DALLAS -- Increasing the federal gasoline tax by 10 cents per gallon to generate enough revenue to fully fund a multiyear federal transportation bill could, in turn, be offset by a 2% drop in the top margin income tax rate, the nonpartisan Tax Foundation said in a recent report.
The proposed 54% increase in the 18.4 cents per gallon federal gasoline tax would bring in an additional $168 billion to the Highway Trust Fund over 10 years, said economist Kyle Pomerleau.
"This swap would be revenue neutral: An exchange of one tax for another," Pomerleau said of the five potential offsets to a higher gasoline tax.
The federal gasoline tax would be raised to 28.4 cents per gallon in the first year, with annual adjustments for inflation.
The added revenue from the 54% increase in the gasoline tax would be enough to cover the projected gap between motor fuel tax revenues that go into the HTF and the federal highway and transit grants that go to states from it, Pomerleau said.
Congress is developing a surface transportation reauthorization measure to replace the current 27-month transportation bill adopted in 2012 that will expire May 31. Funding proposals on the table include almost doubling the current federal gasoline tax, a carbon-based tax to replace the gasoline tax, and various ways to tax corporate offshore earnings.
Raising the gasoline tax to bridge the revenue shortfall in the highway fund is the best option because it would preserve the connection between the motor fuels tax and transportation infrastructure, Pomerleau said.
"Lawmakers looking for additional revenue to replenish the trust fund should devise permanent provisions that conform to the trust fund's long-standing, user-pays principle," he said.
A long-term outlook released by the Congressional Budget Office in January said highway and transit spending from the HTF would exceed the gasoline and diesel tax revenues dedicated to it by $13 billion in fiscal 2016, $14 billion in each of fiscal years 2017 and 2018, and $15 billion by fiscal 2019. Over the next 10 years, CBO predicted, the shortfall would total $168 billion.
Adding 10 cents to federal gasoline and diesel taxes would bring in an extra $15 billion the first year, according to the Tax Foundation's analysis, slowly growing to $17 billion by the 10th year.
The negative economic impact of a higher gasoline tax could be mitigated by lowering other federal levies, Pomerleau said, including dropping the top marginal income tax rate to 37.6% from 39.6%.
Other possible offsets include lowering the marginal capital gains tax to 21.8% from 23.8%, a $1,000 increase in the income tax's standard deduction to $7,300 per year for individuals and $14,600 for married filers, a 1% decrease in the bottom marginal income tax rate to 9%, or a $15 billion per year expansion of the Earned Income Tax Credit.
Each offset would total $15 billion of tax relief in the first year.
Federal gasoline and diesel taxes are expected by CBO to bring in $40 billion a year from fiscal 2015 through 2023, before slipping to $38 billion in 2024 and 2025 as vehicles continue to become more fuel efficient. Current expenditures from the fund total more than $52 billion per year.
Inflation has reduced the buying power of the federal gasoline tax by at least 39% since its last increase in 1994, Pomerleau said, noting that the extra 10 cents per gallon would restore its original value.
