Tax reform to add $3 billion annually to highway trust fund

An extra $24 billion will go into the highway trust fund over the next six years due to a fuel tax reform bill Congress approved October 11.

The Volumetric Ethanol Excise Tax Credit will reroute ethanol tax revenue into the transportation fund. The change is expected to add $3 billion each year to the highway trust fund, which is used to pay for highway and transportation construction projects.

“The ethanol reform provisions that are included in the corporate tax bill will ensure that all highway users contribute the same amount to maintaining and improving our roads and bridges,” said Stephen Sandherr, chief executive of the Associated General Contractors.

Currently, ethanol blended fuels are taxed at 5.2 cents less per gallon than gasoline. The tax break was instituted to reduce the United States’ dependence on imported oil. Approximately 2.5 cents of the user fee on every gallon of ethanol-blended fuel goes into the general fund. Once President Bush signs the tax reform bill into law, which he is expected to do, the 2.5 cents will go into the highway trust fund. According to a 2002 U.S. DOT report, there is a $13 billion annual shortfall between national transportation funding and the amount needed to maintain current highway conditions.

“The ethanol tax reform included in H.R. 4250 is an important step toward addressing the transportation funding gap,” said Pete Ruane, president and chief executive of the American Road and Transportation Builders Association.

The provision was passed as part of the “American Jobs Creation Act,” which also includes a reform intended to reduce motor fuel tax evasion and a provision that declares off-road machinery that meets a three-part test will be exempt from the 12 percent federal excise tax on new vehicles and the heavy vehicle use tax. Equipment that is permanently attached to a chassis that is designed to be operated off-road but that reaches jobsites by public roads under its own power is exempt. Tires that are designed exclusively for off-road equipment will also be exempt from the federal tire tax.

Not everyone on Capitol Hill was an advocate of H.R. 4520. The final 633-page bill, which the Senate approved 69-17, faced opposition by critics because of its so-called tax favoritism to large corporations. Sen. Edward Kennedy, D-Mass., called the bill a lobbyist’s dream and a nightmare for middle-class America. Sen. John McCain, R-Ariz., also said the bill was heavily influenced by special interests groups.

According to statements from the White House, President Bush is expected to sign the bill into law sometime in the next week.