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Capitol Watch: Tax Reform: Transportation Companies Win,
But Infrastructure Not as Lucky?

By Katie Cross, Associate, Blakey & Agnew

Lauded by some as this Administration's first legislative success, Congress passed the Tax Cuts and Jobs Act in late December 2017. The President signed the bill into law on December 22, 2017. The bill: decreases the top individual tax bracket and lowers individual tax rates overall until 2025; decreases the corporate tax rate from 35 percent to 21 percent permanently; doubles the estate-tax exemption; and limits the state and local tax (SALT) deduction to $10,000.

Like many of the policy initiatives this Administration has undertaken, the tax reform process had its proponents and detractors. This was no different within the transportation community – stakeholders expressed both pleasure and disappointment with various parts of the bill.

UPS called the legislation a "pro-growth bill that will level the playing field for American businesses." FedEx also advocated for tax reform, saying that the existing tax code was "outdated, complex, and contributed to sluggish economic growth." The American Trucking Associations applauded the passage of the bill, predicting that it will result in more trucks on the road and ignite the U.S. economic engine. The Association of American Railroads also praised the bill's potential to increase the global competitiveness of freight railroads.

Truck and rail companies are projected to benefit from the corporate tax rate cuts in the bill. Trucking stakeholders argued that this cut will allow them to reinvest those savings and grow their companies. Because smaller trucking companies are often passed through generations of the same family, the North Dakota Motor Carriers Association praised the bill's increase of the estate-tax exemption, saying it will allow the passage of such businesses to future generations "without gratuitously penalizing families for taking a risk, achieving success and delivering value to their customers and community." Rail stakeholders said the tax cut will allow them to invest more in their system.

During the drafting of the bill, industry stakeholders worried about a provision included in the House's proposal – the removal of the tax exempt status for PABs. PABs have only been available to fund transportation projects since 2005 and already such projects constitute 20 percent of the PAB market. They are important tools to help private entities invest in projects with public benefit. Stakeholders applauded the final bill for retaining this status.

Despite praise from some industry stakeholders, others were disappointed in the bill. They noted that

the limitation of SALT deductions to $10,000 could lower the support for state and local taxes and therefore make it make it harder for states and localities to raise enough money to make investments in their infrastructure. Such investments are vital, especially given that the Trump Administration has indicated any federal investment package will encourage states and localities to bring their best deal to the table and find as many sources for funding, outside of the federal government, as possible.

Prior to the introduction of text from either chamber, many were hopeful that tax reform would include a measure to help fund the large transportation investment program promised by the Trump Administration. Some speculated this would come in the form an increase in the motor fuels tax to address the Highway Trust Fund (HTF).

Since its creation in 1956, the HTF has been funded for the most part through a federal gas tax. Historically, Congress has used tax reform bills or surface transportation bills to increase the gas tax and ensure the HTF has enough money to properly invest in our nation's infrastructure. However, the tax has remained stagnant at 18.4 cents per gallon for gas and 24.4 cents per gallon for diesel since 1993. Not only has the tax not been raised in 25 years, it was also not indexed to inflation so its purchasing power has decreased by around 40 percent. The Federal government has kept the HTF afloat through the use of General Fund transfers, to the tune of $70 billion in 2015's Fixing America's Surface Transportation Act, but the Congressional Budget Office estimates that revenues in the account will be insufficient to meet needs by 2021.

However, this was not included in the tax reform bill, leaving Congress and the Administration to develop a funding solution when they draft an infrastructure proposal, rumored to begin happening early this year.

Blakey & Agnew, LLC is a public affairs and
communications consulting firm based in
Washington, DC.