Executive Briefings

Could the Harbor Maintenance Tax Use a Little Overhauling Itself?

Over the past 20-plus years, much has been said and written (mostly negative) about the Harbor Maintenance Tax (HMT). The HMT was enacted by Congress in 1986 to help defray (and later recover) the cost of maintaining the nation's harbor and navigation channels. The tax is paid by the owner of the imported and domestic cargo based on the value of that cargo being handled at the inbound ports. The current HMT tax rate is $1.25 per $1,000 of cargo value.

So what's the problem? Well, one could argue that it was disguised as a sort of "user fee" but never quite fulfilled the promise. The HMT is a plain and simple ad valorem (value based) tax that is assessed on the value of the cargo which bears little or no correlation to the harbor infrastructure maintenance needs which the HMT was designed to address. Even the Supreme Court noted in its 1998 ruling (United States v. United States Shoe Corporation) that lower-value bulk commodities may have a greater need for maintenance dredging and pays significantly less in HMT than higher-value non-bulk cargo.

On the expenditure side, it doesn't get any better. HMT receipts are deposited in the Harbor Maintenance Trust Fund (HMTF). The HMTF, it should be noted, is not an "off-budget" stand-alone account (meaning that while the receipts are shown on paper, the fund deposits can be commingled with other general funds), which can go far in explaining why Congress has been running a significant "surplus" in the account (about $4bn at the end of FY-2009) while the country has been racking up staggering history-making deficits.

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Over the past 20-plus years, much has been said and written (mostly negative) about the Harbor Maintenance Tax (HMT). The HMT was enacted by Congress in 1986 to help defray (and later recover) the cost of maintaining the nation's harbor and navigation channels. The tax is paid by the owner of the imported and domestic cargo based on the value of that cargo being handled at the inbound ports. The current HMT tax rate is $1.25 per $1,000 of cargo value.

So what's the problem? Well, one could argue that it was disguised as a sort of "user fee" but never quite fulfilled the promise. The HMT is a plain and simple ad valorem (value based) tax that is assessed on the value of the cargo which bears little or no correlation to the harbor infrastructure maintenance needs which the HMT was designed to address. Even the Supreme Court noted in its 1998 ruling (United States v. United States Shoe Corporation) that lower-value bulk commodities may have a greater need for maintenance dredging and pays significantly less in HMT than higher-value non-bulk cargo.

On the expenditure side, it doesn't get any better. HMT receipts are deposited in the Harbor Maintenance Trust Fund (HMTF). The HMTF, it should be noted, is not an "off-budget" stand-alone account (meaning that while the receipts are shown on paper, the fund deposits can be commingled with other general funds), which can go far in explaining why Congress has been running a significant "surplus" in the account (about $4bn at the end of FY-2009) while the country has been racking up staggering history-making deficits.

Read Full Article