Washington (Platts)--8Aug2011/410 pm EDT/2010 GMT

In a US Congress where trench warfare ensues over every must-pass piece of legislation, the next battle could come over renewing the federal gasoline tax, which expires at the end of September.

After a formerly routine extension of the law authorizing the Federal Aviation Administration turned into a three-week standoff over federal labor laws, it is likely House Republicans will try a similar strategy over extending the gasoline tax and other federal highway programs, a key House Democrat said in an interview late last week.

"The Republicans will use the expiration of the program and the tax... for some sort of leverage or further blackmail," Representative Peter DeFazio of Oregon said. DeFazio is the top Democrat on the House Transportation Subcommittee on Highways and Transit. "If the ultra-right prevails, it has already been rumored they would end the gas tax, which would mean no more surface transportation trust fund."

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The 18.4 cents/gal federal gasoline tax is the primary funding source for the federal Highway Trust Fund, which Washington funnels back to states to pay for road maintenance and construction. The fund has generated about $22 billion in receipts so far in fiscal 2011, compared to a total $32 billion for all of FY 2010, according to the Federal Highway Administration. The fund had a balance of $17.3 billion as of the end of June, including a $15 billion infusion from the general treasury last year to make up for a shortfall in the account.

That shortfall has grown steadily in recent years for several reasons, including that cars now travel farther on each gallon of fuel. Moreover, Congress has not raised the tax since 1993.

Aides to Republican leaders of the House committees that govern federal transportation and tax policy said they are still deciding what to do about the federal gasoline tax, all but 4.3 cents of which will lapse on September 30, unless it is reauthorized.

But Grover Norquist, an influential anti-tax lobbyist, said he'd like to see the tax repealed. Norquist said he will pursue that goal through the group he heads, called Americans for Tax Reform.

"ATR will be urging people to look at ending the federal gas tax either cold turkey or phasing it out as soon as possible and allowing states to simply go raise their own taxes, rather than send the money to Washington and get it back with strings," Norquist said in a response to emailed questions.

NORQUIST PLEDGE

Norquist said extending the tax at its current level would not violate ATR's pledge against voting for any type of tax increase, which most congressional Republicans have signed.

"Raising it would be a tax increase, but maintaining it at present levels would not," Norquist said.

Senator Tom Coburn, Republican-Oklahoma, with 13 Republican co-sponsors, introduced a bill (S. 1446) late last month that would follow Norquist's suggestion to let states keep the gas tax they collect.

A handful of industry groups and companies have come out in favor of boosting gasoline taxes by as much as $1/gal. The US Chamber of Commerce, General Motors and the CEO of Hess said this year they would favor higher gasoline taxes to shore up US infrastructure.

In the short-term, a gasoline tax increase is unlikely to gain traction as part of the current transportation bill reauthorization, a Senate aide familiar with the legislation said.

In the Senate, Majority Leader Harry Reid, Democrat-Nevada, said at a news conference last week that he plans to take up a surface transportation bill soon after lawmakers return from their August recess.

Democratic leaders have not introduced a highway bill, but Senator Barbara Boxer, Democrat-California, who heads the Environment and Public Works Committee, has said she wants to extend the tax and highway programs for two years at current funding level, which would require an infusion of $6 billion each year.

In the House, Transportation Committee Chairman John Mica, Republican-Florida, has proposed maintaining the tax at its current level, his spokesman said. Mica released an informal proposal earlier this year to freeze the gas tax and slash federal road spending by 35%. His committee has not introduced a bill to reauthorize surface transportation programs.

Given the differences between the two chambers, DeFazio and House and Senate committee aides said it is unlikely that Congress will pass a new highway bill before the tax expires next month.

--Keith Chu, keith_chu@platts.com