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Tax Reform and Infrastructure

By Kerry O’Hare, Vice President and Director of Policy, Building America’s Future

October 30, 2017

Washington was buzzing last week as reports surfaced that White House National Economic Council Director Gary Cohn floated a modest gas tax increase proposal while meeting with the bipartisan Congressional Problem Solvers Caucus. Building America’s Future applauds Gary Cohn’s remarks, as we have advocated for modernizing the federal gas tax for several years. 

There is no disputing that the 18.4 cent per gallon gas tax – which has not been increased since 1993 - has not kept pace with inflation. Over the past 25 years, the gas tax has lost more than one-third of its purchasing power and is worth less than 11.5 cents today. Adding to this is the fact that fuel efficient vehicles, hybrid cars, and electric vehicles are a growing presence on our roadways.

The cost of everything has gone up since 1993. Think about that. Would you be able to live today on the same salary you made in 1993? That is the sorry state of the Highway Trust Fund, and a major reason why our nation’s infrastructure has been falling into disrepair.

We believe that a 10-cent increase that is indexed to inflation be included in the tax reform plan that Congress will soon consider. Such an increase would add $15 billion annually to the Highway Trust Fund, sustaining it until we can transition to a more technology-based solution where drivers could be charged for the miles they drive instead of how much gas they consume. Such as system would return the user-based concept to funding our nation’s surface transportation system and directly address the growing presence of hybrid and electric vehicles. This is important, as car manufacturers are starting to make more electric vehicles. Volvo announced earlier this year that all models it introduces starting in 2019 will either be hybrids or powered by battery. 

Many states have already come to grips with this new reality. In addition to raising their own gas taxes, 19 of them have also imposed annual fees on the owners of electric vehicles. Some of these states have also imposed fees on hybrid vehicles owners. 

Bringing the conversation back to tax reform in Washington, something Congress should also consider is eliminating the $7,500 electric vehicle federal subsidy. While this tax credit will be phased out under current law once an automaker has sold 200,000 electric vehicles, additional revenue could be raised if it were eliminated right now. 

For other recommendations that Building America’s Future has offered for a long-term infrastructure package, click here