KTFC Update – Vol. 4, Issue 2

Jan 28, 2015

Congressional Republicans gathered in Hershey earlier this month for a retreat designed to set their policy agenda and strategy. Curiously, when transportation funding came up, several of the participants said increasing the federal gas tax is politically unachievable.

Those of us in Pennsylvania beg to differ. Pennsylvania lawmakers raised state gas taxes in passing Act 89. While no one is naïve enough to think that the public is escaping the increased Oil Company Franchise Tax, it is equally clear that a majority of Pennsylvania voters continue to support an investment to improve safety and relieve congestion. Not a single incumbent who voted for Act 89 lost his or her seat because of that vote.

Instead of increasing the gas tax, several members of Congress have become enamored with something called “repatriation” of the profits of U.S. companies that have parked their profits offshore in order to delay or avoid paying taxes on them. Proponents say that by giving companies such as Apple, Microsoft and Pfizer a tax break on repatriated profits, we can induce them to move their profits back to the U.S. and pay taxes, albeit at a considerably reduced rate. They say they could use those taxes to support the federal Highway Trust Fund and pay for transportation projects.

The folks at the nonpartisan congressional Joint Committee on Taxation don’t believe that’s exactly correct. They acknowledge that repatriation would generate about $20 billion during the first three years, but would eventually cost the government nearly $100 billion toward the end of a decade. In other words, it’s just another unsustainable “free money” scheme.

Those of us who sit around the Coalition table every month would be the first to acknowledge that a tax based on consumption of petroleum is far from a perfect funding mechanism, in that it’s at odds with federal energy policy. Eventually we’re likely to see fees based on the number of miles a vehicle travels. But the existing gas tax would serve the purpose until a Vehicle Miles Traveled system is devised.

With Act 89, Pennsylvania lawmakers also transformed the state fuel tax system by removing the flat tax levied at the pump, replacing it with the aforementioned wholesale tax, which also was uncapped. Unlike the former flat state tax and the federal flat tax, the wholesale tax is based on prices, which means that revenues can grow as oil prices increase. Federal lawmakers would do well to examine how Pennsylvania solved its half of the funding problem and work toward a comprehensive, sustainable funding solution.

Be of Good Cheer,
— George Wolff

Transportation Issue Update