How does the Highway Trust Fund work?

As Congress attempts to negotiate a multiyear surface transportation reauthorization bill to replace the FAST Act — which expires on Sept. 30 — finding the money to pay for it will be the most contentious issue. Central to the pay-for question is the Highway Trust Fund (HTF).

Congress established the fund in 1956 as a way for the federal government to fund the construction of the Interstate Highway System. After much of the work on the system was completed, spending out of the HTF shifted to financing surface transportation infrastructure.

In 1982, the HTF was divided into a highway account and a mass transit account. Programs funded through the highway account are administered by the Federal Highway Administration, and those funded through the transit account are administered by the Federal Transit Administration.

Federal coffers account for about 25% of total spending on highway and transit projects — most of it flowing through the HTF — with the remainder financed by state and local governments.

Revenue sources

Taxes on gasoline and diesel fuel generate most of the revenue flowing into the HTF (see chart). According to the most recent data from the Congressional Budget Office (CBO), gasoline, diesel and other motor fuels accounted for 82% — $36 billion — of the revenue credited to the fund in 2019.

Receipts from the 18.4-cents-per-gallon tax on gasoline and ethanol-blended fuel contributed the largest amount — $26 billion — of the fund’s revenues. Receipts from the 24.4-cents-a-gallon tax on diesel and other fuels totaled $10 billion. The taxes on gasoline and diesel fuel have been in place since 1993, and the rates have not been adjusted since.

Note: “Other Sources” includes interest income, civil penalties and fines, intragovernmental transfers.
Source: CBO, FHWA, IRS

Revenues from three other taxes specific to heavy vehicles also get credited to the HTF. An excise tax on trucks and trailers, equal to 12% of the sales price of trucks, and trailers that exceed certain weights, accounted for 12% of the fund’s revenues in 2019. The fund also collects taxes on the use of heavy vehicles ($100 to $550 annually on trucks over 55,000 pounds) and a tax on certain tires for heavy trucks. These three truck-specific taxes accounted for $6.9 billion collected in 2019.

Looming shortfalls

The CBO projects that balances in both the highway and transit accounts of the Highway Trust Fund will be exhausted in 2022. If the taxes currently credited to the trust fund remained in place and if funding for highway and transit programs increased annually at the rate of inflation, the shortfalls accumulated in the Highway Trust Fund’s highway and mass transit accounts from 2022 to 2031 would total $195 billion, according to CBO’s February 2021 baseline budget projection.

“Because of improvements in fuel efficiency, drivers use less fuel and therefore pay less in fuel taxes to travel the same distance,” testified Joseph Kile, a CBO economic expert, at a Senate hearing on April 14. “Policymakers would have to make a number of decisions about how to design and implement new taxes in order to reach intended revenue targets and address highway users’ equity and privacy concerns in the administration of those taxes.”

Saving the fund

Kile pointed out several options for keeping the HTF solvent, including increasing existing taxes on gasoline and diesel fuels. The CBO analyzed two options: increasing the taxes by 15 cents or 35 cents per gallon and adjusting them for inflation thereafter.

Using the 15-cent-increase scenario, HTF revenues rose by $26 billion in 2023. That would eliminate the projected shortfall in the fund and provide an additional $95 billion in revenues by 2031. In the 35-cent-increase scenario, the fund’s revenues rose by $60 billion in 2023, and cumulative fuel-tax receipts from 2023 to 2031 were estimated to be $627 billion more than the CBO’s February 2021 baseline projection.

Increasing taxes that directly affect consumers is never popular, however, and many consider it unlikely that Congress will opt for this alternative this year. Lawmakers could also impose new taxes on vehicle miles traveled or on freight movement, or they could institute a fee on electric vehicles.

The other option — which ultimately may be the road chosen once again — is to make transfers into the HTF from the Treasury’s general fund. Since 2008, the federal government has transferred over $150 billion into the HTF from the Treasury account, according to the CBO.

Click for more FreightWaves articles by John Gallagher.