Just Taxes Blog by ITEP

Federal Inaction on the Gas Tax is Costing Us Dearly

Federal Inaction on the Gas Tax is Costing Us Dearly

February 26, 2020

Carl Davis
Carl Davis
Research Director

A reliable, safe, and efficient transportation network is vital to our nation’s economic success and to our quality of life. But for too long, an unwillingness to raise taxes has stood in the way of adequately funding this national priority.

When Transportation Secretary Elaine Chao testifies on the transportation budget before a House committee on Thursday, lawmakers should keep in mind that our funding woes can be traced to the federal government’s extremely outdated gas tax rate, which has not been raised in more than 26 years⁠—not even to keep up with inflation.

The gas tax is the cornerstone of our system for funding transportation infrastructure. While the tax isn’t perfect, it generally does a good job of requiring long-distance commuters and owners of heavy trucks and SUVs to pay more for the wear-and-tear they inflict on our roads and bridges.

But the current gas tax rate has now been stuck in neutral for longer than any period since Congress created the tax in 1932. The only other time lawmakers waited more than 20 years without adjusting the gas tax rate was in the 1980s, before President Ronald Reagan signed a bill that more than doubled the tax.

Since lawmakers set the federal gas tax at 18.3 cents per gallon in 1993, both construction cost inflation and vehicle fuel efficiency gains have taken sizable bites out of the tax’s purchasing power. Lawmakers’ repeated failure to increase the tax has therefore been a major obstacle to raising enough revenue to maintain and improve the nation’s infrastructure.

Between 1993 and 2020, average fuel efficiency improved by approximately 26 percent (from 19.3 to 24.3 miles per gallon). Assuming a 15-gallon gas tank, this means that the average driver can travel 75 miles further before they need to stop, refuel, and pay anything in gas tax. Those 75 extra miles of driving are generating wear and tear on the nation’s roads, without requiring any offsetting gas tax payment to cover the cost.

But fuel-efficiency gains are not the most important factor contributing to our nation’s infrastructure funding shortfall. Highway construction costs have increased by 170 percent over the last 26 years. This rapid growth (outpacing the 81 percent increase in the price of consumer goods and services) is due in part to the higher price of asphalt, diesel fuel, and other petroleum products involved in building and maintaining roads and bridges.

Taken together, these two factors have reduced the purchasing power of the federal gas tax by 71 percent. To make up lost ground, the rate today would need to increase by nearly 44 cents, to 62.2 cents per gallon.

To their credit, many state lawmakers have taken action where Congress has failed by raising their own gas tax rates and, in many cases, reforming their taxes to improve their long-run sustainability. Thirty-six states have raised their gas taxes since 2010 either through legislative action or automatic formulas that regularly adjust the gas tax rate.

Federal lawmakers who recognize the need for a gas tax increase, but are concerned with the tax’s disproportionate impact on lower- and moderate-income drivers, are unlikely to support a standalone gas tax increase that would further erode the progressivity of the federal tax code. For those lawmakers, pairing a gas tax with a progressive offset, such as an expanded and reformed Earned Income Tax Credit (EITC), could help make the reform more palatable.

Many drivers are also sure to question whether a gas tax hike is actually needed, given that Congress recently enacted an enormous tax cut that included a $78 billion annual cut for the richest 1 percent of taxpayers alone. Rolling back just half of the tax cut flowing to this fortunate group could raise more revenue than some recently proposed overhauls of the gas tax.

While the gas tax is long overdue for an update, recent federal tax cuts have complicated this discussion. Ideally, a gas tax increase would be rolled into a broader tax reform that undoes some of the damage of the 2017 tax overhaul. We know that, in isolation, a gas tax increase will be regressive. But this shortcoming could be addressed with tax credit enhancements to lessen the impact on low-income families, and with other progressive tax increases that ensure the nation’s most affluent families also contribute meaningfully to funding our nation’s infrastructure.

While the details may be complicated, the big picture is clear. New investments in transportation infrastructure are desperately needed but recent federal action, and inaction, is moving us further away from being able to achieve that goal.

More ITEP resources on the gas tax:

How Long Has It Been Since Your State Raised Its Gas Tax?

Most States Have Raised Gas Taxes in Recent Years

Most Americans Live in States with Variable-Rate Gas Taxes

 



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