Here Comes Congress' Next Big Economic Crisis And It Could Be Even Worse Than The Fiscal Cliff

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We survived the fiscal cliff and the government shutdown, but there's another big battle brewing this summer between Congress and the Obama administration with dire economic consequences that could cost the country hundreds of thousands of jobs. And even though politicians on both sides of the aisle agree this disaster is "completely avoidable, "all signs indicate were on a collision course with crisis.

On Wednesday, President Barack Obama gave his first formal warning about this impending catastrophe - the Highway Trust Fund, a transportation and infrastructure fund financed by gasoline taxes, is set to run out by the end of the summer.

Thus far, Congress has not come up with a solution, and both sides are beginning to dig in. By July, thousands of projects and contracts could be put on hold amid the uncertainty - right in the middle of summer construction season. In one economic analysis released last week, the Obama administration warned 700,000 jobs tied to the fund and its uncertain future are at stake.

"Right now, there are more than 100,000 active projects paving roads and rebuilding bridges, modernizing our transit systems," Obama said Wednesday in remarks near the Tappan Zee Bridge in Tarrytown, N.Y., where a $3.9 billion effort to replace the current aging structure is underway. "States might have to choose which ones to put the brake on. Some states are already starting to slow down work because they're worried Congress won't untangle the gridlock on time. And that's something you should remember every time you see a story about a construction project stopped, or machines idled, or workers laid off their jobs."

The fundamental problem is that gasoline taxes alone are no longer enough to finance the Highway Trust Fund, due to declining fuel use across the U.S. However, neither the White House nor Congress wants to raise those taxes, and there is a disagreement about how to fill the fund without them.

Simply put, spending on transportation and infrastructure now exceeds gas taxes taken in. During recent testimony before the Senate Finance Committee, Joseph Kile, the assistant director for microeconomic studies at the congressional budget office, laid out two politically painful potential solutions - either cut spending in the fund's two accounts by 30% and 65%, or raise the gas tax by 10 to 15 cents per gallon.

In an election year, both options are non-starters. The gas tax hasn't been raised since 1993. Though increasing these tariffs seems like the most logical solution to most analysts, it won't have a chance before the midterm elections. Kile said Congress could also shift money from the rest of the federal budget to the Highway Trust Fund, which seems like the most politically palatable option.

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When he issued his dire warnings Wednesday, Obama advocated for his solution to the fund fiasco - a four-year, $302 billion transportation and infrastructure plan. Warning the "cupboard will be bare," he urged Congress to act on his plan - but that too seems unlikely. Obama's plan would require about half the cost to be paid for by closing corporate tax loopholes and through other changes Republicans have long resisted.

Democratic Sen. Patty Murray, who has been sounding the alarm for weeks on the Highway Trust Fund, has begun a campaign to prod Republicans into adopting a fix that runs similar to Obama's proposal. To back up her case, Murray noted Republican Rep. Dave Camp, the chair of the House Ways and Means Committee, dedicated $126.5 billion to the Highway Trust Fund in his proposal to reform the tax code released earlier this year.

"Democrats and Republicans have put forward plans to fill the trust fund using corporate revenue, including President Obama and House Ways and Means Committee Chairman Camp," Murray said last week at a legislative summit. "I think this approach makes sense, and I don't think we need to wait until comprehensive tax reform to do it. Of the long list of wasteful corporate loopholes that Democrats and Republicans agree should be closed, surely we can find a way to agree on eliminating just a few of the most egregious ones to invest in jobs and economic growth and prevent an unnecessary crisis."

Right now, though, the most likely solution in the Senate runs through the Environment and Public Works Committee, which unveiled a bipartisan proposal this week. The bill would keep spending on projects at current levels, but it doesn't explicitly say how to raise the needed revenue, leaving that job for congressional tax-writers at a later date.

The House Transportation and Infrastructure Committee, meanwhile, has yet to introduce its version of the bill. All of this uncertainty already has analysts worried.

"Both parties are miles apart on how to replenish the Highway Trust Fund," said Greg Valliere, an analyst at Potomac Research. "Obama aides amped up the volume [Monday], insisting that the funding should come largely from $150 billion in corporate tax reform. Chances of that happening this year are virtually nil - and the White House knows it. The brinkmanship over highway funding will persist well into the summer."

For Chris Krueger, an analyst at Guggenheim Partners in Washington, the obvious solution is raising the gas tax. In a research note on Monday, Krueger said the most likely fix is another bout of kicking the can down the road - possibly creating more potholes along the way.

"A temporary extension of the Highway Bill would likely create a headwind for all companies that rely on federal infrastructure investment (such as Martin Marietta, Vulcan Materials, Granite Construction, Cemex, Caterpillar, Astec Industries, Eagle Materials, and Texas Industries) until a new bill is signed into law," he said.