Senate seeks new avenues for U.S. highway funding

WASHINGTON Tue Feb 7, 2012 7:32pm EST

WASHINGTON Feb 7 (Reuters) - As Washington struggles to find ways to pay for highway and road repairs, the U.S. Senate is considering relying on a wide array of revenue sources that go far beyond the traditional gas tax, including measures such as changes in how inherited retirement accounts are taxed.

On Tuesday, the Senate Finance Committee approved legislation for funding highway and road repairs that is a radical departure from the financing bill currently in the House of Representatives.

Republicans, in the minority in the Senate, criticized it for using revenues collected over a decade for spending within two years and relying on funds not directly related to transportation.

"When we cannot find more revenue from the...usual sources, we have focused on funding that bears a nexus to transportation," said Senate Finance Committee Chairman Max Baucus. "We have therefore explored funding from transportation and energy sources. These include revenues from import tariffs on foreign cars."

The Senate bill would mostly rely on extending the gas tax, which goes into trust funds for highways and transit, through September 2015. But with the Congressional Budget Office recently projecting the trust funds will soon run out of money, leaders are digging for dollars in other areas.

The Republican-led House Ways and Means Committee last week passed its version of transportation funding that would bridge trust fund gaps with revenue from energy leasing and production.

The last comprehensive transportation spending legislation expired more than two years ago, and the U.S. government has since doled out money to states via piecemeal measures. The current temporary funding expires March 31.

In addition to the gas tax, the Senate bill would take money from an account to remediate leaks from underground storage tanks and end a tax credit for a paper-making byproduct known as "black liquor."

It also would use penalties assessed for large vehicles that do not meet fuel economy standards, revoke passports of individuals owing more than $50,000 in back taxes, and levy federal payments to Medicare service providers delinquent on taxes.

Other elements would change how the debt of corporate subsidiaries is treated under tax law and allow the Internal Revenue Service to levy Thrift Savings Plans for tax liabilities.

Republicans particularly opposed part of the bill that would compress taxable distribution of inherited Individual Retirement Accounts into a five-year period to raise more than $4.6 billion. Currently, an heir to an IRA can spread out distributions over his or her entire life, meaning that little tax money might be collected.

"Half of the total cost of the bill would be offset by a brand new tax change that has nothing whatsoever to do with highways," said Senator Jon Kyl, who is also the Republican Whip.

Baucus said he will look into replacing the provision with a different revenue source before the full Senate votes on it.

AAA, the drivers' group, considers raising the gas tax "the most sensible option," and one which is off the table, said Peter Nonis, the group's manager of congressional relations.

"Given that fact, we support efforts in the House and Senate to find revenues to enact an authorization bill this year," he said. "I think that even the policymakers promoting these funding items would tend to agree that they do not represent a long-term solution to fund this program."

Senator Orrin Hatch, the most powerful Republican on the committee, who attempted to amend the bill to approve a contentious pipeline, said, "We'll have to look to the future to get back on the road to a sustainable long-term highway financing system."

Even enacting a short-term solution would require complicated political maneuvering amid rancorous partisan divisions in an election year. Both chambers must pass bills, and then reconcile them into final legislation for President Barack Obama to sign.

Some of the Senate's measures raise questions about sustainability, because Congress will only be able to tap the sources once, said Erich Zimmermann, senior policy analyst for Taxpayers for Common Sense.

"They're not fixing the systemic problems," he said. "These provisions won't be there in two years. Then what?"

MEASURES TO WHET MUNICIPAL BOND-BUYING INTEREST

The Senate committee also approved measures that would affect the municipal bond market.

The bill would allow state infrastructure banks to sell tax-credit "TRIPs" bonds that Senator Ron Wyden has long trumpeted, and raise the limits of debt small issuers can sell to $30 million per year from $10 million through 2013.

It also would exempt interest paid by private activity bonds, issued for projects outside the purview of general obligation bonds, from the alternative minimum tax and exclude private activity bonds issued for water infrastructure from an annual cap on how many of those bonds can be sold.