The $136 billion corporate tax-cut President Bush signed into law October 22^nd contains a tax repeal long-sought by freight railroads.

Apparently, the railroads would have been chumps to miss out, since Washington-watchers quickly dubbed the legislation — originally to end an export tax provision ruled illegal by the World Trade Organization — "No Lobbyist Left Behind." The Economist noted that anyone with half-decent representation on K Street got something. Treasury Secretary John Snow came directly from CSX Corp. to the Bush Administration, and Vice President Cheney has served on the board of Union Pacific.

A provision in the law phases out and eventually ends the 4.3 cents per gallon federal fuel tax that railroads currently pay. It was initially levied in the 1990’s as a deficit reduction measure. Unlike most other fuel excise taxes, the railroad gas tax went entirely into the General Fund. Through the tax, railroads have paid $2.3 billion since 1990.

The corporate tax-cut drops the railroad fuel tax to 3.3 cents per gallon beginning January 1^st, 2005. By June 30^th, it falls to 2.3 cents. It is eliminated entirely beginning January 1^st, 2006.

The railroad industry has been trying to get rid of the tax for years. In a victory statement, Edward Hamberger, President of the American Association of Railroads, lauded the repeal as "necessary to help the freight rail industry meet the huge growth predicted in freight transportation." The railroads have argued that where motorist and trucker fuel taxes go to the Highway Trust Fund for investment in transportation infrastructure, the railroad tax goes up in the relative smoke of the overall federal budget.

But the railroads have also clamored for stronger treatment of freight issues in federal transportation funding laws like the TEA-3 bill. Would we be better off with the 4.3 cents devoted to a new federal rail freight account? Railroads say they can invest the tax savings themselves, but others say the industry is slow-moving and often less-than-entrepreneurial. In any case, the incredible growth in trucking on the nation’s roads is making the case for public investment in rail freight — whether the railroads are also building capacity of their own accord — stronger all the time.

According to Hamberger, the railroad industry will hire 80,000 new workers over the next six years to help meet skyrocketing growth. His statement also promises to increase investment to expand and improve the rail network.

A 20003 AASHTO report found that even with considerable industry investment in infrastructure, freight rail would just barely be able to maintain its goods movement market share.  Under this relatively optimistic scenario — the Surface Transportation Board reports that no major railroad has been able to cover its cost of capital since 1998 — truck traffic would still grow 15 billion miles by 2020, with subsequent congestion costs of nearly $12 billion. AASHTO proposes federal investment of $4.15 billion per year over the next 20 years to improve and expand the nation’s freight rail infrastructure.  This would allow nearly 600 million tons of freight to be shifted from trucks to rail, saving 25 billion miles of truck traffic and nearly $20 billion in congestion costs by 2020.

The railroad industry was criticized in an October 15^th New York Times article for poor maintenance of tracks shared with Amtrak. According to the Times, poor track maintenance has resulted in numerous Amtrak derailments, costing dozens of lives. Because of an indemnity agreement between Amtrak and the freight rail industry, Amtrak pays damage claims out-of-pocket, to the tune of $186 million since 1984.

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