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ly require significant lead time to improve the fuel efficiency of automobiles.

2. The tax is not directly related to energy conservation, because the tax is not proportional to the amount of fuel consumed.

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1 All proposals except indexing would be effective on October 1, 1987; indexing would be effective on January 1, 1988.

2 Gain of less than $50 million.

10. Increase Trust Fund Excise Taxes to Offset Implicit General Fund Contributions to Such Funds

Present Law

Revenues equivalent to gross receipts from several present-law Federal excise taxes are dedicated to trust funds and may be used only for specified purposes. For example, revenues equivalent to gross receipts raised by the gasoline tax are dedicated to the Highway Trust Fund for use in highway-related programs.

The net revenue derived by the Federal Government from imposition of such taxes and tariffs is less than the gross receipts from such taxes or tariffs. This occurs because excise tax revenues displace other consumer expenditures and thus reduce taxable incomes in other sectors by an equal amount; income taxes are thereby reduced. Because amounts equivalent to gross receipts, rather than net revenues to the Treasury, are transferred to trust funds under present law, all trust funds receive an implicit appropriation from general revenues.

In many instances, other Federal tax expenditures provide an additional trust fund contribution from general revenues. For example, the revenue loss from tax-exempt bonds issued by State or local governments to finance activities for which they are reimbursed with Federal trust fund monies (e.g., highway and airport construction), or for which the users generally are the same as those who pay particular trust fund taxes, is not deducted from amounts transferred from general revenues to established trust funds.

The following table lists the current Federal trust (or special) funds and selected excise taxes, revenues from which are dedicated to the funds:

(72)

Fund

Highway Trust Fund

Dedicated Taxes

Gasoline, diesel fuel, and special motor fuels taxes

Heavy truck retail excise tax

Use tax on heavy trucks

Tax on tires for heavy highway vehi-
cles

Airport and Airway Trust Air passenger ticket tax
Tax

International departure tax
Domestic air cargo tax

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Inland Waterways Trust Tax on fuels used by commercial Fund

cargo vessels

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1 This tax will be effective only if qualified authorizing legislation is enacted by September 1, 1987.

Possible Proposals

1. All Federal excise taxes that are dedicated to trust (or special) funds could be increased by 33 percent to offset the implicit contribution to those funds from general revenues from the reduction in income tax receipts arising from imposition of excise taxes, with the additional revenues being retained in general revenues rather than being transferred to the trust funds.

2. In addition to possible proposal 1, specific trust (or special) fund taxes could be increased by an additional amount equivalent to the revenue loss from outstanding tax-exempt bonds to finance trust fund and related activities. As provided in possible proposal 1,

the additional revenues could be retained in general revenues rather than being transferred to the trust funds.

Arguments for the proposal

Pros and Cons

1. Spending programs the funding of which is derived from special, dedicated taxes should not be underwritten with general revenues, absent an explicit determination by Congress to appropriate such amounts. Some trust-fund-related programs currently are funded by such explicit appropriations from general revenues. Continuation of the implicit general revenue transfers that occur under the current trust fund procedure where transfers are based on gross receipts rather than net revenues is an evasion of the appropriations process.

2. Basing transfers to trust funds on net revenues, rather than on gross receipts as is presently done, would ensure a more accurate link between revenue source and program beneficiary in those cases where Congress has determined that funding for specified programs should be limited to that derived from program benefici

aries.

3. The explosive growth of tax-exempt bond issuance, with its accompanying Federal revenue loss, has been a source of concern to Congress in recent years. Reducing trust fund transfers to reflect the revenue loss from such bonds used to finance trust fund projects would appropriately transfer the cost of the bonds from taxpayers generally to users of trust fund facilities without directly limiting or otherwise affecting the use of tax-exempt bonds to finance such facilities.

Arguments against the proposals

1. In addition to the specific beneficiaries of trust fund programs (i.e., persons who pay the dedicated taxes), there is a general public benefit derived from most such programs. The implicit transfer from general revenues under present trust fund practices recognizes this benefit and appropriately assigns its cost to the population at large.

2. Sales to the Federal Government and to State and local governments are exempt from certain of the trust fund excise taxes. These governments, representing the population at large, benefit from the trust fund programs under present law. The implicit general revenue contributions like those presently occurring are one method of assigning the cost of the benefits received by these governmental units to ultimate beneficiaries.

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1 Both proposals would, be effective on October 1, 1987, with appropriate floor stocks taxes being imposed.

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