Last week, Republicans on the House Transportation & Infrastructure Committee approved their portion of the budget reconciliation bill, which is estimated to save taxpayers upwards of $10 billion. Passage of this proposal is key because it will be rolled into a larger package that will extend the Tax Cuts and Jobs Act and avoid a $4.5 trillion tax hike at the end of the year. Chairman Sam Graves (R-MO) and the entire Committee should be commended for their efforts to advance this critically important part of tax reform.
Of particular interest to taxpayers is the inclusion of a major change to the Highway Trust Fund (HTF), a structurally broken federal program responsible for building and maintaining federal road and transit programs. At present, HTF revenues are generated primarily through user fees on the sale of gas and diesel fuels, currently levied at 18.4 cents per gallon for gas and 24.4 cents per gallon for diesel fuel. In 2022, taxes on those fuels together generated about $40 billion in revenue, according to the Congressional Budget Office.
However, as gas tax revenues continue to decline due to factors like increased vehicle fuel efficiency and electric vehicles, so does funding for the HTF, which is forecasted to become completely exhausted by 2028 and run a cumulative shortfall of $241 billion by 2033. Consistently higher spending levels have also contributed to the bleak financial picture of the trust fund.
As Chairman Graves noted at his April 30 markup, “the system for funding our federal surface transportation program is broken.” He’s right—and thankfully the Committee is beginning to tackle the problem by requiring electric vehicles (EVs) to contribute to the program similarly to how cars with internal combustion engines already do. Under the proposal, EVs and hybrid vehicles would be subject to a new $250 and $100 fee, respectively. Together, this would generate about $38 billion over the ten year budget window.
There is a strong case to be made for EVs and hybrid vehicles contributing to the HTF. Since EVs do not use gasoline, drivers can avoid the gas tax entirely. EV drivers use roads but do not have to pay into the fund that repairs the wear and tear on those same roads. It’s a good deal for EV owners, but not for the rest of taxpayers and drivers who pay into the HTF.
To be clear, a flat fee on EVs and hybrids is not an ideal policy, but it is a step in the right direction toward fairness in the HTF. Rather than pairing the gas tax with EV fees, Congress should replace it all with vehicle miles traveled (VMT) taxes instead, using actual miles driven as the metric for the user fee instead of gas consumed. In practice, there would be no difference between a car that runs on gasoline, electricity, or a mix of both. No matter which type of vehicle a driver prefers, he would pay the same rate as any other passenger vehicle.
A better surface transportation funding system exists, but for the time being, the solutions approved by the House Transportation & Infrastructure Committee are a solid step in the right direction. It’s sound policy and will ultimately help advance much needed tax relief.