Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
As the recent crash of an Amtrak passenger train in Maryland illustrates, our nation's railroad tracks are in dire need of maintenance or replacement. But in all the discussions over how to rescue the ailing passenger rail system, and amid calls for re-regulating the nation's reasonably healthy freight rail system, one policy move has received too little attention: the repeal of the unfair diesel fuel tax now paid by both passenger and freight rail.
During the early days of the Clinton administration, a 4.3-cent diesel fuel tax was enacted, supposedly to address that era's deficit problem. All transportation modes paid this surcharge. However, in the late 1990s, the diesel taxes paid by the airline and trucking sectors were re-allocated to the Airways and Highway Trust Funds. Now, the value of such trust funds to these sectors is questionable: Pork-barrel politics rather than user needs often determine which projects are funded. Trust funds are expended slowly — you pay today and you may not see any benefits for years. Nonetheless, the tax payments by the airlines and trucking do result in some offsetting benefits to these sectors. (Inexplicably, the tax on waterway users was not re-allocated to the Waterway Trust Fund.)
In contrast, the diesel surcharge on rail could not be re-allocated to a railroad infrastructure trust fund. Both the freight and passenger rail system maintain their own right-of-way privately. There is not — nor should there be — any politically controlled construction and maintenance fund; the railroads manage that responsibility very well on their own. The freight railroads, which provide the greater part of Amtrak's trackage, maintain this right-of-way directly. Amtrak also maintains a small portion of the nation's track system. Given this fact, the late '90s decision to re-allocate the diesel fuel surcharge (providing an off-setting benefit to airlines and highway users) should have been accompanied by the elimination of the diesel surcharge on rail. The current system simply saddles rail with an inequitable tax burden. That higher tax burden, of course, makes it harder for rail to maintain the railroad infrastructure — tracks, stations and rail yards.
The burden is not negligible. Amtrak has been paying some $3 million annually on these taxes, while the freight railroad system (with responsibility for a much larger share of the nation's track mileage) has been paying $170 million dollars annually. Over the last decade, the rail industry has paid almost $2 billion in these taxes. Had that money been available to the rail industry, the nation's rail infrastructure would have been greatly benefited. Much of those tax revenues could and would have been used to upgrade and maintain the nation's critical rail system, exactly the purpose of the tax-based user airline and highways trust funds. Amtrak would benefit directly and, via the improved trackage quality, indirectly.
Thus, before rushing to sink more taxpayer funds in passenger rail, we should first eliminate this inequitable and burdensome tax on rail. And fortunately, a provision to do exactly that is in the House energy bill, now in conference committee. Given the expressions of sympathy for railroads in the Senate recently, this provision should survive. It should; equity demands it.