Reference no: EM131536848

Short 50 word answer is fine

The Federal Highway Trust Fund was designed and passed by Congress to set tax ratesper gallon of gasoline and diesel consumed by vehicles using the federal interstate sys-tem. The fund is then used to maintain the thousands of miles of interstate highway inthe United States. This program has worked successfully up until the last several years when stricter EPA rules on fuel consumption have been implemented along with theintroduction of hybrid and electric vehicles. Total miles driven and fuel consumed have decreased and, as such, have resulted in a decrease in taxes coming into the fund. Theper-gallon tax rates have not changed since 1993, and the fund is expected to run out of money by the end of this year.With the U.S. interstate highway system in need of major repairs, the federal government is attempting to put together a multi-billion dollar, multi-year funding bill that will address these maintenance needs. However, what is not yet agreed upon is where theadditional funding will come from. Three main ideas have surfaced to generate thesefunds: (1) a gradual increase in the per-gallon fuel taxes over several years; (2) indexing the fuel tax to inflation; and (3) tolling major portions of the interstate system. There hasbeen much debate in Congress about these approaches and many interest groups have voiced their opinions. As of yet, no decision has been made about the funding leveland its sources of fees.

CASE QUESTIONS

1. Which of the three approaches make the best economic sense? Which one makes the best political sense?

2. Is there another alternative not yet introduced? What would it be and how would it be implemented?