The new CAFE standards are going to blow a hole in the Highway Trust Fund. This is sort of like stepping on your man bits with golf shoes, isn’t it?
This week, the CBO issued a new report that looked at how the upcoming, higher CAFE fuel economy rules will affect the Highway Trust Fund. The short answer? Between 2012 and 2022, the Fund will see revenues that are $57 billion lower than they would be without the new CAFE rules. The slightly longer answer:
The proposed CAFE standards eventually would cause a significant reduction in in fuel consumption by light-duty vehicles. That decrease in fuel consumption would result in a proportionate drop in gasoline tax receipts: CBO estimates that the proposed CAFE standards would gradually lower gasoline tax revenues, eventually causing them to fall by 21 percent. That full effect would not be realized until 2040 because the standards would gradually increase in stringency (only reaching their maximum level in 2025) and because the vehicle fleet changes slowly as older vehicles are replaced with new ones.
To illustrate the effect that the standards would eventually have on the trust fund’s cash flows (in 2040 and beyond), CBO examined how a 21 percent reduction in gasoline tax collections would alter the agency’s current budget projections for the trust fund, which span the period from 2012 through 2022. CBO estimates that such a decrease would result in a $57 billion drop in revenues credited to the fund over those 11 years, a 13 percent reduction in the total receipts credited to the fund.
Notice the proposed solutions from the CBO:
The CBO suggests three ways to deal with the shortfalls: do nothing (i.e., keep on transferring money from the general fund), spend less on highways and mass transit or raise the gas tax (or other taxes and direct them to the Fund). An increase to the gas tax wouldn’t have to be huge. Just five cents a gallon would be enough to offset the $57 billion, the CBO says. But until Congress can agree on this simple change, there’s always the voluntary gas tax.
When two out of three advocate raising taxes, wonder which is the most likely?
Several years ago, I witnessed an object lesson in government thought processes.
Back in the late 90’s, northern Utah was experiencing a multi-year drought and residents were asked to conserve water. Irrigation bans were put in place and residents chose to xeriscape with native plants to reduce the need for water. They were phenomenally successful, cutting water use in the Salt Lake water district by 17%.
But the district, a public entity, soon realized that they also were running 17% down in revenue. Did they adjust to compensate? Did they become more efficient and cut staff?
They raised water rates so that even though there was 17% less demand, they still brought in the original level of revenue.