1. Forecasting Federal Highway Excise Tax Revenues Richard Prisinzano Receipts Forecasting Division Office of Tax Analysis Department of the Treasury

2. Presentation Outline Overview of Highway Related Excise Taxes How Receipts get to the Highway Trust Fund Forecasting Future Revenue Uncertainty in Forecasts

3. Overview of Highway Related Excise Taxes The Treasury Department’s Office of Tax Analysis (OTA) forecasts tax receipts for the President's Budget. The Administration’s economic forecast is formulated by the “Troika.” (CEA, OMB, Treasury) The Administration’s economic forecast is used in conjunction with separate models for the dedicated Highway Account excise tax sources. Health of Trust Fund depends on incoming receipts and outgoing disbursements.

4. Recent Trends in Highway Receipts Growth in Highway-related excise taxes has been slowing since 2003. –Increased Fuel Efficiency –Rising Gasoline and Diesel Prices

7. Allocation of Incoming Receipts Performed under the authority of Section 9601 of the Internal Revenue Code. Semi-Monthly Transfers are made from the general fund based on historical allocations and incoming receipts. The Internal Revenue Service certifies taxes processed in a quarter. Correcting Adjustments are made as necessary.

8. Forecast of Future Receipts Treasury uses a separate model for each of the Highway related tax sources. Each model relates historical excise tax liability to various macroeconomic variables. The estimated relationship from these models are then used with the Administration’s economic assumptions to project tax liability over the budget period. The models also account for any changes in legislation.

9. Comparison of Budget Exercise to Mid-Session Review The forecast of receipts dedicated to the Highway Trust Fund over the budget period slightly increased from the FY 2007 Mid-Session to the FY 2008 Budget. Net receipts in FY 2007 are projected to increase by less than one-tenth of a percent as compared to FY 2006. The Administration forecasts receipts of $39.7 billion in 2007 and $41.9 billion in 2009. 2.5% in average annual growth.

11. Growth of Individual Tax Receipts Projected Average Growth Rates for Highway Related Receipts in 2009 : –Gasoline and Gasohol: 1.9 % per year –Diesel and Related Fuels: 1.4 % per year –Retail Tax on Trucks:7.7 % per year –Highway Type Tires: 2.7 % per year –Heavy Vehicle Use Tax: 5.2 % per year

12. Uncertainty in the Forecasts The most likely outcome in 2009 is for receipts to be $41.9 billion. With 90 percent confidence, FY 2009 receipts are expected to be between $39.5 billion and $44.3 billion. The Administration’s forecast is not materially different from the Congressional Budget Office’s forecast.

15. Health of the Trust Fund Based on Forecast Error Confidence Intervals, Highway Trust Fund estimated balances in 2009: –‘Worse Case Scenario’-$2.2 billion –‘Best Case Scenario’$9.9 billion –‘Most Likely Scenario’$3.9 billion