Infrastructure Tax Incentive

Infrastructure Tax Incentives

The U.S. Department of Transportation projects that demand for cost-effective and environmentally-friendly freight rail transportation will grow 88 percent by 2035. To meet this growth in deman, rail capacity must grow too.

Unlike trucks, barges, and airlines, America's freight railroads operate almost exclusively over infrastrucutre that they build and maintain. From 1980 to 2007, America's freight railroads invested approximately $420 billion (more than 40 cents out of every rail revenue dollar) to maintain and improve their infrastrucutre and equipment.

In fact, a September 2007 study (The National Rail Freight Infrastructure Capacity and Investment Study) found that Class I railroads need $135 billion in investment to expand their network by 2035 to keep pace with economic growth and meet forcast growth in freight demand. (The study was prepared for Association of American Railroads by Cambridge Systematics, Inc. Click on the link in the left-hand column to see the report.)

If rail capacity needs are not properly addressed by 2035, some 16,000 miles of primary rail mileage — nearly one-third of the 52,000 miles examined in the study — will be so congested that a widespread service breakdown environment would exist. (Today, less than one percent of rail miles are that congested.)

Class I railroads anticipate being able to generate approximately $96 billion of that $135 billion through higher earnings and productivity gains. That leaves a $39 billion funding shortfall, or around $1.4 billion per year, that could bbe accounted for by an investment tax cred or other means.

Recognizing the need for rail capacity expansion, a bipartisan group of legislators in Congress has introduced S. 1125 / H.R. 2116, the "Freight Rail Infrastructure Capacity Expansion Act of 2007."

This legislation would help bridge the funding gap and produce public benefits — including reduced highway gridlock, reduced fuel use, and lower greenhouse gas emission — that would far exceed the cost of the credit. A rail infrastructure tax credit addresses the central challenge of how to move more freight without causing more highway gridlock or environmental degrataion.

This legislation calls for a 25 percent tax credit for certain qualifying freight rail infrastructure projects that expand rail capacity.