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Roundup: What To Expect Next – Infrastructure Funding in a Tax Package?

As Congress prepares to get back into a short, but busy, fall session prior to the presidential election, they’re continuing to quietly make noise about sweeping tax reform for the first time since 1986. If/when we do get a tax package in the next couple of years, there is a glaring need to address revenue shortfalls for infrastructure funding. Recently, House of Representatives Ways and Means Chairman Kevin Brady (R-TX) rolled out an election-year tax proposal that was long on aspirations such as lowering the individual and corporate tax rates, but it was short on details and notably lacked funding to address infrastructure.

Still, Brady’s staff has acknowledged the problem in private meetings and indicated they understand that they realize that we can’t keep sneaking into the basement of the Federal Reserve and running off with sacks of money to fund one multi-year Highway Bill and then find ourselves with the exact same problem of insufficient revenue all over again. Further, during legislative drafting, shrewd legislators deliberately seek to have as many horses available to trade as possible in order to satisfy as many needs as possible in the effort to cut deals. As a result, increased emphasis on the various user fees to fund the Highway Trust Fund, the Airport and Airways Trust Fund, the Inland Waterways Trust Fund, Aviation Security/TSA scanners, the Harbor Maintenance Trust Fund, et al. is foreseeable. Republicans do appear to be more comfortable with user fee increases to limit deficits rather than continuing to use income tax proceeds for programs that benefit individual users.

The most likely result is a mish-mash of options such as those set forth in the Association of American State Highway Transportation Officials (AASHTO) matrix. While the motor fuel tax is the easiest revenue source for the IRS to administer, it is also an increasingly diminishing resource due to rising CAFÉ standards. The Airport and Airways Trust Fund already relies on multiple funding sources. The chronically underfunded trust funds for Inland Waterways and Harbor Maintenance could also see a broadening of who pays into the system.

Ultimately, the biggest factor is the timing. Most Washington insiders look forward to the possibility of a tax overhaul as soon as the next Administration takes over, and last year, Speaker Paul Ryan (R-WI) led a Republican effort to make permanent a number of temporary tax measures in order to take them off the table when more intense efforts at tax reform negotiations eventually ensue. Unfortunately, the Administration’s Treasury Department has been disinterested in the development of significant proposals like the ones that were key to the Reagan-era tax reform effort. The 1986 enactment, which ultimately took more than two years, needed the public support of the president to goad Congress into acting and then to buck up individual Members of Congress when the process encountered the inevitable pitfalls and backlash. It also required active effort from the highest officials in the Treasury Department to negotiate the legislation with Congressional leaders, using the Treasury proposals as the starting points.

While none of that is going to happen at least until the next president takes office, it seems to be a distinct possibility once the new administration is installed.

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