Tax Analysts Blog

The Gas Tax Doesn't Work Because Politicians Broke It

Posted on Oct 22, 2013

Big business wants to raise the gas tax and spend the money on infrastructure. Which sounds like a great idea, since that’s what the gas tax is supposed to pay for anyway. But the tax is broken, thanks to Congress, which has refused to raise it for two decades.

"Twenty years,” exclaimed Thomas Donohue, president of the Chamber of Commerce, during remarks earlier this week. “It's been 20 years since we had an increase in the federal fuel tax. What kind of car were you driving 20 years ago?"

Donohue is right: The gas tax is obsolete. Pegged at 18.4 cents a gallon since 1993, it no longer raises enough money to pay for federal infrastructure spending. And that’s always been the main job of the gas tax: paying for roads and bridges.

Beginning in 1957, gas tax revenues were funneled directly into the federal Highway Trust Fund. Over the years, lawmakers raised the tax numerous times, ensuring that the trust fund would have enough money to pay for necessary projects.

But the last increase came in 1993, and since then the levy has remained stagnant. Construction costs, on the other hand, have continued to rise with inflation. And to make matters worse, improvements in vehicle fuel efficiency have allowed consumers to drive more miles on less gas – which is great for the wallet but not so great for road funding.

These two factors (but especially cost inflation) have produced a cash crunch. In the last five years, according to the Institute on Taxation and Economic Policy, Congress has been forced to shore up the Highway Trust Fund with money collected by other taxes. These “general revenues” are in tight supply, of course, since the nation is running large deficits. But without those transfers – and more to come in the future – the Highway Trust Fund would go belly up.

There’s a real irony in raiding general revenues to keep the trust fund solvent -- the gas tax's problems started when Congress raided the trust fund to keep the government solvent. In 1990 Congress approved an increase in the gas tax but allotted only half of the new revenue to building projects. The other half was dedicated to deficit reduction – which then, as now, was all the rage. In 1993 Congress approved another gas tax hike and again devoted some of the revenue to deficit reduction.

In 1997 Congress redirected all gas tax revenues to the Highway Trust Fund, and the levy returned to its former role as a user fee. But the damage was done.

For decades, the gas tax had been remarkably well tolerated, thanks to its relative invisibility at the pump. But the tax was also earmarked for something that taxpayers actually wanted.

The relative popularity of the gas tax wasn’t lost on politicians – or historians, for that matter. “Because of its purpose and rationale,” wrote John Chynoweth Burnham in 1961, “this tax was not subject to the usual social resistances to taxation.”

What was true in 1961, however, is no longer true today. The gas tax has encountered plenty of “social resistances,” especially in the last decade. In an April 2013 Gallup poll, two-thirds of respondents said they opposed higher gas taxes even if the money were reserved for spending on roads, bridges, and mass transit.

That change in sentiment is hardly surprising: When Congress severed the link between the gas tax and infrastructure, it broke the tax itself.

Generally speaking, earmarked taxes are problematic. If we give every popular and visible program a special earmarked tax, then we leave less visible (and less popular) programs more vulnerable. And yet, many vital government functions can’t reasonably be funded with a user fee. National defense is the usual case in point, but many other functions are similarly impossible to fund in piecemeal fashion.

But infrastructure is one of the rare spots where user fees really work. The gas tax is not perfect, of course; it correlates benefits with tax burdens, but only in a rough sense.

Still, it’s a decent tool. Or it would be if Congress would fix it. The tax desperately needs to be modernized, chiefly by indexing it for inflation but also by accounting for rising fuel efficiency. According to the Institute on Taxation and Economic Policy, “this reform would have raised a total of $215 billion in revenue to build and maintain America’s infrastructure—including $19 billion in 2013 alone—if it had been enacted in 1997.”

It’s long past time to fix the gas tax; Congress needs to get on with it. But this time, once they have it working again, let’s hope politicians leave it alone.

Read Comments (1)

edmund dantesOct 24, 2013

Keeping federal gas taxes low has allowed states to step into the breach and
raise their fuel taxes without too much damage to their citizens. Total fuel
taxes are already plenty high enough, in my view. I'm in CT, which has
multiple taxes on every gallon of gas sold.

Some years ago I read that nearly all of the wear and tear on highways and
bridges comes from truck traffic, not cars, especially from overweight trucks.
I don't have the impression that the trucking industry is paying its "fair
share" of usage fees for the highways.

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