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New House leader pumps brakes on gas tax hike

Rep. Kevin McCarthy, the newly elected House Majority Leader, dismissed the latest proposal for salvaging the cash-strapped federal highway construction program on Sunday. He opposes a bipartisan effort in the Senate to boost the 18.5 center per gallon federal gasoline tax by an additional 12 cents over the next two years.

"No, that's a Democrat idea," McCarthy said during an appearance on Fox News Sunday. "Continue to raise taxes on the families going forward. Why don't we find a broader solution?"

McCarthy (R-CA), who was overwhelmingly elected by the GOP Conference last Thursday to succeed the fallen Eric Cantor as majority leader didn't precisely offer up a strong – or realistic alternative to the gas tax increase idea that is being floated by Sens. Bob Corker (R-TN) and Chris Murphy (D-CT).

Rep. Kevin McCarthy
Reuters
Rep. Kevin McCarthy

McCarthy mentioned in passing an idea that Republicans had kicked around in recent years to "open up federal lands for exploration" and somehow use the government's proceeds "to help build the bridges and roads that we need."

The highway trust is on track to exhaust its funds by the end of July or early August, according to Department of Transportation projections. The House, Senate and Obama Administration all seem to be at odds over the best approach to replenishing the federal highway program and averting a mid-summer construction crisis that would put at risk 700,000 jobs, according to a Department of Transportation estimate.

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There is barely time for Congress to concoct some short-term fix – let alone a major overhaul of the government's natural resources and environmental policies, as McCarthy has suggested, or a substantial change to the federal tax code – as others are suggesting.

The gas tax — which hasn't been changed in more than 20 years — currently raises about $35 billion a year. But that is well short of the $53 billion that the federal government spends annually on highway and transit projects.

For the past half dozen years, Congress has shifted money from the general fund to the trust fund to paper over the shortfalls. This year however, gas tax revenues are down even more, thanks in part to lower usage and a substantial increase in gas efficiency in newer cars.

Read MoreGas tax impasse hampers summer road repair

Meanwhile, projects are on hold as state officials wait for Congress to take action. The gas tax hike the first time since 1993 – is supported by the construction industry and the states. But this is an election year, and not surprisingly, lawmakers don't like to raise taxes in an election year.

Moreover, the crisis in Iraq – one of the world's largest oil producers is fueling an international spike in oil prices that could further add to U.S. consumers' driving costs this summer and fall.

Patrick D. Jones, the head of the International Bridge, Tunnel and Turnpike Association, described Corker's and Murphy's plan as "gutsy," according to the Washington Post. "While there is not much stomach for increasing fuel taxes in an election year, motorists have said in numerous polls that they would be willing to pay higher fees to support road infrastructure if they know where the money is going," Jones told The Post. "That means spending it on road construction and repairs."

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Chris Chocola, the president of the influential conservative Club for Growth, dismissed the Corker-Murphy plan as "a $164 billion tax increase, plain and simple" that would be bad for economic growth.

"It's not an example of political courage to avoid reforming a broken system," Chocola said in a statement released last week. "Instead of standing up to the special interests who feast on the chronically bankrupt Highway Trust Fund year after year, Senator Corker and Senator Murphy have essentially decided that throwing more money into a black hole is a good path forward."

The Obama administration and members of Congress have floated a plethora of ways to address the trust fund crisis. The administration, for example, would close corporate tax loopholes and use the revenue to expand highway and transit funding for four years. Senate Majority Leader Harry Reid (D-NV) and Sen. Rand Paul (R-KY) favor beefing up the fund by enticing U.S. multi-national companies to repatriate offshore profits in return for a one-time massive tax break. House Speaker John Boehner (R-OH) said he would favor ending most Saturday postal deliveries and shift the savings to the trust fund.

But all of these proposals are flawed, particularly the tax repatriation approach. According to a study by the Center on Budget and Policy Priorities (CBPP), a repatriation tax holiday "would lose substantial federal revenue and swell budget deficits, so it couldn't pay for highways, mass transit or anything else."

—By Eric Pianin, The Fiscal Times

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