The taxes on fueling up that come with the privilege of driving (above the many other taxes we pay) combined with our government funded stimulus package, and we have yet to see progress in road construction and renovation.

I’ve recently passed the Suburban down to the newest driver in the house, our 16-year-old daughter.

This transition means that I now have a new car…

It’s a small, sporty sedan that goes a lot faster than the Suburban, which I drove for years. The interior is very nice. And it has one other quality. Whenever it hits a pothole, the entire car jolts as if struck by lightning!

This is very un-Suburban. In the big car, potholes — and curbs, and the occasional shrub — were mere obstacles to be sliced over, usually at a fair rate of speed. Now I have to be careful.

Which got me thinking: Why are there so many potholes and other road hazards anyway?

There were many infrastructure projects that were supposed to be funded by the $800 billion stimulus package in 2009, but it turns out that “shovel-ready” and “approved-by-the-EPA-and-fully-federal-government-compliant” are two different things.

I understand the problem, but it still seems like we are falling behind. As it turns out, we are.

Government is Running Out of Fuel

Much of our road construction and renovation is funded by a tax on fossil fuel that goes into the Highway Trust Fund (HTF), with the federal portion being 18.4 cents per gallon, which has not changed since 1993. Using a fixed rate like that has several problems.

For starters, the flat rate per gallon doesn’t change with inflation. Eighteen cents in 1993 is worth approximately 13 cents today, in terms of purchasing power, so, on this basis alone, the Highway Trust Fund is losing steam every year.

This is compounded by the fact that fuel efficiency is increasing, so drivers can log more miles per gallon. Whereas the Fund used to get 18.4 cents every 15 miles from a driver with a car that got 15 mpg, if the driver has upgraded to a vehicle that gets 30 mpg, then the Fund is only getting 9.2 cents every 15 miles… and that 9.2 cents is only worth about 6.5 cents!

Effectively, the Highway Trust Fund is collecting about one-third of what it used to get from that driver per mile in 1993. No wonder we’re running out of money to fix stuff!

This doesn’t even begin to address hybrid vehicles, or fully electric cars. While these drivers still use the roads and bridges, they pay almost nothing, and in some cases exactly nothing, for the upkeep of the infrastructure.

Over the past six years, Congress has pumped $54 billion into the Highway Trust Fund, keeping it from insolvency as its funding needs far outstrip its revenue stream. But that’s not exactly a plan.

There are currently proposals in Congress to allow for Mileage-Based User Fees (MBUFs), which work exactly how they sound: drivers are charged by the miles they drive instead of the gallons they consume.

There are also calls for simply increasing the fossil fuel tax by several cents and then indexing it to inflation.

Either of these approaches will be attacked because they apply to all users equally, so a person of very modest means is paying a much greater percentage of his income to drive 15,000 miles per year than a rich person would pay.

The merits of the current tax, Mileage Based User Fees, or some other user-fee scheme can and should be debated, but what’s not in question is the need to better fund the renovation and construction of our travel infrastructure.

The great news on this front is that while this does lead to a larger tax on consumers who use roads, the funds directly create jobs for those in the commercial and heavy construction industry, which is something we could definitely use more of in this country.

Another positive outcome will be the billions of new dollars that flow into contracting companies that provide such services, so keep an eye on infrastructure firms that will benefit as the new funding becomes available.

Until we get our road funding straightened out, I’ll keep avoiding the potholes, hoping I don’t get stuck in one!



Follow me on Twitter @RJHSDent

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Rodney Johnson
Rodney works closely with Harry to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets. Each month Rodney Johnson works with Harry Dent to uncover the next profitable investment based on demographic and cyclical trends in their flagship newsletter Boom & Bust. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. Along with Boom & Bust, Rodney is also the executive editor of our new service, Fortune Hunter and our Dent Cornerstone Portfolio.