It's a sunny mid-summer afternoon at South Bass Island on Lake
Erie, north of Sandusky, Ohio. The harbor on South Bass Island is filled
with hundreds of recreational boaters enjoying the beautiful summer
weather, touring the island's historic sites, and stopping for
lunch and a cold beverage at the island's many bars and
restaurants. If you travel to the south end of the island, you might see
an ore carrier traveling through the Great Lakes. The ore carrier will
not, however, stop at South Bass Island since the island's shallow
water harbor is not suitable for deep water commercial vessels.
The Edward L. Ryerson leaves Duluth Harbor bound for Cleveland with
a cargo of 25,000 tons of taconite, a few tons below its maximum
capacity. In an unusual attempt to utilize this excess capacity, the
Ryerson agrees to accept a small container from St. Jude Medical in
Minneapolis. The container (which weighs only a few pounds) holds 500
new heart valves bound for the Cleveland Clinic. The Ryerson can handle
the extra weight, and its merchant mariners barely notice the additional
cargo. Upon arrival in Cleveland, the two cargo items (taconite and
heart valves) are unloaded and forwarded to U.S. Steel and the Cleveland
Clinic for further processing. Both products are subject to a tax that
few U.S. taxpayers are familiar with, the U.S. Harbor Maintenance Tax
(HMT). Here is where the similarity in transport of these two items
ends. The HMT is an ad valorem (value based) tax, so the heart valves
draw $4,165 in tax ,while the taconite draws $1,836 in tax. It is an
anomaly in our tax system that a tax intended to recover the
government's cost of canal and port dredging would impose a lower
amount of tax on 25,000 tons of unprocessed steel raw materials than it
does on a few pounds of heart valves, but that is how the HMT is
structured.
[FIGURE 1 OMITTED]
It is also an anomaly that the recreational boaters at South Bass
Island received $132,310 dollars in dredging services in 1999: an amount
paid entirely by the HMT, a tax that is not assessed to them, but rather
is borne by the ore carrier and all other forms of commercial maritime
transportation. The HMT is one of the most significant contributors to
Great Lakes maritime infrastructure. This section of the article will
address the problems noted above and explain why the HMT should be
abolished.
HISTORY OF THE HARBOR MAINTENANCE TAX
The United States has a long history of taxing products transported
on board ship; some of the first taxes imposed by the southern colonies
were import taxes (Treasury Education Office 2002). In 1789, Congress
authorized the first improvement projects for navigable channels. The
Army Corps of Engineers was established in 1824 as the agency charged
with maintaining the nation's water navigation (American
Association of Port Authorities 2006).
The HMT was enacted as part of the Water Resources Development Act
of 1986 (United States v. United States Shoe Corporation). Prior to the
HMT's enactment, general funds from the U.S. Treasury were used to
cover the federal government's share of costs to maintain and
deepen both inland ports and coastal ports. The HMT was intended to
recover a portion of the federal government's cost of maintaining
the nation's deep draft navigation channels ("The History of
the Harbor Maintenance Tax" 2006). The Act created both the HMT and
the Harbor Maintenance Trust Fund (HMTF). The HMTF is the trust fund
that holds HMT revenues from the time they are collected until they are
disbursed by Congressional appropriation (Kumar 2002).
Originally, the HMT was intended to recover only 40 percent of port
maintenance costs. However, in 1990 the HMT was more than tripled by
Congress to its current rate, equal to 0.125 percent of the value of the
commercial cargo involved (United States v. United States Shoe
Corporation). This dramatic increase in the HMT was intended to recover
100 percent of maintenance dredging expenses. The HMT currently is
imposed at the time of unloading (United States v. United States Shoe
Corporation) on importers and domestic shippers, but the term
"domestic shipper" would include foreign flag vessels
traveling between U.S. ports (United States v. United States Shoe
Corporation). The HMT was created as an ad valorem tax in an attempt to
minimize its impact on U.S. exports, especially price-sensitive bulk
commodities (American Association of Port Authorities 2006). The impact
on U.S. exports was eliminated by a U.S. Supreme Court decision in March
1998, where the court held that the HMT was unconstitutional as applied
to exports (United States v. United States Shoe Corporation). One might
have expected that this dramatic change in application of the HMT would
have resulted in a major drop in HMT revenues. However, the decrease in
HMT revenue from 1997 to its low-water mark in 1999 was only 21.99
percent (Kumar 2002). By 2001, HMT revenues had once again exceeded
their pre-1998 levels (Kumar 2002).
LEGAL CHALLENGES TO THE HMT's VALIDITY
The principal legal challenge to the HMT began with a
constitutional challenge based on the export clause of the U.S.
Constitution. The U.S. Shoe Corporation brought an action on November 3,
1994 against the U.S. government in the Court of International Trade
(CIT). U.S. Shoe sought a refund of the HMT it had paid on exports,
arguing that the HMT was an unconstitutional tax as applied to exports
(United States v. United States Shoe Corporation). Both the CIT and the
Court of Appeals for the Federal Circuit held that the HMT was a tax,
not a user fee, and that as a tax, it violated the Export Clause. The
U.S. Supreme Court agreed to hear the case after the decision by the
Federal Circuit.
The first step in the Supreme Court's analysis of the HMT was
to determine whether the CIT had proper jurisdiction over the case as
filed by U.S. Shoe. The scope of the CIT's jurisdiction is
established by 28 U.S.C. [section] 1581. The HMT's own
jurisdictional provision states that for jurisdictional purposes, the
HMT "shall be treated as if such tax were a customs duty"
(United States v. United States Shoe Corporation). The CIT's
jurisdictional statute states that the CIT has jurisdiction over any
civil action against the U.S. that "... arises out of any law of
the United States providing for--(1) revenue from imports or tonnage;
(4) administration and enforcement with respect to the matters referred
to in paragraphs (1) -(3) of this subsection...." (United States v.
United States Shoe Corporation). The Supreme Court found HMT claims to
be within the jurisdiction of the CIT because at that time, the HMT
applied to both imports and exports and its specific jurisdictional
provision references revenue from imports. Even though the lawsuit
involved the HMT's applicability to exports, it was possible for
the CIT to rely on jurisdiction created over imports (United States v.
United States Shoe Corporation).
The Supreme Court then turned to the issue of whether the HMT was a
tax, which would potentially be impermissible under the Export Clause,
or whether it qualified as a user fee, which might survive Export Clause
scrutiny. The Court found that the HMT is a tax, basing its decision on
the Congressional description of the HMT as a "tax on any port
use" (United States v. United States Shoe Corporation). The Court
went on to analyze the HMT and determined that it is not a user fee. It
distinguished prior cases involving user fees such as the civil aircraft
registration fee (Evansville Airport v. Delta Airlines) and other valid
user charges that involved either the Dormant Commerce Clause or the
Takings Clause, finding that the Export Clause contained a "simple
direct and unqualified prohibition on any taxes or duties ... on
exports" (United States v. United States Shoe Corporation). The
Court then analogized the HMT to the excise tax on tobacco that was the
subject of the Court' s 1876 decision in Pace v. Burgess. In Pace,
the stamps required to sell tobacco in the export market
'"bore no proportion whatever to the quantity or value of the
package on which [the stamp] was affixed' and the fee was not
excessive" (United States v. United States Shoe Corporation). Since
the amount of HMT paid by an exporter "does not correlate reliably
with the federal harbor services used or useable exporter" (United
States v. United States Shoe Corporation) it imposes a tax, not a user
fee, and as such was invalid as applied to exports. The Court
invalidated the HMT as it applied to exports, but since the Export
Clause does not prohibit taxing imports or domestic transportation, the
HMT continues to apply to both imported items and domestic
transportation.
LITIGATION SUBSEQUENT TO U.S. SHOE
Since the Court's decision in U.S. Shoe, the Harbor
Maintenance Tax has continued to be controversial. On February 28, 2000,
the Court of Appeals for the Federal Circuit ruled that there was no
statute of limitations for exporters asserting claims for refund of the
HMT. This effectively required the U.S. Customs Service to refund all
HMT paid on exports back to April 1, 1987, the original effective date
of the HMT (Swisher International v. United States). Exporters, whether
they were involved in the U.S. Shoe litigation or not, immediately began
to file claims for refund of the HMT paid on exports.
The second post-U.S. Shoe suit involved interest on refunds of HMT.
Here the exporters did not fare as well. The Court of Appeals for the
Federal Circuit ruled that the U.S. government was not required to pay
interest along with refunds of the unconstitutionally collected HMT
(United States v. United States Shoe Corporation). The court's
decision was based on the principal that "interest may only be
recovered in a suit against the government if there has been a clear and
express waiver of sovereign immunity by contract or statute, or if
interest is part of compensation required by the Constitution"
(Library of Congress v. Shaw). The court found that nothing in the HMT
statute, the Constitution, or other equitable principals required
payment of interest on HMT refunds.
PROBLEMS WITH THE HARBOR MAINTENANCE TAX TODAY
Application to Imports but not Exports
As a result of the U.S. Supreme Court's decision in U.S. Shoe,
described above, as it exists today, the Harbor Maintenance Tax applies
to imported products and products transported domestically, but it does
not apply to exported products. Undoubtedly, exported products put as
much burden on U.S. harbors and shipping channels as do imports, but
they are exempt from this ad valorem tax. To resolve this imbalance,
either of two steps could be taken. The U.S. Constitution could be
amended to allow taxation of exports (a very difficult and likely
unsuccessful approach), or the HMT could be replaced with another system
of taxation that passes constitutional muster.
HMT Discourages the Most Fuel-Efficient Means of Transportation
Water transportation is the most fuel-efficient method of
transportation currently available in the United States. Ships can
transport a ton of cargo 514 miles using one gallon of diesel fuel,
whereas trucks can transport that same ton of cargo only 59 miles on the
same gallon of fuel. As an ad valorem tax, the HMT serves to encourage
the use of truck transport for higher-value, lower-weight cargo, leaving
waterborne transport as a viable option only for lower-value,
high-weight cargo. In an era when the U.S. is increasingly dependent on
foreign oil, we simply cannot afford to have a tax policy that
discourages fuel efficiency in transportation. A recent example of U.S.
efforts to make tax policy consistent with fuel efficiency can be found
in the modification of {{section}}179. This provision reduced the small
business write-off for sport utility vehicles (SUVs) from $100,000 to a
maximum of $24,000 ("I.R.C. 179 Expense" 2006). Eliminating
the HMT would allow companies to use waterborne transit for items that
are currently transported using less fuel-efficient means. This not only
reduces America's dependence on foreign oil, but could reduce
highway traffic and reduce the number of accidents on our highways
(Stewart 2005).
HMT Violates GATT
After the decision in U.S. Shoe, the HMT applies to imports but not
to exports. On February 6, 1998, the European Communities brought a
Request for Consultations (RC) against the United States in the World
Trade Organization's Dispute Settlement Body. Canada, Japan, and
Norway ("Request for Consultations ... Canada, Japan, Norway"
1998) also joined in the RC. The RC alleged that the HMT violated
Articles I, II, II, VIII, and X of GATT, as well as the Understanding on
the Interpretation of Article II: I(B) of GATT ("Dispute
Settlement: United States-Harbor Maintenance Tax" 2006). The
European Community's RC was introduced a few weeks before the
Supreme Court's decision in U.S. Shoe, but the U.S. Shoe decision
at least arguably makes the EC's claim against the HMT even
stronger. By dropping the HMT on exports, but maintaining it on imports,
the U.S. has unintentionally violated the national treatment obligation
under GATT ("Request for Consultations by the European
Communities" 1998). This in effect allows tax-free port use to
products originating in the U.S. but imposes a tax on imported products,
a direct violation of the national treatment clause of GATT Article III
(Lundell, S., Princess Cruises, Inc. v. United States). One important
exception to this rule applies to user fees, which are imposed for
services actually rendered. However, as the Supreme Court noted in U.S.
Shoe, the HMT is not a valid user fee because it has little or no direct
relationship to services provided to importers (United States v. United
States Shoe Corporation). The WTO has not acted on the European
Community's RC. No panel has been established to act on the Request
for Consultations ("Dispute Settlement: United States-Harbor
Maintenance Tax" 2006). Abolishing the HMT would clearly be viewed
favorably by our European and other trading partners.
HMT Unfairly Taxes High-Value Cargo when Compared to Low-Value
Cargo
As noted in the preceding section, one effect of the HMT is to
impose a large tax burden on high-value cargo. While the intent of the
HMT is to provide a revenue source for dredging and harbor maintenance,
its effect is to strongly discourage manufacturers of high value,
non-bulk items from using waterborne transportation. While this would
appear to suggest that a tonnage tax would be a fairer means of
generating harbor maintenance revenue, fuel efficiency and other issues
and opportunities indicate that generating this revenue elsewhere
actually represents better national tax policy.
HMT has Prevented Some Types of Waterborne Transport from
Flourishing in the Great Lakes
Both Roll-On/Roll-Off (RORO) and various truck ferry services have
been very difficult to establish on the Great Lakes due in large part to
the existence of the HMT. It effectively transfers goods and products
that could be shipped on the Great Lakes to both truck- and rail-based
transportation systems. The HMT creates a disincentive for maritime
shipping of both ferry cargo and containerized cargo. As an ad valorem
tax, the HMT imposes a requirement that containerized cargo be valued
for the purpose of assessing HMT. The burden of the HMT is twofold:
First, the HMT represents an added cost of 0.125 percent for the product
shipped. But also, compliance with the HMT requires valuation of items
within any container or vehicle transported onboard a ship, requiring a
substantial volume of paperwork (Stewart 2005). There is currently one
operating truck-only ferry on the Great Lakes, the Detroit/Windsor Truck
Ferry, ferry service to various islands such as the Erie Islands and the
Apostle Islands, and a RO-Pax (Roll-On/ Roll-Off with Passenger
Service), the Michigan Car Ferry Service on Lake Michigan (Price and
Vickerman 2004). The opportunities for additional truck ferry and RO/RO
service on the Great Lakes are substantially limited by the imposition
of the HMT. Previous research has indicated that the HMT (applied to
both imports and exports at the time) was an important factor and
perhaps even the primary factor in the termination of RO/RO service
between Duluth, Minnesota and Thunder Bay, Canada (Stewart, Lavoie, and
Shutes 2003).
As Currently Enacted the HMT is Difficult to Properly Enforce
The HMT currently applies to imports and to domestic
transportation. With respect to imports, it is collected by the U.S.
Customs Service when the goods arrive in a U.S. port and clear customs.
Payment is voluntary with respect to domestic shipping. Since the
Customs Service doesn't monitor domestic shipping there is no clear
enforcement tool for domestically shipped items. While potential
compliance problems alone are usually not sufficient to militate
elimination of a tax system, when the system is as flawed as the current
HMT, it may be better to eliminate the tax altogether than to try to
create a new and expensive system to ensure taxpayer compliance.
HMT Is a Barrier to International Trade
Our trading partners in Europe, particularly those who are members
of the European Community, have routinely expressed strong opposition to
the HMT. Its imposition on imports (many of which come from Europe) but
not on exports is perceived as a tariff on imported goods. While this
was clearly not the intention of the Supreme Court's U.S. Shoe
decision (United States v. United States Shoe Corporation), the
decision's effect is unavoidable. Eliminating the HMT would
eliminate this inadvertent "tariff."
HMT Results in a Shift in Container-Borne Cargo to Canadian Ports
Port-related jobs currently employ about five million U.S. workers.
These workers earn roughly $44 billion in annual personal income. With
respect to containerized cargo, the Port of Seattle estimates that each
container of goods that arrives in port adds about $1,000 to the local
economy ("America's Ports Today" 2006). Containerized
cargo (and bulk cargo as well) entering the U.S. through U.S. ports is
subject to the HMT. If the cargo is containerized and enters a Canadian
port where the container is moved to a truck or train, it avoids the HMT
altogether. The HMT puts ports near the Canadian border at a competitive
disadvantage. This disadvantage results in job losses at U.S. ports,
some of the highest-paid union jobs in the U.S. ("Repeal the Harbor
Maintenance Tax Now!" 2006).
HMT Generates Substantially More Revenue than the U.S. Currently
Needs for Harbor Maintenance
The HMT has been a very effective (perhaps too effective) vehicle
for generating revenue for the Army Corps of Engineers dredging and
harbor maintenance activities. There is currently a $3.1 billion surplus
in the Harbor Maintenance Trust Fund, an amount sufficient to support
the Army Corps of Engineer's dredging and harbor maintenance at the
current rate for 3 1/2 years. The HMT could be abolished currently, and
a replacement revenue stream could be deferred or phased in over a
period as long as three years without risking any of the Corps'
ability to complete important dredging and harbor repairs.
Income from HMT is not Fairly Allocated to the Commercial Ports
that Generate HMT Revenues
As previously noted, the HMT was enacted to fund dredging and
maintenance of commercial ports. Unfortunately, the HMT is used for a
variety of waterway projects that are unrelated to dredging and
maintenance of commercial ports. Even if the HMT were lowered so that it
produced only enough revenue to fund current and future harbor
maintenance and dredging expenses, the allocation of funds is currently
unfair.
In some cases HMT revenues have been spent on maintenance of
harbors that provide little or no commercial trade, and hence contribute
virtually nothing to the HMTF. In other cases HMT revenues are collected
at ports that do not require or fund maintenance through HMTF
expenditures. The Great Lakes Boating Federation, in making a case for
federal support for recreational boating, notes that recreational
boaters benefit from large breakwaters protecting cities like Cleveland
and Chicago, built and maintained by the Army Corps of Engineers
(http://www.greatlakesboatingfedera
tion.org/action/infrastructure.html). On the other hand, commercial
interests, as represented by the AAPA note in testimony before a House
subcommittee, "Ports like Seattle and Tacoma, which need little or
no maintenance dredging, have long suffered the inequity of competing
for cargos that must pay significant fees for essentially no
service" (Nagle 1999).
Calculation and direct comparison of collections and expenditures
is currently compromised by lack of data; as noted in the arguments for
reform of the HMT and for increased intermodal support by the National
Ports and Waterways Institute (NPWI) at the University of New Orleans,
since all domestic shipment databases are weight-based, almost no
information is available on the value of shipments. The NPWI study makes
estimates from ACE lake-wise waterborne commerce data for average value
per ton, and shows lake-wise commodity tonnage shipped.
HMT does not Allocate its Tax Burden to Either (1) Ports that
Require the Largest Dredging Expenditures or (2) Vessels that Require
the Deepest Drafts
While the U.S. Supreme Court made it clear that the HMT is to be
classed as a tax (United States v. United States Shoe Corporation) and
not a user fee, a tax that is enacted to recover the government's
cost for providing a specific service should be fairly applied to the
users of those services, to be perceived by the public and the
stakeholders as an equitable tax. Dredging expenses (but not necessarily
other port maintenance) are largely a function of draft depth of ships
traveling through the Great Lakes and St. Lawrence Seaway and the amount
of sediment deposited in various locations on the system from rivers and
other runoff. The HMT does not attempt to account for these differences
in its imposition of an ad valorem tax.
Income from the HMT Is Used for Work at Some Ports but not Others
The Port of Seattle incurred $792,500 in HMT-funded expenses for
the years 1999-2004. International imports to Seattle incurred
$27,966,250 in HMT for 2004 alone. Seattle is a naturally deep water
port, containing at least fifteen berths that are at least fifty feet
deep. The Port of Seattle handled 20,564,860 metric tons of cargo in
2005 with this minimal amount of HMT ("Container Terminals"
2006). By comparison, the Port of Wilmington, North Carolina incurred
$95,015,705 in HMT-funded expenses during the same five-year period,
while international imports shipped through Wilmington incurred only
$1,790,000 in HMT for 2004. HMT collections were estimated using USACE
value of cargo.
HMT Revenue Is a Small Portion of Total Transportation Tax Revenue
and a Small Portion of Transportation Spending
The HMT represents only 3 percent of the U.S. government's
revenue from transportation sources. While government spending on water
transport is 6 percent of the total transportation budget, this apparent
"imbalance" is more than justified by the importance of water
transport as both a strategic military tool and the fuel efficiency of
waterborne transport as identified previously. The significance of these
funding levels is that while the HMT stands as a meaningful barrier to
specific types of water transport, it actually provides a very small
percentage of the federal government's transportation budget.
ATTEMPTS TO FIX THE HMT's FLAWS
The argument in this article is far from the first indictment of
the HMT. Carriers, port authorities, shippers, manufacturers, and legal
scholars have provided almost constant opposition to the HMT (Messer
1998). For most of these stakeholders, the most significant opposition
resulted in the U.S. Shoe litigation, which ended in the elimination of
the HMT on exports. Since the end of the U.S. Shoe litigation, several
attempts have been made to reform the HMT.
1992 Attempt to Reduce the HMT
In August 1992, H.R. 5896 was introduced to reduce the HMT from
0.125 percent to 0.04 percent, its pre-increase level. The bill also
attempted to broaden the types of expenses that could be funded by the
HMT and to enhance enforcement by turning 10 percent of all HMT revenue
over to the IRS to cover costs of IRS enforcement of the HMT. The bill
was not reported out of the House Ways and Means Committee's
Subcommittee on Water Resources, and enforcement remains an activity of
the U.S. Customs Service (Studds and Moakley 1992).
Trust Fund Excess/HMT Rate Reduction Bill
A bill was introduced by Congressman McDermott (D-WA) to reduce the
HMT rate to .0105 for 1996, 0.085 for 1997, and 0.065 percent for 1998.
It would then have reduced the post-1998 HMT rate by 0.01 percent for
each calendar year in which the HMTF remained funded in excess of
$100,000,000. The bill was introduced on March 6, 1995 with an effective
date of January 1, 1996. It did not pass a vote in the House Ways and
Means Committee (McDermott 1995).
Harbor Services Fund
In April 1999, the Clinton Administration proposed a new Harbor
Services Fund Tax (HSF) as part of the Harbor Services Fund Act of 1999,
H.R. 1947. The Harbor Services Fund Tax was proposed to replace the
revenue lost as a result of the Supreme Court's U.S. Shoe decision.
This additional tax would have produced roughly $850 million in
additional annual revenue ("Organizations Opposed to Harbor
Services Fund Proposal" 2000). The HSF met with strong opposition
from a wide variety of shipping industry stakeholders. In describing the
HSF, Kurt Nagle, President of the American Association of Port
Authorities (AAPA), stated, "The Federal Government continues to
suggest that it completely abdicate its financial responsibility for
federal navigation channel maintenance" ("Organizations
Opposed to Harbor Services Fund Proposal" 2000). The Harbor
Services Fund proposal failed in 1999 and was reintroduced by the Bush
Administration as part of its fiscal year 2001 budget request, where it
once again failed.
Support for Harbor Investment Program Act of 1999
On March 24, 1999 Representatives Borski (D-PA) and Oberstar (D-MN)
introduced a bill to repeal the HMT, use the funds in the HMTF to fund
dredging activities, and once those funds were expended, to fund the
Army Corps of Engineers' dredging out of the general fund of the
U.S. Treasury (Borski and Oberstar 1999). The bill was referred to the
House Ways and Means Committee and the Committee on Transportation and
Infrastructure. The Committee on Transportation and Infrastructure
referred it to its Subcommittee on Water Resources and Environment on
March 26, 1999. The bill was not reported out of the Subcommittee and
died there (Borski and Oberstar 1999).
Container Port Exemption Bill of 2002
A bill was introduced in the House, in July 2002, to provide an
exemption to the HMT for any port that is within 200 miles of a
container port in a foreign country and that does not use harbor
maintenance funds from the Treasury. The bill, offered by several
members of Washington State's congressional delegation, essentially
would have provided an HMT exemption for the Port of Seattle/Tacoma
Washington. The bill was not reported out of the House Ways and Means
Committee (Dunn 2004).
$100,000,000 Import Value Port Limit Bill of 2003
A 2003 bill attempted to change the definition of exempt port under
IRC [section] 4462(a)(2). This section provides that the HMT does not
apply to ports that have not received federal funds for construction,
maintenance, or operation at any time after 1977. The bill, which was
introduced in the Senate by Senator John Kerry (D-Mass.), attempted to
remove this exemption for any port that was used to transport more than
$100,000,000 of commercial cargo in any year after 2001. The bill was
not reported out of the Senate Finance Committee.
Ferry-Borne Trailer Cargo Exemption Bill of 2004
In March 2004 a bill was introduced in the House which would have
provided an exemption from the HMT for "qualified container
cargo." Qualified container cargo included cargo "in or on a
truck trailer or semi-trailer parked on a ferry operating between two
ports for the sole purpose of transporting such trailers and trucks
between such ports due to traffic congestion on the nearest
international bridge serving the area in which such ports are
located" (English 2004). This bill, introduced by Congressman Phil
English (R-PA) was an attempt to exempt the Detroit-Windsor Truck ferry
and other similar ferries from HMT. The bill was not reported out of the
House Ways and Means Committee (English 2004).
Short Sea Shipping Tax Exemption Act of 2005
Congressman Dave Weldon, M.D. (R-FL) introduced a bill on July 18,
2005 which would provide an exemption from the HMT for domestic
container-based cargo unloaded in U.S. ports transported between U.S.
ports via coastal routes or fiver systems (Weldon 2005). This would have
effectively eliminated the HMT on products shipped in containers within
the U.S. and left the HMT in place for imports and bulk cargo only. The
bill has not been reported out of the House Ways and Means Committee.
Great Lakes Short Sea Shipping Enhancement Act of 2006
On July 26, 2006 a bill was introduced in the House to exempt from
the HMT commercial non-bulk cargo loaded at a port in the Great Lakes or
St. Lawrence Seaway System and unloaded at any other port in the Great
Lakes or St. Lawrence Seaway System (Jones 2006). The bill was referred
to the House Ways and Means Committee, but has yet to be reported out of
that committee.
PROPOSED SOLUTIONS TO THE HMT PROBLEM
After at least nine failed reform attempts in a ten-year period, it
is time for a major change to the HMT. We suggest three possible
proposals for change: The first two reform proposals would provide a
permanent solution to the HMT problem and retain the ability to fund
Army Corps of Engineers' important dredging and harbor work. The
third proposal, while not solving the HMT problem, at least provides a
tax incentive for companies engaged in short sea shipping.
Proposal 1: Abolish the HMT and Fund Harbor Maintenance Using
General Government Revenue
This proposal calls for a renewal of the Support for Harbor
Investment Program Act of 1999. It provides a clear set of
appropriations for the Army Corps of Engineers by requiring funding only
in years after the funds in the HMTF are fully expended.
Proposal 2: Abolish the HMT and Fund Harbor Maintenance Using an
Increase in the Diesel Fuel Excise Tax
This proposal requires abolishing the HMT and replacing its revenue
stream with funds generated from an increase in the federal excise tax
on diesel fuel sold for over-the-road use. This excise tax is currently
$0.245 cents per gallon. In order to fund the Army Corps of
Engineers' dredging and maintenance activities, the required
increase in the excise tax would be $0.0112 cents per gallon (2005
diesel excise tax taken from National Energy Information Center, Energy
Information Administration, Petroleum Marketing Monthly, February 2006,
Explanatory Notes, Table EN1). While this tax increase is borne by the
over-the-road transportation industry, as opposed to the marine
transport industry, it is fair to propose this burden in order to
increase overall fuel efficiency, which favors water transport. As
suggested, a tax structure of this type would divert traffic to water
transportation and thereby reduce our nation' s dependence on
foreign oil. This modal shift would potentially reduce congestion on
America's highways as well. (See, for instance, Fruin's
calculations and conclusions of cost increase incurred by a proposed
shift from waterway to land transportation in the Mississippi Metro
area, or the recent modal shift from water to truck for New York trash
disposal New York is trying reverse ["City Seeks Ideas as Trash
Costs Dwarf Estimate" 2003].) A similar approach has been used
successfully in Europe, with the support of the trucking industry.
Proposal 3: The Short Sea Shipping Tax Credit
While abolishing the HMT would be ideal from a tax policy
standpoint, should Congress choose to leave the HMT in place, a tax
credit should be created to provide a tax incentive for Great Lakes and
other U.S. short sea shipping. This non-refundable credit, the
"Short Sea Shipping Tax Credit," would operate as follows:
* The credit would be offered to companies engaged in transporting
either products or people between any two U.S. ports, or originating in
a port in either Canada or Mexico, and ending in a U.S. port.
* The credit would be incremental, meaning that companies would
claim the credit on their corporate tax return, but it would be based on
the increase in products or people shipped in the current tax year over
a base period of the preceding three tax years.
* The credit would be the greater of 10 percent of the increase in
value of items shipped for the tax year, or an amount based on the
increase in tonnage of items shipped. This tonnage portion of the credit
would provide different credit amounts per ton for grain, coal, sand,
salt, iron ore, or other bulk cargo.
* The credit would be nonrefundable, meaning that it would offset
only positive current tax liability of the carrier. If the carrier has a
tax loss for the year, the credit could be carried back two years and
forward for five years.
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Mr. Skalberg is assistant professor of taxation and business law,
University of Minnesota Duluth, Duluth, Minnesota 55812; e-mail
rskalber@d.umn.edu.
Table 1. Harbor Maintenance Trust Fund Balances
(figures rounded to nearest thousand)
Beg. Balance Revenue Total Balance
FY 97 $866,063 $789,166 $1,655,230
FY 98 $1,112,241 $687,870 $1,800,111
FY 99 $1,289,018 $615,601 * $1,904,619
FY 00 $1,608,957 $760,554 $2,369,511
FY 01 $1,667,642 $810,769 $2,478,411
FY 02 $1,818,841 $710,789 $2,529,630
FY 03 $1,873,417 $804,518 $2,677,935
FY 04 $2,092,080 $922,383 $3,014,463
FY 05 $2,366,263 $1,122,630 $3,488,892
Expenditures Ending Balance Net Change
FY 97 $549,502 $1,105,728 $239,665
FY 98 $511,093 $1,289,018 $176,777
FY 99 $295,662 $1,608,957 $319,939
FY 00 $701,869 $1,667,642 $58,685
FY 01 $659,570 $1,818,841 $151,199
FY 02 $656,214 $1,873,417 $54,576
FY 03 $585,855 $2,092,080 $218,663
FY 04 $648,200 $2,366,263 $274,183
FY 05 $705,956 $2,782,936 $416,674
* See estimated collections for 1999 (Table 2.3, Tax
Systems and Barriers to Great Lakes Maritime Commerce,
Final Report http://www.glmri.org/researchreports/GLMRI-
HMT.pdf)
Source: Bureau of the Public Debt, Office of Public
Debt Accounting, Trust Fund Management Branch
Table 2. U.S. Fuel Consumption and Demand
(millions of barrels per day)
Demand 2005 2006 2007
Motor Gasoline 9.13 9.19 9.28
Jet Fuel 1.63 1.66 1.70
Distillate Fuel Oil 4.11 4.20 4.31
Residual Fuel Oil 0.91 0.76 0.81
Other Oils 4.88 4.93 5.08
Total Demand 20.66 20.74 21.18
Source: Energy Information Administration-Short-Term Energy
Outlook - July 2006, Table 5a
Table 3. Percent Change in U.S. Fuel Consumption
Millions of barrels per day
2005-2006 2006-2007 2005-2007
Demand change change change
Motor gasoline 0.66% 0.98% 1.64%
Jet fuel 1.84% 2.41% 4.29%
Distillate fuel oil 2.19% 2.62% 4.87%
Residual fuel oil 16.48% 6.58% 10.99%
Other oils 1.02% 3.04% 4.10%
Total demand 0.39% 2.12% 2.52%
* Diesel fuel is projected to have the greatest change
from 2005-2007.
Source: Energy Information Administration\Short-Term Energy
Outlook - July 2006, Table 5a; Bureau of Business and
Economic Research
Table 4. 2005 U.S. Diesel Excise Tax and Daily, Yearly Demand
Federal tax: 24.4 cents per gallon
State tax: 21.6 cents per gallon
Daily demand = 4.11 Million Barrels (Barrel =
42 U.S. Gallons)
= 172.62 Million Gallons
Yearly demand = 63,006.3 million gallons
2005 excise tax collection = $630,063,000
total
Sources: Diesel Demand from: Energy Information
Administration--Short-Term Energy Outlook - July 2006, Table 5a;
Excise Tax Totals from: Energy Information Administration, Petroleum
Marketing Monthly, February 2006, Explanatory Notes, Table EN1
Table 5. U.S. Tax Collections and Revenue, Diesel Excise
Tax Compared to HMT
Scenario 1 Increase excise
tax to cover
expenditures
Scenario 2 Increase excise
tax to cover
total revenue
Rise in Excise Tax (cents) 2005
Scenario 1 1.12 $705,670,560
Scenario 2 1.78 $1,121,512,140
Scenario 1 Amount needed $705,956,074 *
to cover:
Scenario 2 Amount needed $1,122,629,667 *
to cover:
HMT Collections
2006 ** 2007 **
Scenario 1 $721,123,200 $740,009,760
Scenario 2 $1,146,070,800 $1,176,086,940
* Based on 2005 HMT Collections
** Projection based on stable excise tax using the projected
distillated demand provided by the Energy Information
Administration Source: UMD Bureau of Business and Economic Research