The Ambiguous Future of Highway Funding

June 29, 2015

“Dead End, No Turn Around, Danger Ahead,” was the title of the United States’ Senate Finance Committee hearing emphasizing the severe state of transportation infrastructure around the country and the situation of a budget shortfall in the Highway Trust Fund on the horizon. Over the last 5 years the Trust Fund has faced 12 different budget shortfalls. In order to prevent another, the Committee must find new ways to generate revenue or continue down the path of least resistance and borrow money.
The advertising community has been on guard and rightfully so after former Chairman Camp (R-MI) of the House Way’s & Mean’s Committee released his ad-tax plan in his tax reform proposal in February 2014. The plan called for ending the right off of all advertising expenses immediately and instead would require amortizing 50% of those expenses over 10 years. The Joint Tax Committee estimated that this would generate $169 billion in additional taxes and creates a threat that every time a program needs funding advertising taxes would be one of the potential targets.
Chairman Hatch (R-UT) echoed House Way’s & Mean’s Chairman Ryan (R-Wis.) on the Highway Trust Fund’s status as "broken" and that the dilemma on financing it depends on either "raising taxes or cutting back on the highway program." Hatch proclaimed that the goal of the hearing was to find a long-term funding solution starting with discovering way’s to raise enough revenue to meet the needs of America’s deteriorating infrastructure.
Ranking Member Wyden (D-OR) explained that the state of America’s deteriorating infrastructure “hurts businesses and discourages investment.” Wyden also noted that China spends four times and Europe twice the amount that the United States does on transportation infrastructure. Finally, he quoted a report by the American Society of Civil Engineers which states that the Federal government needs to invest an enormous $3.7 Trillion in transportation infrastructure by 2020 or $1.7 Trillion just to reach “good condition.”
So where is all this money going to come from? Multiple Senators suggested a need for all sorts of tax reform but momentum is gathering behind international reform focusing on repatriation of U.S. corporate profits from overseas that have not been brought back to the U.S. due to the 35% statutory corporate tax rate. According to a recent article in the Wall Street Journal, Paul Ryan clarified that the U.S.’s highest corporate tax rate in the world is creating a “smaller tax base in the U.S. and less money available to fuel the nation’s economy.”  
The testimony from the 3-member panel was diverse. Former Secretary of Transportation, Ray LaHood repeatedly stated that the committee needs as many options on the table as possible because a variety of avenues will be needed to provide his calculation of $300-500 billion to pay for new transportation infrastructure which is needed in order to get America “back to number one” internationally. LaHood firmly advocated that the federal government start by raising the gas tax which hasn’t been done in 20 years, and this money would then be reinvested into state and local government projects furthering economic growth.
Dr. Joseph Kile, from the Microeconomic Studies Division of the Congressional Budget Office, proposed a vehicle mileage tax due to the increase in fuel efficient automobiles.
The Heritage Foundation’s Stephen Moore discussed a more “conservative” option. Moore explained that his basis for disagreement with LaHood and the majority opinion was that “we don’t need to spend more money on infrastructure, we need to spend more wisely on infrastructure” citing the tens of billions spent on Virginia’s Silver Line train as a waste of taxpayer money. In addition, there are multiple way’s for the federal government to raise money such as tapping into the “Shale Oil and Gas Revolution” by drilling on federal lands which could be worth $2-3 Trillion or go forward with the Keystone Pipeline. According to Moore, these options would not only create jobs but more importantly they “wouldn’t cost taxpayers a penny.”
We can expect this negotiation to go down to the wire as the July deadline for the Highway Trust Fund approaches. This past week, Senator Inhofe (R-Okla.) and Boxer (D-Calif.) unveiled their plan for a six-year $275 billion highway reauthorization bill called the DRIVE Act which many Democrats have criticized because it will not, in their view, be sufficient.

Senator Corker (R-Tenn.) has called to increase the federal gas tax by 12 cents over the next two years, and the Senate Commerce Committee Chairman John Thune (R-S.D.) hasn’t taken it off the table yet. However, the Republican majority in both houses have expressed their opposition to increasing fuel taxes. Several Democrats and Republicans have alluded that the likely solution is corporate tax reform that supplements a multi-year highway deal.

The Senate Finance Committee Tax Reform Working Groups were supposed to submit proposals Friday but were delayed. The International Tax Working Group claims to have made progress, Co-Chair Senator Portman (R-OH) briefly discussed the proposal highlighting their plan to include a “repatriation tax” on corporate profits overseas. In the midst of this Highway Trust Fund deadline, the advertising industry will need to keep a very careful eye on this process as it can impact tax reform proposals and ad-taxes.

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