by Calculated Risk on 7/09/2014 10:35:00 AM

A few comments from Goldman Sachs economist Alec Phillips:

The House and Senate both appear to be finally moving forward with plans to provide additional funding for the nearly exhausted highway trust fund and to extend the program through at least year end, though there are still several areas of disagreement that need to be worked out. Resolution of the issue by later this month should provide greater certainty to state governments that might otherwise pull back on new construction in the absence of a legislative fix.

The legislation that is beginning to move through Congress is notable in two other respects. First, it makes no changes to international corporate tax rules (i.e., corporate inversions), seemingly taking the prospect for congressional intervention off the table until after the election. Second, the House plan would lower the minimum contribution that defined benefit pension plan sponsors must make for the next few years, reducing DB pension plans' demand for financial assets but increasing their tax liabilities.

... Our expectation is that without a viable long-term funding mechanism a multi-year renewal of the program will be difficult. The gasoline tax that has traditionally funded most federal transportation spending has not been raised since 1993 and receipts have not kept up with the increased spending out of the fund. Unless a solution can be found--either a gasoline tax increase or a new long-term funding source--Congress may simply adopt a series of short-term renewals.

First a few words from Ronald Reagan from November 1982 when he proposed raising the gasoline tax:

This special holiday weekend is a time when we all give thanks for the many things our land is blessed with. It's also a fitting time for us to think about ways in which we can preserve those blessings for future generations.

One of our great material blessings is the outstanding network of roads and highways that spreads across this vast continent. ... Lately, driving isn't as much fun as it used to be. Time and wear have taken their toll on America's roads and highways. ...

We simply cannot allow this magnificent system to deteriorate beyond repair. The time has come to preserve what past Americans spent so much time and effort to create, and that means a nationwide conservation effort in the best sense of the word. America can't afford throwaway roads or disposable transit systems. The bridges and highways we fail to repair today will have to be rebuilt tomorrow at many times the cost.
emphasis added

A few key points:
• This is just a short term fix until after the election, but I expect it will happen.
• Historically both parties supported infrastructure spending and raising user fees to support the spending (see Reagan's comments).
• The gasoline tax hasn't been increased since August 1993 (it is a fixed amount of 18.4 cents per gallon). If the tax was indexed to inflation, it would be 30 cents per gallon now (and the Highway Trust Fund would be in good shape).
• And on budget accounting: Although building a bridge is obviously an investment, the Federal Government does not have a capital account. These investments are just expensed (a company would depreciate the expenditure over a number of years).
• Although downside risks have diminished this year, I expect Congress to be a significant downside risk in 2015 (with more dumb and damaging actions like in 2011 and 2013).