Study group suggests adjusting fuel taxes to inflation

By David Tanner, Land Line associate editor | Tuesday, February 05, 2013

An academic study that shows the Highway Trust Fund will fall $365 billion short over the next 23 years is not the first to suggest a fuel-tax increase to bridge the gap. But it is the latest food for thought in the debate about transportation funding.

The study prepared for the Associated Equipment Distributors by researchers at the Thomas Jefferson Program in Public Policy at the College of William and Mary acknowledges the work of the MAP-21 highway bill for providing short-term stability for the trust fund. MAP-21 stands for Moving Ahead for Progress in the 21st Century, and the bill was passed by Congress in summer 2012.

But the certainty will be gone once MAP-21 expires in 2014, leading to a growing deficit if Congress does not take action.

The problem boils down to the purchasing power of the fuel tax, researchers pointed out. And allowing the fuel tax to catch up to inflation would make a big difference.

Had the fuel tax been indexed to the rate of inflation in 1993, which it wasn’t, the federal gas tax would have increased to 25 cents per gallon in 2010 – up from 18.4 cents – and the diesel tax would be at 33 cents instead of 24.4 cents.

Researchers suggest that Congress bring the rates up to those levels, leading to a surplus rather than a shortfall.

“Inflation-indexed fuel tax rates would result in $167 billion in surplus – defined as total (Highway Trust Fund) revenues above and beyond expenditure projections – through year 2035,” researchers said.

Researchers noted that from 1993 to 2010, vehicle miles traveled in the U.S. increased from 2.3 trillion to 3 trillion. The number of fuel-efficient vehicles has also increased, and there are further steps in the federal pipeline to increase efficiency even more.

With that in mind, researchers suggest that a tax on vehicle miles traveled, or VMT, as opposed to a fuel tax, could be a viable alternative to bridge the gap. A VMT tax beginning in 2021, according to the researches, would produce a $168 billion surplus – similar to the estimates for an inflation-adjusted fuel tax.

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