New study explores impacts of reducing, then indexing fuel tax to inflation

By Sara Wyant

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WASHINGTON, July 9, 2014 - With lawmakers struggling to find a path forward on funding the Highway Trust Fund, a new study explores the impact of initially reducing the fuel tax and then indexing it to inflation. Stakeholders acknowledge that, while the proposal may not be ideal, the initial one-cent reduction in the fuel tax provides a concession to taxpayers that may advance the overall funding debate while providing longer-term revenue solutions.

Without some form of remedy, the Highway Trust Fund's $50 billion highway account - funded by revenue from the federal gas tax - is estimated to run out of sufficient funding by the end of August. The federal gas tax was last raised to 18.4 cents a gallon in 1993, up from 4 cents in 1982.

“One of the most frequently expressed criticisms of the financing approach used by our nation and many states to maintain and improve our roads and bridges is that it is not sustainable,” says Patrick Knouff, a soybean farmer from Minster, Ohio, and chairman of the Soy Transportation Coalition.

“The costs of steel, concrete, labor, machinery, etc. go up over time, yet our nation and many states rely on a fuel tax that is fixed and does not adjust.  As the cost to maintain and improve roads and bridges increases, the country and those states that utilize a fixed cent per gallon fuel tax are experiencing funding shortfalls between the needs of the surface transportation system and the revenue to address them.”

The study, which was funded by the soybean checkoff, was performed by Indiana University's School of Public and Environmental Affairs. The research focused on three key questions:

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1.)  What would be the effect on the nation and on the twelve individual states that comprise the Soy Transportation Coalition of a one cent reduction in gasoline and diesel taxes? These states include Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, and Tennessee.

2.)  What would be the effect on the nation and on the twelve individual states of linking the gasoline and diesel tax to inflation in 2014 in terms of annual state fuel tax revenue through 2025?

3.)  How much additional revenue could have been generated in the nation and in the twelve individual states from linking the gasoline and diesel tax to inflation the last time fuel taxes were adjusted?

“The research highlights that, upon implementing this proposal, the initial revenue foregone by the immediate one cent reduction can be quickly recovered,” explains Mike Steenhoek, executive director of the Soy Transportation Coalition.

“For the nation and the individual states analyzed, it requires four to five years before the cumulative loss of the one cent reduction would be fully recovered,” Steenhoek says. “Therefore, in four to five years, fuel tax revenues would be in positive territory and increasing with each succeeding year.  As a result, the need for the decision makers to routinely debate and consider adjusting the fuel tax will be significantly reduced because of the index to inflation.”

The full results of the study can be accessed at www.soytransportation.org.

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