WASHINGTON (Reuters) – President Joe Biden’s plans to spend billions of dollars on the United States’ crumbling roads and mass transit include a novel twist – making companies and wealthy households, rather than drivers and riders, pay the cost.
Biden will unveil more details about the first stage of his infrastructure plan, which could be worth as much as $4 trillion, in Pittsburgh on Wednesday.
Business groups and lawmakers on both sides of the aisle have been pushing Biden to raise U.S. fuel taxes, some of the lowest in the world, for the first time since 1993. They also want a new mileage tax that would sweep in electronic vehicles to plug holes in the national highway fund.
But the White House has rejected those ideas, U.S. Transportation Secretary Pete Buttigieg told CNN on Monday. A gas tax is politically risky and would weigh more heavily on lower-income Americans, who often travel longer distances for work.
Instead, Biden is expected to propose the biggest federal tax increase in decades, according to two sources familiar with the plan. It includes raising corporate income to 28%, and increasing the marginal tax rate on high-earners, according to two sources familiar with the plan.
White House aides say that Biden may also rely on some federal borrowing to fund the package, given historically low interest rates.
Whatever the plan, it is likely to inspire heated debate among Republicans, Democrats, economists and academics about the right way to plug the holes in the U.S. economy opened by the vast spread of COVID-19.
“The president has a plan to fix the infrastructure of our country… and he has a plan to pay for it,” White House press secretary Jen Psaki said on Monday. If members of Congress don’t like it, “we’re happy to look at their proposals,” Psaki added.
THE IMMENSE U.S. HIGHWAY SYSTEM The nation’s nearly 50,000 miles https://www.fhwa.dot.gov/interstate/faq.cfm#:~:text=Currently%2C%20the%20Interstate%20System%20is,41%2C000%20miles%20at%20the%20time) of interstate highways were considered one of the world’s cutting-edge infrastructure projects when they were constructed. But the national piggy bank for funding road and mass transit projects since 1956, the Highway Trust Fund, has been in the red since 2008.
Congressional budget forecasters warn it could have a $207 billion shortfall by 2031 without new sources of revenue.
The fund is fed by an 18.4 cent per gallon tax on gasoline and a 24.4 cent tax on diesel, both of which have not been raised in nearly three decades, even as fuel efficiency standards have improved.
That makes fuel cheap. German drivers paid $6.12 per gallon of fuel in 2019, versus $2.87 in the United States, according to the Peter G. Peterson Foundation. In Britain, taxes account for 63% of the fuel price at the pump, versus 19% in the United States.
Biden has vowed not to raise taxes on Americans making less than $400,000 a year, which includes the overwhelming majority of the country.
Influential trade groups, including the U.S. Chamber of Commerce, have failed to convince lawmakers to raise the fuel tax to pay for roads. “We believe in a user-based system for roads, bridges and transit” said Ed Mortimer, its vice president of Transportation and Infrastructure.
Senate committee leaders John Barrasso, of Wyoming, and Chuck Grassley, of Iowa, floated the idea of tying the fuel tax to inflation and a national electric vehicle fee to pay for a five-year, $287 billion highway bill sought last year.
The purchasing power of the U.S. fuel tax has declined by 43 percent since 1993 due to inflation, according to the Peter G. Peterson Foundation.
Some sort of compromise on funding is necessary.
“If the White House and lawmakers can’t find agreement on the Highway Trust Fund, then it doesn’t bode well for the rest of the package,” said Quincy Krosby, chief markets strategist at Prudential Financial (NYSE:PRU), who consults on transportation financing.
ELECTRIC VEHICLES GET A BREAK
Biden is also expected to ignore calls from lawmakers for a new way to tax motorists based on how far they drive, not how much fuel they use, a third source familiar with the plan told Reuters.
A vehicle’s miles traveled, or VMT, tax would mean electric car owners help pay for the nation’s infrastructure and help to offset rising fuel efficiency standards that have led to declining trust fund revenues.
Just about 2% of cars sold in the United States in 2020 were electric, according to S&P Global (NYSE:SPGI) Platts. Biden’s plan calls for a nationwide network of charging stations, but no additional taxes for drivers of those vehicles.
“We offer tax incentives for electric vehicles, so it seems counterproductive then to tax them,” said a Democratic legislative aide engaged in the talks.
A VMT tax could take years to implement fully, but it does have bipartisan support. “As a conservative, I strongly believe in the user-pays principle, and I believe that we need to start ensuring that all users pay their fair share for the roads they’re using,” said Sam Graves, the ranking Republican on the House Transportation and Infrastructure Committee.
The committee’s chairman, Peter A. DeFazio, a Democrat from Oregon, has supported raising the gas tax but also wants to provide seed money to experiment with a VMT system, which he calls inevitable. (This story corrects to eliminate reference to 2017 tax rate in the fifth paragraph)
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