BLOOMINGTON, Ind. – What can the trucking industry expect from the pro-business Donald Trump administration? Ironically, it could be higher taxes.
Noel Perry, truck and transportation expert with industry analyst FTR, said during the most recent State of Freight webinar that somebody will have to pay for Trump’s planned infrastructure investments – and it could be the trucking industry. Trucking could also be called on to fund increases in social program spending, as the US demographic ages, he added.
Perry said Trump could raise the money to fund his trillion dollar infrastructure promise through the issuing of bonds, road tolls, or other forms of taxation. The trucking industry in the US currently pays about five cents a mile in taxes. Perry said that could climb to 15-20 cents a mile if trucking is targeted through new taxes and road tolls to pay for infrastructure.
“It wouldn’t fundamentally change the economics of trucking,” he said. However, Perry added that if trucking is called on to help fund needed spending increases for social programs, as in Europe, its taxes per mile could increase to as much as $1 or more. Perry said spending on health care and social security will need to rise from US$6 trillion today to more than $10 trillion by 2025.
“If the US does what Europe does, and pays for social spending by taxing fuel, the tax on an average mile of trucking would be well over a buck, potentially as much as $2,” Perry warned. “The whole issue of infrastructure and social spending having to do with health care and social security is a major exposure looking at trucking going down the road.”
He noted many states are becoming more comfortable raising fuel taxes.
If Trump’s infrastructure spending does reach the $1 trillion he promised, trucking’s gains would likely be restricted to the flatdeck and dump segments, Perry noted.
“Most of the market will not be affected that much,” he said, noting the benefits to dry van and reefer carriers would be negligible.
Currently, only about 30% of the highway taxes collected by the US federal government are reinvested back into the maintenance of highways, Perry pointed out, with the bulk going towards other transportation needs such as transit. Perry also noted that while the US currently spends about $250 billion a year on infrastructure, three quarters of that comes from states and local governments.
“Even if Mr. Trump and Congress pass a major expansion, it will affect only a quarter of what we do,” Perry said. He added sewage and water treatment infrastructure accounts for the biggest need, so not all the increase in infrastructure spending will go towards roads and bridges.
But whether Trump can live up to his campaign promises remains to be seen.
“Congress has so far spent a lot of time resisting him, so it’s possible the tax cuts…will either bog down or be associated with enough angst and rhetoric and name-calling that could mute the economic effect,” Perry said. “It’s a well known fact in business that people invest when they’re confident and things are stable and not otherwise, so we have to hope for the sake of the economy that the president and both sides of the aisle can see eye to eye on these programs, something that hasn’t happened so far.”
In an informal poll before the webinar began, moderator Jonathan Starks asked attendees to indicate whether they believe the Trump administration in 2018 will: make business stronger; provide a small upside; maintain the status quo; or have a negative effect. The majority, 45%, felt it will deliver a small upside, while 24% said they expect the status quo and 22% voted for stronger growth. Only 9% are expecting a negative impact.
Perry warned of another risk of the Trump administration: a trade war.
“So far, he has toned down his rhetoric very substantially,” Perry said. “If we were to have some kind of trade war that interrupted (freight) in some way, it would have a pretty major effect on transportation.”
As far as regulations are concerned, Perry is not expecting any disruption of the electronic logging device (ELD) mandate set to take effect later this year, since it’s statutory requirement and doesn’t come from the executive branch.
“There’s nothing the president can do to stop that,” he said.
However, FTR is anticipating some of the regulations that were in the pipeline for 2019 and beyond to be scrapped.
“We were originally thinking 2019 would be a big regulatory year and we are saying it’s not now, with the exception of the drug and alcohol database,” Perry said. “There has been a major effect in reducing the potential regulatory burden (on trucking).”
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