As debates swirl around expiring tax cuts, a critical issue often overlooked is the crumbling foundation of our highway funding. The Highway Trust Fund (HTF), which relies heavily on gas taxes, is facing a growing deficit, exacerbated by the rise of electric vehicles (EVs). With gas tax revenues dwindling and road maintenance costs escalating, policymakers are scrambling for solutions.
The Highway Trust Fund’s Fiscal Cliff
The HTF’s financial woes are stark. Spending is outpacing revenue, leading to a $13.5 billion deficit in 2024, projected to balloon to $37 billion by 2034. This gap stems from two key factors:
- Stagnant Gas Tax: The federal gas tax hasn’t been adjusted for inflation since 1993, effectively halving its real value.
- Fuel Efficiency and EVs: Cars are becoming more fuel-efficient, and EVs, which don’t use gasoline, are gaining traction. This means less gas tax revenue per mile driven.
A Partial Fix: The Fair SHARE Act
Proposed legislation, the Fair SHARE Act, aims to address the EV revenue gap by imposing:
- A one-time $1,000 fee on new EV sales.
- A $550 fee on heavy EV battery modules.
While this targets the EV issue, it’s a blunt instrument. It doesn’t account for actual road usage, meaning a low-mileage EV driver pays the same as a high-mileage one.
Potential Revenue and Uncertainties
Estimates suggest the Fair SHARE Act could generate nearly $50 billion over a decade. However, after accounting for offsets to income and payroll taxes, the net deficit reduction is closer to $36 billion.
These projections are highly sensitive to EV adoption rates, which are influenced by factors like:
- Federal incentives (like those in the Inflation Reduction Act).
- Environmental regulations.
- Technological advancements.
Depending on these factors, the revenue could range from $33 billion to $73 billion.
The Superior Solution: A Vehicle Miles Traveled (VMT) Tax
The most effective long-term solution is a VMT tax, also known as a road usage charge. This system would:
- Charge drivers based on actual road use.
- Account for vehicle weight, reflecting road wear.
- Provide a stable and equitable funding mechanism.
While concerns about implementation exist, several states have successfully implemented VMT programs. Modern technology, like GPS and smartphone apps, can facilitate accurate tracking.
A federally coordinated VMT system would eliminate the “free-rider” problem and offer a robust revenue stream. A well-designed VMT could generate substantial revenue, potentially addressing the HTF’s entire deficit.
Conclusion: A Road Forward
The current highway funding model is unsustainable. While the Fair SHARE Act provides a temporary patch, a comprehensive VMT system is the key to securing our infrastructure’s future. It’s time for policymakers to embrace a modern, equitable, and efficient approach to road funding.