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Business group backs higher gas tax to fix highway system

By Doug Palmer

WASHINGTON (Reuters) - A leading business group on Wednesday threw its support behind the politically unpopular idea of raising the federal gasoline tax to help fund trillions of dollars in projected U.S. infrastructure needs.

"The Chamber (of Commerce) supports reasonable increases in gas taxes that are phased in and indexed to inflation," the group's president, Thomas Donohue, told the House of Representatives Committee on Transportation.

"From a business standpoint, if you need something that's going to provide a good return, you have to go out and invest in it and buy it," he said, referring to highways and other infrastructure that make it possible to produce and move goods.

"That's why we're willing to pay more in gas and diesel taxes for something we know is going to make us more productive and efficient and lower our costs," Donohue said.

An American Society of Civil Engineers study estimates the United States needs to spend $2.75 trillion to maintain and improve its infrastructure by 2020, or roughly two-thirds more than the $1.66 trillion in expected federal, state and local government funding over that period.

The cost of failing to make those investments in highways, waterways, power grids, rail and other infrastructure projects would be about $3.1 trillion in cumulative lost economic output by 2020 and about 3.5 million lost jobs, the study said.

The federal share of highway projects has traditionally been funded by the federal gasoline tax, which has been 18.4 cents per gallon since 1993 and is seen as an increasingly ineffective way of raising revenue because of rising automobile fuel efficiency.

Efforts to the raise the gasoline tax have run into stiff opposition in Congress from Republicans opposed to any tax increase. Fourteen states also haven't raised their gas tax in 20 years, although eight states have since 2008, according to the National Conference of State Legislatures.

The gasoline tax and related revenue measures that go into the federal Highway Trust Fund raised about $40 billion in 2007, before falling to around $36 billion in 2011.

U.S. standards require automakers to meet an average fuel efficiency of 35.5 miles per gallon for new cars and trucks by 2016 and 54.5 mpg by 2025, putting more pressure on the gasoline tax as a revenue source.

OTHER FUNDING OPTIONS

The U.S. Chamber, which represents more than 3 million large and small businesses, supports raising the gasoline tax while continuing to look for new ways of funding highway projects in what is a tough budget environment, Donohue said.

That stance prompted Republican Representative John Mica, the immediate past chairman of the House Transportation Committee, to suggest Donohue was out of touch with his membership and to urge him to look for a new job.

"Rather than focus on innovation and investment from the private sector, cutting wasteful programs and red tape, (Donohue) championed tax increases. Rather than cite vision and innovation for cost effective transportation solutions, he advocates tax increases," Mica said.

But current Transportation Committee Chairman Bill Shuster, at a forum hosted earlier in the day by the U.S. Chamber, said all options for funding highway and other infrastructure had "to be on the table."

Shuster, a Republican, warned that the United States' ability to compete in world markets was at risk without more money to pay for projects.

"We will reach a tipping point and the transportation system may not recover and we will fall behind the rest of the world."

Shuster said he agreed that relying on the gasoline tax probably was not sustainable over the long term, but it would be hard to shift in the short term to other options.

Payment systems based on "vehicle miles traveled" are unpopular, particularly proposals to put transponders in cars to record and transmit the mileage data, he said.

Former Pennsylvania Governor Ed Rendell, a Democrat, said it was "inescapable" that the federal gasoline tax had to be raised in the short term to fund highway projects.

He also advocated giving more states the ability to collect tolls on the federal interstate highway system and called for a new infrastructure bank to provide loans for projects.

(Reporting by Doug Palmer; Editing by Vicki Allen and Eric Beech)

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