This story appears in the July 6 print edition of Transport Topics.
A leading Democrat on the House Transportation and Infrastructure Committee proposed taxing speculative oil trades to kill two birds with one stone: Boost highway funding and reduce the effect of speculation on fuel prices.
Rep. Peter DeFazio (D-Ore.), chairman of the highways and transit subcommittee, said a 0.02% tax on the purchase of a futures contract for oil and 0.5% on future contract options was a “win-win” for consumers and highway users.
“A transaction tax on crude oil securities will close the gap in funding a 21st-century transportation system while lowering the price of oil,” DeFazio said in a June 25 statement.
He put the proposal forward as momentum seemed to stall for the six-year transportation bill that the committee championed (click here for related story).
“My proposal will not cost consumers one cent but will substantially increase our investment in our transportation infrastructure, so we can move beyond the broken policies of the past toward a safer, cleaner more efficient transportation system,” he said.
In DeFazio’s proposal, the levy on futures transactions would raise $190 billion over six years — enough to cover the $140 billion shortfall between expected revenue from fuel taxes at their current levels and the $450 billion the committee’s bill would spend.
DeFazio’s proposal would exempt end-users that actually buy fuel, such as trucking companies and airlines, which use futures contracts to hedge against increases in fuel prices.
American Trucking Associations is one of several groups that recently urged Congress to rein in “excessive speculation” in oil markets (click here for previous story).
So far this year, three bills have been introduced to ban or regulate oil speculation, and nearly two dozen bills were introduced to curb oil transactions during the height of the fuel price crisis.
ATA Senior Vice President Tim Lynch said the federation “want[s] to keep an open mind, but it’s a very new concept.”
Lynch said ATA was still evaluating what the proposal’s effects on legitimate hedging would be and how it fits into efforts to curb excessive speculation.
In addition, he said he wasn’t sure “it provides a stable funding source, and we continue to think that the fuel tax is a far better solution.”
Despite supporting a long-term transportation bill and finding De-Fazio’s proposal interesting, industry officials were leery about endorsing it yet.
“We’re intrigued by the proposal. We think it is worth a close look and something worth having a conversation about, and we like the concept of finding a way to address chronic underfunding of transportation,” said Brian Turmail, spokesman for the Associated General Contractors of America.
“The one thing that gives a very minor amount of pause is that, for a long time, the basic tenet in transportation funding has been that it ought to be paid a direct user fee of one sort or another,” Turmail said.
Greg Cohen, president of American Highway Users Alliance, agreed, saying the proposal “might be sort of an artful way to raise revenue” but “it really would not qualify as a user fee the way the current taxes do.”
“The further away you get from a direct user fee, the harder it is to maintain the integrity of that funding over the long term,” Turmail said. “Our concern would be how many politicians would try to poach those funds down the road.”
Rod Nofziger, director of government affairs for the Owner-Operator Independent Drivers Association, said the proposal was “intriguing, to say the least, and it may very well be a viable revenue stream for the future.”
DeFazio told reporters June 24, before formally releasing his plan, that in addition to dealing with the funding issue, a transactions tax also might solve other issues in the bill.
“If my latest proposal gains traction, then the donor-donee issue becomes applicable to a smaller part of the bill,” he said.
Historically, disputes over how much funding states receive versus how much they pay in fuel taxes to the Highway Trust Fund have been a problem for Congress in drafting transportation legislation.