travel patterns. And the money ends up in the Highway Trust Fund (HTF) and is eventually used to finance various transportation-related projects. There's a satisfying logic to the whole arrangement.
But magical taxes may no longer be enough. The country is in desperate need of repair, President Biden has unveiled a massive infrastructure proposal, and the federal gas tax, which will turn 90 next year, is increasingly ill-suited to our modern world. Congress hasn't been able to bring itself to raise the gas tax since 1993, or even to tie it to inflation. Instead, when infrastructure spending threatens to empty out the HTF, Congress has taken to authorizing transfers from the general fund (home to your income tax, corporate taxes, and money from a huge range of other sources) to cover the shortfall.
And the shortfall needs to be covered to even begin to meet our current needs. The American Society of Civil Engineers (ASCE) gave American infrastructure a C- grade in its 2021 report card. Of the 17 categories the ASCE rates in its annual report, only two (ports and rail) were rated above a C+. The report estimates that Americans take 178 million trips a day across bridges that are in poor condition, and that more than 40 percent of the country's roads are in poor or mediocre condition. The ASCE also includes things like water infrastructure, waste management, schools, and energy systems in its rating—a broad view of infrastructure that President Biden shares.
When Transportation secretary Pete Buttigieg was questioned on his plans for the HTF during his Senate confirmation hearings in January, he initially signaled a willingness to consider raising the gas tax. Within hours a spokesperson walked that comment back. Buttigieg later said that raising the gas tax would break President Biden's campaign pledge not to raise taxes on Americans making less than $400,000 a year. That left policy wonks wondering whether the Biden administration would turn to a vehicle-mile-traveled (VMT) tax instead. That's sometimes referred to as a road-usage tax.
That type of tax has been tested at the state level and would solve the problem posed by accelerating electric vehicle sales: EV owners use public roads but aren't currently paying the taxes that maintain them. Pilot programs have been run in California, Oregon, Utah, and in a dozen cities as part of a University of Iowa study. Oregon and Utah both have voluntary, revenue-generating VMT programs, though the adoption rate is still low. The pilots are designed in part to help iron out questions about how the tax would be calculated and collected. In some cases, mileage is tracked using a GPS device or OBD-II module, a small device that plugs into a port on the underside of the dashboard and collects data including location, vehicle speed, and engine speed. Otherwise, the tax can simply be based on a periodic odometer reading.
Wachs, who is a member of California's Road Charge Technical Advisory Committee, a group created to study alternatives to the gas tax, says those pilots have been broadly successful. And though a VMT may worry drivers who log lots of miles, people who drive fuel-inefficient vehicles could end up paying less tax with a VMT system compared to a gas tax (though EV owners will obviously pay more).
But Lee Tien, legislative director at the Electronic Frontier Foundation and also a member of the California advisory committee, says a VMT tax comes along with real privacy concerns. Some of the tracking methods used to calculate a road usage tax would collect valuable data about location and behavior that, unlike the data transmitted by your phone, would be tied directly to vehicle owners' names and addresses. Relying on odometer readings instead of tracking devices eliminates those privacy concerns, but would also be less accurate, because it could include time driving on private roads or outside the state.
Not everyone is interested in limiting the government's collection of data. Some states already sell data from their DMV databases to raise revenue. And Tien says the data would be valuable not only to the government, but to insurance companies, public and private research institutions, and other actors.
For those reasons and more—scaling these programs up from the pilot stage would be a massive logistical challenge, states will have to work to make their systems compatible or else forgo revenue they could otherwise collect from out-of-state drivers—Tien and Wachs both think we're decades away from a large-scale, mandatory VMT tax.
But President Biden has a right-now plan to spend $2 trillion on infrastructure projects. And he would prefer to fund his massive infrastructure bill in a simpler way: by raising the corporate tax rate from 21 percent to 28 percent (the corporate tax rate was 35 percent before the Trump administration's tax cuts in 2017). California has used a similar strategy to fund state infrastructure projects; 0.25 percent of the sales tax collected on all goods sold in California is distributed back to counties for use on transportation projects. And in 25 of the state's 58 counties, voters have approved a further 0.5 percent sales tax increase to further fill the coffers.
Biden's plan lacks some of the elegance of the current system, in which transportation-related taxes pay for transportation projects. But it has a different appeal: Congress might actually agree to it. Democrats will have to vote as a bloc to get the bill to the President's desk (Senate Republicans are not likely to play along), and West Virginia Senator Joe Manchin has already said he'd prefer a 25 percent corporate tax rate to the proposed 28 percent rate. Amazon CEO Jeff Bezos expressed his support for the plan this week, though Amazon, the country's second-largest employer, paid $0 in federal tax for two of the last three years. It's likely to take months for the bill to move through both houses of Congress, and significant compromises are almost certain. But Biden has said he's willing to work with Republicans and reluctant Democrats to make the bill a law. After the previous administration failed to even propose a detailed plan for infrastructure spending, Biden says "inaction is simply not an option."
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