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Uncle Sam Wants You to Drive: 5 Tax Breaks for Cars in the U.S. Tax Code

It’s April 15. If you bought an electric car in 2013, you can claim a tax break today. If you bought a plug-in hybrid, you can get a tax break today. But if you don’t own a car and walk to work instead? Sorry, Charlie.

Bought a shiny new electric car? Congratulations, you get a huge tax break. Photo: StockMonkeys.com

There’s a whole array of goodies in the U.S. tax code for drivers, the automobile industry, and oil companies. Here are the ABC’s (and the DE’s) of these tax-day gifts that help clog our streets with cars.

Alternative vehicle logistics. President Obama wants to extend the tax break for people who invest in properties involved in the production of advanced vehicles or the fuels they use. The Treasury Department argues that the $2.3 billion allocated for this incentive under the 2009 stimulus wasn’t enough, and that it didn’t reach more than two-thirds of eligible applicants.

Biofuels. You can get a dollar from Uncle Sam for every gallon of biodiesel you produce, though this is the last year for that one.

Car commuting and driving for work. The granddaddy of all tax incentives for driving is the $250 per month that car commuters can claim in tax-free income to cover parking expenses. Once you’re on the clock, your driving expenses are also eligible for a tax deduction. The IRS lets you write off 56.5 cents for every mile you drive for your job. As Turbo Tax’s fact sheet says plainly: “More miles, more money.” You can even write off trips to search for a job, see a rental property you own, or do volunteer work (though that one gets a lower rate). In some cases, you can even claim deductions for car washing and polishing.

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Concrete Proposals for Raising Gas Tax Finally on the Table

After a lot of vague talk about transportation revenues since the passage of MAP-21 — “everything is on the table” and “we need to think outside the box” — real proposals are finally being presented.

Rep. Earl Blumenauer is introducing a bill to raise the gas tax by 15 cents a gallon. Photo: Michael Clapp/##http://www.opb.org/news/article/wyden-blumenauer-address-security-and-privacy-concerns/##OPB##

Rep. Earl Blumenauer is introducing a bill to raise the gas tax by 15 cents a gallon. Photo: Michael Clapp/OPB

A few months ago, House Transportation Committee Chair Bill Shuster told me, “The surest way to kill something is to get out there way far in front before anything is possible.” He said you’ve got to figure out when the timing is right.

Apparently, it’s right now.

Tomorrow, Rep. Earl Blumenauer (D-OR) will introduce a bill to raise the federal gas tax by 15 cents a gallon, the amount suggested a few years back by the Simpson-Bowles deficit commission.

The proposal would go a long way toward solving the immediate problem: The Highway Trust Fund is projected to be flat broke by the time a new transportation bill needs to be negotiated next year. But it still doesn’t tie the tax to inflation or the price of gas, so Congress would still periodically need to take on the politically difficult task of voting to raise it. And in the long term, it could prove unsustainable to keep transportation funding tied to gas consumption, which is dropping with greater fuel efficiency and less driving.

Still, when Blumenauer announces his bill tomorrow, he’ll be flanked by people representing labor, business, transit, transportation reform groups, and road builders. All of those interests have been banging the drum for greater transportation investment for years. They are not picky about how the revenue gets raised.

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A Golden Opportunity for Congress to Avoid the Transportation “Fiscal Cliff”

The Transit Account of the Highway Trust Fund is expected to slip into negative territory in 2015. Estimates are based on CBO's February 2013 baseline projections. Image: CBO

MAP-21 expires in a year and five months. When it does, if lawmakers haven’t already found a solution to the “transportation fiscal cliff,” they’ll have to do one of three things, according to a report issued last week by the Congressional Budget Office [PDF]:

  • Transfer $14 billion more in general funds
  • Raise the gas tax by 10 cents a gallon
  • Cut the authority to obligate funds in 2015 from about $51 billion projected under current law to about $4 billion

“If lawmakers chose to wait until fiscal year 2015,” wrote CBO analyst Sarah Puro, “at the expiration of MAP-21, to reduce spending, those cuts in 2015 would need to total about 92 percent for the highway account and 100 percent for the transit account.”

It couldn’t be clearer. Congress has to stop dithering and start working on a revenue solution, stat. Oh, and the president and his new secretary of transportation have to get behind it, guns blazing.

Congress has three potential vehicles for a revenue solution: 1) a “grand bargain” on the deficit, the sequester and the fiscal cliff, 2) tax reform, and 3) the next surface transportation bill.

And what will that “revenue solution” be? The simplest, most easily implemented fix is a gas tax hike, but over the long term, taxing fossil fuels as a way to pay for transportation infrastructure just won’t cut it.

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Virginia’s Transpo Future: Charge Drivers Less to Build More Roads

Congratulations are owed to Virginia Governor Bob McDonnell. He’s scored a victory on his transportation funding plan, cementing his legacy (though infuriating conservatives, including his hand-picked successor). His achievement is being called the first bipartisan initiative to pass in Virginia in decades. And what does this great deed accomplish? Secure revenue to fuel a new era of wasteful road-building in the commonwealth of Virginia.

McDonnell's new transportation funding plan will pay for the wasteful and unnecessary expansion of Route 460. Photo: Doug Kerr/flickr

Virginia’s state House and Senate both voted this weekend to approve McDonnell’s funding plan for transportation, despite opposition from anti-tax activists. McDonnell’s original proposal to eliminate the gas tax entirely got massaged a little bit, turning into a 3.5 percent tax on the wholesale price of gas.

His proposal to raise the sales tax survived the legislature, as did the $100 tax on alternative fuels – an idea that is somewhat less backwards now that some semblance of gas tax remains. Democrats hate it, though, and McDonnell has already signaled a vague willingness to “review” it.

The sales tax hike, however, is as backwards as ever. McDonnell is raising the sales tax 0.3 percent in most parts of the state but 6 percent in the populous Hampton Roads and northern Virginia areas. Much of the extra funds raised in those areas will go to local projects, but it still means the most urban and transit-rich areas, where most of the state’s non-drivers live, will pay more for a plan that disproportionately funds rural roads.

Drivers will pay five cents per gallon less than they did under the old gas tax, given current prices — shrinking their contribution by about 30 percent. Rather than strengthen the gas tax’s small but important incentive to drive less, McDonnell’s plan turns it the other way.

The other reason the sales tax hike won’t do the trick is that sales taxes aren’t an appropriate tool when what you need is a stable source of funding.

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State Budget Includes $625 Million Road Bailout for 2013

For years, Albany has raided the state’s highway trust fund, using general tax revenue to patch holes. This year, the governor’s budget, as filed in the Senate and Assembly, includes a mammoth $625 million road bailout, larger than the $519 million projected in the financial plan and higher than most trust fund bailouts in previous years.

As it siphons money from the state's highway trust fund, Albany continues to use the general fund to subsidize roads. Photo: Doug Kerr/Flickr

The Dedicated Highway and Bridge Trust Fund, created in 1991 using fuel taxes and vehicle registration fees, is meant to pay for road construction and repair. By 1993, it was already being used to pay off Thruway Authority debt. Soon enough, it was raided to pay for road plowing and DMV salaries. Through 2008, only one third of the fund’s revenue was used to cover capital costs, according to Comptroller Thomas P. DiNapoli.

A bill to keep highway trust fund revenue from being diverted has stalled in the Assembly. Even that bill, however, wouldn’t solve the underlying problem: New York is spending more on roads than it collects in fuel taxes, tolls, and fees. (All told, federal and state gas taxes and automobile fees pay for only 54 percent of New York’s state and local bridge and road spending, according to the non-profit Tax Foundation.)

“Raids from dedicated revenue streams and general fund transfers are not funding solutions,” said Veronica Vanterpool of the Tri-State Transportation Campaign. “They are last resort measures when new revenue sources are not being considered.”

In the meantime, the trust fund raids continue, pushing more of the burden for supporting highways from drivers to all taxpayers, including the 54 percent of New York City households that don’t even own a car.

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Drivers Cover Just 51 Percent of U.S. Road Spending

There’s a persistent misconception in American culture that transit is a big drain on public coffers while roads conveniently and totally pay for themselves through the magic of gas taxes. And that used to be true — at least for interstate highways, a fraction of the total road network.

Drivers directly pay for just 50.7 percent of the cost of the American road system. Image: Wikipedia

But that was many, many failed attempts to raise the gas tax ago. A new report from the Tax Foundation shows 50.7 percent of America’s road spending comes from gas taxes, tolls, and other fees levied on drivers. The other 49.3 percent? Well, that comes from general tax dollars, just like education and health care. The way we spend on roads has nothing to do with the free market, or even how much people use roads.

“Nationwide in 2010, state and local governments raised $37 billion in motor fuel taxes and $12 billion in tolls and non-fuel taxes, but spent $155 billion on highways,” writes the Tax Foundation’s Joseph Henchman. Another $28 billion of that $155 billion comes from revenue from the federal gas tax.

Meanwhile, transit fares cover 21 percent of costs nationwide, indicating that the difference in subsidies for roads and transit is not as great as it’s often made out to be. (Though in absolute terms, there is a big difference: The total subsidy for roads dwarfs the total subsidy for transit.)

Even more interesting is to compare roads to Amtrak, a favorite target of self-styled fiscal conservatives in Congress. Amtrak recovers about 85 percent of its operating costs from tickets — a relative bargain compared to other modes.

The Tax Foundation also analyzed transportation spending in every state to determine which states subsidize their road systems the most through general taxes. Drivers in Delaware, Florida, New Jersey, North Carolina, and New York cover the highest share of road spending compared to drivers in other states. Drivers in Wyoming, Alaska, South Dakota, and Vermont cover the lowest share.

Correction: An earlier version of this story, using Tax Foundation calculations that don’t factor in the federal gas tax, understated the share of road spending covered by drivers.

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GAO: Mileage Fee Could Be More “Equitable and Efficient” Than Gas Tax

How drivers' taxes would change under a VMT system, based on three scenarios for three different revenue targets. Image: GAO

While governors debate raising (or eliminating) their states’ gas taxes, buzz is building about mileage-based fees, or a vehicle-miles-traveled charge. A House provision to ban U.S. DOT from studying such a fee has gone away (along with its sponsor), while Rep. Earl Blumenauer is trying to get the Treasury Department to look into how it could work. And a new report from the Government Accountability Office says that would be a good idea.

The House Transportation Appropriations Subcommittee requested the report. Subcommittee Chair Tom Latham is dead-set against a VMT fee, as many rural representatives are, fearing that long distances between destinations in the heartland will end up costing them a lot if charged by the mile. Latham should take a look at the GAO’s conclusion: “Mileage-­based user fee initiatives in the United States and abroad show that such fees can lead to more equitable and efficient use of roadways by charging drivers based on their actual road use and by providing pricing incentives to reduce road use.”

That’s the first line of the GAO’s 81-page report, and it’s a ringing endorsement of the idea of a mileage-based fee, implying that it is not just a way to collect revenue but also an effective mechanism to make better use of existing roads.

The impetus behind the desire to study VMT fees, of course, is the fact that current receipts don’t match spending levels (which, in turn, don’t match the need) due to the fact that the gas tax hasn’t been raised in 20 years, and fuel-efficient vehicles are consuming less gas. While the gas tax was equal to 17 percent of the cost of a gallon of gas when it was set at its current level in 1993, it is now only 5 percent. The GAO noted that funding for surface transportation is on the agency’s “High ­Risk List.”

But it’s not all about revenues. The GAO thinks that a VMT fee would also reduce congestion and lead to more efficient roadway use, which in turn could lead to fewer calls for very expensive road-building projects:
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House GOP Wastes Time With Bogus Gas Tax Debate

If you’ve been following the ongoing transportation bill saga, then you know there’s a fair amount of gamesmanship going on in Congress right now — lots of political posturing, little progress on substantive policy. Here’s a great new example of what the House GOP has been up to instead of passing a transportation bill:

Arizona Republican Jeff Flake has an idea for the gas tax that is both irrelevant and bad. Photo: What's Your Password Jeff?

Representative Jeff Flake (R-AZ) has proposed legislation that would guarantee all states get back at least 95 percent of the gas tax revenue they send to the federal government. (Currently the figure is 92 percent.) This is a bad idea for a few reasons — chief among them the preposterous notion that states should be rewarded for consuming more fuel. But here’s why it’s just plain ridiculous: If every state got back 95 percent of its gas tax money next year, then every single state would get less funding than they do now.

That’s because the federal government has been supplementing gas tax revenues (hello, no increase in 19 years) with general fund revenues — funds that might otherwise be used for education, healthcare or some other service. The result is that every state in the U.S. — all of them — now receives more money from the federal government than it contributes in gas taxes.

So what is Flake trying to accomplish? New York Congressman Jerrold Nadler said that not only was Flake wasting everyone’s time, he was taking a shot at more efficient states like New York and Oregon. Nadler’s office had this to say:

Because gas tax funds have long been insufficient to national transportation needs and general treasury funds already supplement gas tax revenue, all states are already receiving more in transportation funding than is collected by the gas tax. Therefore, the motion is purely symbolic in nature. Nevertheless, Nadler argued that the principle behind the motion is wrong.

It is highly irresponsible to pick out, and insist upon, one factor that affects the overall funding distribution to the states without a complete picture of how the programs will be funded and apportioned. The Senate did raise the minimum percentage to 95%, but within an overall framework that required that each state get the same percentage of funds it received in the last year of SAFETEA-LU. In the Senate bill, all states were held harmless. [Flake's] motion … does not insist on adopting the Senate’s funding structure. It cherry picks one factor to benefit certain states at the expense of others.

Make no mistake – this is not about ‘equity.’  This is about gaming the system by applying this principle to one aspect of one program to benefit certain states at the expense of others.

Flake’s motion may be a non-starter, but more and more, that seems to be the House GOP strategy: Drag the proceedings out until nothing gets done at all.

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Mileage-Based Fees or Bust: New Report Says “No More Excuses”

The shortcomings of the current gas tax are well-known. The federal rate (18.4 cents/gallon) has not been raised in nearly twenty years and is not tied to inflation, yet it remains the primary source of funds for federal transportation spending. The problem is exacerbated by improving vehicle fuel economy. And as electric cars roll off the assembly line in greater numbers and become the vehicle of choice for more drivers, relying on the gas tax as the primary source of transportation funding makes even less sense.

Photo: KVAL

This perfect storm suggests the time may be right to adopt vehicle miles traveled (VMT) fees — charges based on how much people drive — to pay for the nation’s surface transportation system. Congress is unlikely to pass a multi-year transportation bill anytime soon, and current stop-gap funding is due to expire at the end of June. But the results of a two-year University of Iowa VMT national field study offer a path forward for sustainable funding of surface transportation.

Preliminary findings from the federally-funded field study (the full report has not yet been released by the Department of Transportation) show that the system could work on a nationwide scale. The results, contained in a Transportation Research Board Journal paper authored by University of Iowa professors Paul Hanley and Jon Kuhl, also show that the public would accept the concept of paying a fee for road use based on distance traveled instead of gas consumed.

The field study was based out of 12 sites, monitoring more than 2,600 volunteer participants who drove a total distance of 21 million miles throughout the United States (except Alaska and Hawaii), for an average of roughly 9,000 miles per driver.

The study deployed a prototype mileage-based charging system with an on-board unit installed in each participant’s vehicle. The unit computed mileage-based user charges for federal, state and local jurisdictions and periodically uploaded accrued charges via a cellular link to a central billing center. The center subsequently created monthly billing statements that were sent to participants.

Privacy concerns, often cited as an argument against VMT-based charges, were taken into account in the study’s design. While the onboard unit in each vehicle used a GPS receiver to determine driver location for the purpose of assessing state and local charges, the system did not retain or transmit any specific information regarding vehicle location or routes travelled.

The results of the field test showed that a nationwide system of mileage-based fees is completely feasible using existing technology. Early misgivings on the part of drivers faded as they gained more experience with the system: At the outset of the study, only 42 percent of participants held a positive view of GPS-based mileage fees; approval increased to 70 percent by the study’s end.

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Infographic: When Reagan, the GOP, and Democrats Doubled the Gas Tax

Something to keep in mind while the House GOP leadership toys with the idea of sending national transportation policy back to the 1950s…