(Reuters circulated the following story by Andrew T. Gillies on March 10.)
WASHINGTON, D.C. — Two of Congress’ most important items of business are the energy and surface transportation bills. At least one industry has a dog in both fights: the railroads.
Near the top of Big Rail’s wish list for both pieces of legislation is ridding itself of what’s known as the “deficit-reduction fuel tax.” Huh? That might sound a bit ambitious, given that Uncle Sam’s spending this year is expected to exceed revenue by some $477 billion. But industry lobbyists argue, with some justification, that it’s an unfair tax. Provisions to eliminate it are in both bills.
Repeal “has very strong support from both the House Ways & Means and Senate Finance committees,” says Jennifer Macdonald, director of government affairs for the Association of American Railroads (AAR).
The deficit-reduction fuel tax, 4.3 cents per gallon, was enacted in 1990 when the federal government’s accounts were $124 billion in the red. Railroads and trucking companies paid the tax initially, followed by inland barges in 1993 and commercial airlines in 1995.
Two years later, however, airlines and truckers managed to get their portion of the levy diverted into airport infrastructure and federal highway trust funds, respectively. In other words, the taxes they pay are used to benefit them. But barges and railroads, which have no such trust funds, continued to pay the deficit tax, even as the federal budget moved into the black in 1999.
One factor that might make repeal go through is that when looked at against the federal budget, the dollars involved are hardly staggering. According to an AAR position paper, the tax costs the so-called Class I railroads — such as Burlington Northern Santa Fe, CSX, Norfolk Southern and Union Pacific — in the neighborhood of $170 million per year. Over the next ten years, repealing the tax would cost the Treasury $1.4 billion.
To individual companies, the costs–and the benefits of repeal–look more significant. Union Pacific, for example, shells out about $55 million per year for the tax, or 1.7% of the company’s $3.3 billion in operating income (earnings before interest, taxes, depreciation and amortization) for 2003. Burlington Northern pays a similar amount, while CSX and Norfolk Southern’s tallies each run in the $30 million range.
Repeal faces some headwinds, namely an uncertain overall outlook for the energy and highway bills. On the former, the repeal made it into a new, leaner version of the energy bill, introduced in mid-February by Pete. V. Domenici, chairman of the Senate Committee on Energy & Natural Resources. Thanks to some parliamentary maneuvering, the new bill–which cut the energy package’s price tag to $14 billion from $31 billion–skipped the committee process and now awaits action on the Senate floor. Whether the House will accept the scaled-down version is anyone’s guess.
The highway bill faces similar challenges. The Bush administration, trying to shed its well-earned spendthrift rap, has already threatened a veto for anything straying too far above its proposed $256 billion highway package. The Senate’s version of the bill now stands at $318 billion.
If either bill makes it into law, however, the deficit-reduction fuel tax repeal has a good chance of surviving along with it. Why? For one, the numbers aren’t huge, and Congress has passed the provision before as part of legislative packages vetoed on other grounds.
The rail industry also has a powerful argument on fairness grounds: Why should one industry pay a deficit tax when other transportation modes are excused? “The railroads ought to have the opportunity to plough those funds back into their infrastructure,” says AAR’s Macdonald.
And then, or course, there’s the weight of the rail lobby, one of the oldest and best-connected interest groups in Washington. If any industry can wiggle out of a deficit-reduction tax in a time of unprecedented deficits, it’s this one.