Now that Congress has tackled and achieved tax reform legislation, many in Washington, including the President, are calling for infrastructure legislation to be the next big-ticket item for Congress to tackle.
Enacting or talking about congressional action that would increase funding for infrastructure projects such as better roads, improved ports and a safer and more efficient power grid, is great for politicians because it creates jobs and improves the quality of life. Further, improving the nation’s infrastructure is a bi-partisan subject and could (I want to emphasize the word “could”) bring the two sides of the aisle together to support a bill that provides many benefits to the economy and to the American people.
For the aftermarket, investing in infrastructure would have many benefits. Number one, we are an industry that depends on being able to move goods from point A to point B, and anything that reduces bottlenecks and helps make that process more efficient, is going to benefit the industry’s bottom line. Further, international trade, both imports and exports are critical to the success of many companies in the industry.
Clearly, improving U.S. ports could be extremely beneficial to making auto care companies more profitable. Finally, if consumers can drive more, that means more auto parts are being sold, which of course benefits everyone’s bottom line. Yes, I have been told that pot holes are good for business, but in general, the industry benefits the more people can get on the road and travel (don’t forget, we will always have weather extremes to drive business).
So, this seems like a no brainer, right? Let’s get Congress to work on a bill that not only will generate political good will, create jobs and improve the business for many U.S. companies. Wait, there is one small detail: How do we pay for it!
Nowhere has this become more apparent than with our roads. Currently, federal funding for road construction comes out of the highway trust fund, which is paid for by gasoline taxes. However, the tax has not been increased since 1993, and it has lost 40 percent of its purchasing power due to inflation.
Further eroding the fund is the fact that it is collecting less revenue due to the increase in fuel economy of today’s vehicles, a situation that is likely to continue as the number of electric and hybrid vehicles continues to grow. In other words, one of the most crucial ingredients in driving our economy is our roads and we are doing an extremely poor job in keeping it in shape, never mind improving it.
According to the American Society for Civil Engineers, “the U.S. is on track to invest from federal, state, local, and private sources less than half what is needed in surface transportation over the next decade, leaving a $1.1 trillion gap.” It’s difficult to believe that something so important as our roads would not get the immediate attention of Congress, but the problem of infrastructure funding is, like everything else, bogged down in politics.
Namely, many on the Hill have said that an increase in the gasoline tax would amount to a tax increase and therefore violate a pledge made by many legislators not to raise taxes. Ever since George H.W. Bush broke his pledge of not increasing taxes, many politicians have been extremely reluctant to touch what many believe is the third rail of American politics.
Further, many on the other side of the spectrum contend the gas tax is regressive because it forces poor and rich drivers to pay the same tax. Adding to the funding challenges this year is the fact that many in Congress are concerned about spending any additional federal funds after enacting a tax bill that will cost about $1.5 trillion over the next 10 years.
Of course, there are other options to the gas tax including a tax on vehicle miles traveled, (VMT) which has gained more attention recently. While a VMT tax would eliminate the challenge of reduced revenue from more fuel-efficient vehicles, it is still considered a tax and therefore opposed by many politicians and the public. Further, privacy groups have expressed concern regarding the ability to track vehicles with the technology that would be needed to measure miles driven by a specific vehicle, and many in the public are concerned that governments will not eliminate the gas tax and thus would double tax vehicles through imposition of a VMT.
So, as we go down the road in this Congress (speaking of potholes), be wary of elected officials vocal support for infrastructure legislation without any commitment to make the tough choices needed to fund these projects. It’s easy to be supportive of mom and apple pie until someone must spend the money to buy the pie and negotiate with mom to bake it.
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