Thirty-four years before George Harrison ultimately popularized the term “taxman” in the hit of the same name with The Beatles, who would have known that the Revenue Act would start an endless cycle of taxation on tires. The first Federal Excise Tax (FET) in 1932 was based on the physical weight of the tire, and it applied to all tires and inner tubes. In 1956, the Federal-Aid Highway Act added taxes for off-highway tires and tread rubber to establish the Highway Trust Fund, which would direct the money collected to highway construction and maintenance. This amount of money would more than double by 1967 with just over $503 million in tire FET for the year.
By the late 1970s, the government was collecting more than $800 million annually in FET from tires, inner tubes and tread rubber. This revenue stream continued until the Surface Transportation Assistance Act of 1982 eliminated the FET on tires that weighed less than 40 lbs., non-highway tires and tread rubber. At the time, FET collections were around $616 million; 10 years later, revenue dropped to just under $280 million.
The American Jobs Creation Act of 2004 changed the method of calculating the tax from physical weight to carrying capacity in order to simplify the process of setting the final tax rate while it remained revenue neutral. This model is still used today and by most accounts, it has proven to be uniform and consistent for the calculation and collection of FET on tires.
Recently, there has been inside-the-Beltway talk of bringing back the good old days of the 1970s when FET collections on tires, inner tubes and tread rubber were consistently in the range of $700 million to $800 million. Let’s say there are about 16 million replacement truck tires sold in the U.S. each year and the average FET is $25 per tire. That’s $400 million in tax revenue that the government collects from fleets on an annual basis. If the FET on tread rubber for truck tires was reinstated, 15 million retreads would account for about 360 million lbs. of tread rubber. By introducing a $1/lb. tax on tread rubber, the government could almost double the annual FET collections (and add about $24 to the price of every retread).
The tire and trucking industries must be prepared for an FET increase on truck tires and the possibility it will be expanded to cover tread rubber as well as other tires. In July, the Congressional Budget Office (CBO) testified before Congress that it projects the Highway Trust Fund will be unable to meet all of its obligations by 2015. According to the CBO, Congress has transferred $41 billion from the general fund of the Treasury to the Highway Trust Fund since 2008 and has authorized another infusion of $12.6 billion in 2014. By 2015, the transfer would need to be in the range of $15 billion with subsequent increases in the following years if nothing is done to raise FET collections.
As far as the government is concerned, better fuel mileage and fewer miles traveled mean less federal gas and fuel tax, so the shortfall must be addressed. And even though the FET collected on tires represents a small percentage of the total for the Highway Trust Fund, history has shown that it can raise significant money when the tax is increased and expanded to cover tread rubber. With all of the other inside-the-Beltway budget demands, it’s hard to imagine Congress continuing the practice of supplementing the Highway Trust Fund when the taxman has such an obvious solution to the problem.
Kevin Rohlwing can be reached at [email protected]
