SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Surface 
Transportation And Taxation Equity Act'' or as the ``STATE Act''.
    (b) Findings.--The Congress finds the following:
            (1) Today's surface transportation problems are largely 
        local and regional in nature.
            (2) The original Federal goal of creating an interstate 
        system was met in the early 1980's.
            (3) State and local governments are outspending the Federal 
        Government on transportation by a ratio of 2 to 1.
            (4) The amount of traffic experiencing congested conditions 
        in the peak travel periods has doubled in 20 years from 33 
        percent in 1982 to 67 percent in 2002.
            (5) More than $63,000,000,000 is wasted each year due to 
        congestion in the 85 most populated areas in the country.
    (c) Purposes.--The purposes of this Act are to--
            (1) return primary transportation program responsibility 
        and taxing authority to the States,
            (2) free States' transportation dollars from Federal 
        micromanagement, earmarking, and budgetary pressures,
            (3) enable decisions regarding which infrastructure 
        projects will be built, how they will be financed, and how they 
        will be regulated to be made by persons best able to make those 
        decisions,
            (4) eliminate the current system in which a Federal 
        gasoline tax is sent to Washington and through a cumbersome 
        Department of Transportation bureaucracy,
            (5) prohibit the Federal Government from forcing unwanted 
        mandates on States by threatening to withhold transportation 
        money, and
            (6) achieve measurable congestion mitigation and 
        infrastructure preservation and safety in a cost effective way 
        subject to available resources.

SEC. 2. FEDERAL TAX ON FUELS DECREASED BY AMOUNT OF INCREASE IN STATE 
              TAX ON FUEL.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
32 of the Internal Revenue Code of 1986 (relating to special provisions 
applicable to fuels tax) is amended by adding at the end the following 
new section:

``SEC. 4106. REDUCTION IN RATES OF TAX BASED ON INCREASE IN STATE TAX 
              RATE.

    ``(a) In General.--Under regulations prescribed by the Secretary, 
the rate of tax imposed under section 4081 with respect to any fuel and 
the rate of tax imposed under section 4041 with respect to any liquid 
shall be decreased, but not below 2 cents per gallon, by the applicable 
State tax rate increase with respect to such fuel or liquid.
    ``(b) Applicable State Tax Rate Increase.--For purposes of this 
section, the term `applicable State tax rate increase' means, with 
respect to any fuel or liquid, the excess, as periodically determined 
under tables prescribed by the Secretary, of--
            ``(1) the rate of tax imposed by the applicable State on 
        the sale or use of such fuel or liquid, over
            ``(2) the rate of tax imposed by the applicable State on 
        the sale or use of such fuel or liquid as of March 3, 2005.
Any increase in the rate of tax imposed by any applicable State on the 
sale or use of any fuel or liquid shall be taken into account under 
this subsection only if State law provides that such increase is to be 
taken into account under this subsection.
    ``(c) Applicable State.--For purposes of this section, the term 
`applicable State' means the State which is determined under 
regulations prescribed by the Secretary as--
            ``(1) in the case of a liquid to which section 4041 
        applies, the State in which such liquid is sold or used, or
            ``(2) in the case of a fuel to which section 4081 applies, 
        the State in which such fuel is most likely to be sold or used.
    ``(d) Requirement to Maintain Interstate Highway System.--
Subsection (a) shall not apply with respect to any fuel or liquid if 
the applicable State with respect to such fuel or liquid has not 
entered into an agreement with the Secretary of Transportation under 
which such State has agreed to provide for the proper maintenance of 
that portion of the interstate highway system which is within such 
State.''.
    (b) Conforming Amendments.--
            (1) Section 9503 of such Code is amended by striking 
        subsection (d).
            (2)(A) Paragraph (4) of section 9503(e) of such Code is 
        amended to read as follows:
            ``(6) Reduction in rate of transfer based on reduction in 
        state tax rates.--
                    ``(A) In general.--There shall be substituted for 
                each amount in paragraph (2) an amount which bears the 
                same ratio to such amount as the aggregate reduced tax 
                rate bears to the aggregate unreduced tax rate.
                    ``(B) Aggregate reduced tax rate.--For purposes of 
                subparagraph (A), the term `aggregate reduced tax rate' 
                means, with respect to any amount for any calendar 
                year, the amount of tax that the Secretary estimates 
                will be imposed with respect to the liquid or fuel to 
                which such amount relates for such year after 
                application of section 4106.
                    ``(C) Aggregate unreduced tax rate.--For purposes 
                of subparagraph (A), the term `aggregate unreduced tax 
                rate' means, with respect to any amount for any 
                calendar year, the amount of tax that the Secretary 
                estimates would have been imposed with respect to the 
                liquid or fuel to which such amount relates for such 
                year if section 4106 did not apply for such year.''.
            (B) Subparagraph (A) of section 9503(e)(2) of such Code is 
        amended by striking ``sentence'' and inserting ``subsection''.
            (3) The table for section for subpart B of part III of 
        subchapter A of chapter 32 of such Code is amended by adding at 
        the end the following new item:

``Sec. 4106. Reduction in rates of tax based on increase in State tax 
                            rate.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to liquid or fuel removed, entered, sold, or used after the date of the 
enactment of this Act.
Surface Transportation and Taxation Equity Act or STATE Act - Amends the Internal Revenue Code to reduce the Federal excise tax on gasoline and special fuels (but not below 2 cents per gallon) by corresponding increases in fuel taxes imposed by States after March 3, 2005.
To amend the Internal Revenue Code of 1986 to reduce the Federal tax on fuels by the amount of any increase in the rate of tax on such fuel by the States.