Repeal of the 4.3 cents per gallon RR fuel tax

Trains Magazine General Discussion
1

Quothe Ed H of the AAR:

“Railroads and barges are currently the only modes of transportation that pay a fuel tax into the general fund,” said Association of American Railroads President and Chief Executive Officer Edward Hamberger in a prepared statement. “Fuel taxes paid by other modes go to support their right-of-way while #8230; railroads pay virtually all of the costs to maintain and improve their infrastructure. We urge President Bu***o sign [the bill] into law.”

If as expected the repeal of the 4.3 cents per gallon fuel tax on railroads and barge lines comes into effect, does anyone think that the railroads will take this tax break and apply it to their infrastructure needs for which they are begging for federal aid? Doubtful. It would have been better for the feds to take this 4.3 cents and use it to pay for the eventual federal intervention into rail infrastructure upgrades that are being lobbied for by the railroads.

In an ironic twist, instead of the railroads paying into the general fund, they will now be taking from the general fund. As usual, it is the average Joe taxpayer who ends up getting screwed.

2

I completely disagree .

The money “saved” from any tax repeal will go two places. To help raise capital for capacity improvements and equipment and to the owners in the form of dividends.

3

…also, RRs already pay SUBSTANTIALLY into the general fund in the form of corporate income taxes, just like every other income producing entity in the US.

4

We would all be better off if our governments put a price freeze on gas prices. Taxes need to be collect but the oil companies don’t need to make that much money. They prove when the price at the pumps goes up and down like a teeter-totter.

5

What do you mean they don’t “need” that much? They “need” to make money for their owners. The free market sets the price, not the oil companies!

Gasoline is a commodity. It just follows crude price. You freeze gasoline prices below the cost to produce and who would be willing to sell it to me? Crude price is pure supply and demand - although there is a bubble, currently, at least according to the NPR business report I heard last night.

I don’t care what it costs as long as I can get it and there isn’t rationing! If the cost stays high, it will change my behaviour. In fact, the high cost of gasoline is the BEST thing that could happen to Amtrak/transit.

6

Dave-

You really need to actually read the legislation before criticizing. The repeal is phased in over several years amounting to less than a penny per gallon annually. Most railroads, even Class 1s will receive minimal benefits. Really the UP and BNSF as the largest U.S. railroads will be the only ones receving much benefit at all.

In any event, other modes (highway, barge, air) have the benefit of trust funds funded by their various fees and taxes while rail doesn’t. Rail doesn’t want to have a trust fund, the railroads would rather be left alone. While we’re on the subject railroads already pay heavy property tax on their infrastructure that the other modes don’t which more than makes up for the kind of differential in taxes.

7

The price is at one point in Ontario, 89 cents a litre and as low as 50 cents and it goes up and down and is inconsistant in pricing. Esso oil in Simcoe maybe 67 cents but the next one in Niagara Falls is 87 cents.

This leaves me to conclude that they are engaging in unfair price setting and should be frozen at a rate that reflects a profit to them but at the same time fair also for the consumer. I don’t believe for a second that thease oil companies are loosing money.

8

Nobody said they are losing money. They are in business to make money, right? They can’t gouge if there is competitiion - it’s how a free market works. Basic Econ 101 from college, remember? Can’t explain your Canadian pricing - perhaps some are repair stations with pumps and other are high volume company owned stations. It used to

9

Will it help Amtrak on the Fuel Tax every year, How much money will amtrak save?

10

so labor day weekend i was in streator, IL for a huge car show and saw that gas was $1.59 and i filled up. i got back to where i live (25 miles away) and gas was at $1.84…tell me we’re not gettin gouged [:(!]

11

[quote]
QUOTE: Originally posted by Limitedclear

Dave-

You really need to actually read the legislation before criticizing. The repeal is phased in over several years amounting to less than a penny per gallon annually. Most railroads, even Class 1s will receive minimal benefits. Really the UP and BNSF as the largest U.S. railroads will be the only ones receving much benefit at all.

In any event, other modes (highway, barge, air) have the benefit of trust funds funded by their various fees and taxes while rail doesn’t. Rail doesn’t want to have a trust fund, the railroads would rather be left alone. While we’re on the subject railroads already pay heavy property tax on their infrastructure that the other modes don’t which more

12

As I understand it the variation in gas prices between cities in Canada is not due to a conspiracy by the oil companies but is primarily related to taxation. The Federal gov’t, the Provinical gov’ts and local city or municipalities all collect taxes on gasoline. The regional differences are primarily accounted for by the differen

13

I think we all know what I’m going to advocate than…[:-^]

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[quote]
QUOTE: Originally posted by futuremodal

[quote]
QUOTE: Originally posted by Limitedclear

Dave-

You really need to actually read the legislation before criticizing. The repeal is phased in over several years amounting to less than a penny per gallon annually. Most railroads, even Class 1s will receive minimal benefits. Really the UP and BNSF as the largest U.S. railroads will be the only ones receving much benefit at all.

In any event, other modes (highway, barge, air) have the benefit of trust funds funded by their various fees and taxes while rail doesn’t. Rail doesn’t want to have a trust fund, the railroads would rather be left alone. While we’re on the subject railroads already pay heavy property

15

Because there isn’t enough disagreement on this issue already:

Dave,

I certainly understand your assertion that subsidies–in all their various forms–are a poor idea because the “subsidy” doesn’t go into the railroad’s physical plant but lines investor’s pockets. Presumably your ultimate contention is that it might be worth the money to improve our nation’s transportation system if that is where the “subsidy” goes–which would in turn improve commerce, create jobs, etc.–but it is not worth the money to line investor’s pockets, which is where the “subsidy” really goes.

I am not taking issue with your ultimate conclusion. However, have you considered the possibility that railroad’s using the “subsidy” to line investor pockets might lead to a bigger improvement of the railroad’s physical plant than if the subsidy had gone directly to improving the railroad’s physical plant?

If railroads conclude that the best way to get the investment they need to make themselves viable in the future is to convince Wall Street that they are profitable and the amount of physical plant improvement that they could get from a meager subsidy would be miniscule in comparison, wouldn’t the better course of action be–for both the railroad and the nation–to line investor pockets in the hope of bringing more investors to provide the money to make meaningful improvements to the physical plant?

I am not asserting this contention trumps your view. A detailed look at the numbers would be required to determine whether this view is plausible.

Gabe

16

Gabe-

I like your thoughts.

I must however take issue with your use of the term “subsidy”. Eliminating an unfair tax such as the 4.3 cent RR fuel tax is not a subsidy. A subsidy is where one person or entity (in this case the U.S. Government) pays or assumes responsibility for paying the obligations of anoth

17

Gabe, it seems to me that the Milwaukee and CNW alone make your claim a bit silly.

“Lining investors’ pockets” only results in their anticipating more of the same – and complaining if they don’t get returns on their ‘rational expectations’ – while analysts will remain unconvinced that a capital-intensive industry can produce continued levels of dividend or ‘stakeholder’ income without the collusion of management.

Of course, neither investors or analysts are likely to respond to higher levels of infrastructure improvement unless there are relatively immediate returns to the bottom line (as I think is the perception of the BNSF Transcon work).

Remains to be seen whether a “Microsoft model” of business management would work for a railroad company. Seems to me that the required components to keep investor interest high just don’t exist in this industry – large guaranteed profits from core lines, reasonably large guarantees of income from current research, etc. Any investors attracted by a ‘line-the-pockets’ approach would likely walk as soon as that money was no longer forthcoming – within three to six months’ worth of quarterlies. In any case… does a railroad really care who holds its outstanding stock or other instruments, or what effect relative share ownership contributes to its market cap or credit ratings?

It’s my opinion that making necessary work on infrastructure either mandated or externally ‘subsidized’ is likely to be the best approach – even when railroad management is internally disposed to favor the idea. Particularly when some portion of the infrastructure improvements is then subsequently depreciable or otherwise applicable to tax reduction, or counts as the ‘right’ kind of loss for accounting…

Gabe, you’re not thinking that railroads are just going to ‘release’ a bunch of retained shares from the treasury for people to snap up on a ‘line-the-pockets’ promise, are you? (Although it might be interesting to propose such

18

LC:

Actually, that is why I said “subsidy” rather than subsidy. I believe the term subsidy is about as well defined as “democracy.” Ergo, my quotations were meant to indicate the “subsidy” at issue may not even be considered a subsidy to many, such as myself.

Overmod:

Perhaps the theory is “silly”–see comment above concerning the import of quotations.

However, if politely exploring a different way of looking at a problem is to be frowned upon on this forum, I have posted my last post–as I question the endevor of enriching my knowledge with paradigmatic thinking.

The theory that a higher return will attract more investors is far from obviously wrong, and I fail to see why that return must be lowered in the future.

You may very will be right that the theory is incorrect, but in its defense:

(1) The Milwaukee Road wasn’t paying higher dividends to seek outside investors, it was artifically inflating its return to achieve a better sale price for a projected merger with CNW. That is a fundamentally different set of circumstances.

I have yet to be convinced that the currect physical plant in America is suffering from such deterioration. If the Class 1s are spending money on dividends instead of plant in improvement, I have yet to see a (plausible) contention made that they are allowing their infrastructure to go down the tubes in the process.

The (rational) complaint that is being made is they are not adding capacity, investing in enough new technology, going after long-term funding projects that will have long-term profits–a far stretch from the complaints of the Milwaukee Raod.

(2) I see no problem with investors expecting “more of the same” for their investment. If they want to invest money to see an efficiently run railroad, they should buy a trainset. If they want to get a return on their investment, they should expect as much.

If continued investment doesn

19

Let me be the first to affirm that I HOPE YOU ARE RIGHT that investors will reward forward-looking investment in infrastructure. I’d like to see a push a la Cassatt both to build up what exists and construct appropriate new capacity.

Where I see the problem is that pure ‘return on investment’ from an investor’s point of view is likely to see higher opportunity return, and/or a shorter timeframe for real return on invested capital, than will likely be the case for modern American railroading. Educating investors about the ‘real’ nature of modern railroading – especially its potential when ‘properly’ rebuilt – is likely to be an even harder task than Mark has had with some of the apropos threads on this forum. In the absence of a coherent effort to do that education, investors are left with… either a sort of ‘choo-choo’ mentality, or recent press coverage of railroad issues (which I think you’ll find will be mostly wrecks, nostalgia, or weird service failures).

I’d be delighted to hear (in detail) what you think a priority listing and timeline for this sort of education effort would be (and who it would be most credible coming from). I extend this offer to anyone else on the forum with investment experience (fictitious bankers, however, will have their comments treated accordingly; there’s been too much fiction in railroad publicity already!)

20

I suppose my thought is more simple than that (not to say your contention is incorrect).

My theory is that raising the dividend x amount will attract more investment. This investment will generate short and long term profits that will allow the dividend to continue to be paid. Accordingly, if a “subsidy” were used partially to “line investor pockets” with dividends, the end result may very well be more investment in railroad’s physical plant than if the “subsidy” went directly to the infrastructure.

Sartre once said that any philosophy that can fit in a nut shell probably belongs there. Given the simplicity of my sylogism, its prospects don’t seem that promising.

Nonetheless, I don’t think it is obviously wrong, and if it is wrong, I would like to see why.

Gabe