The Future of the Gas Tax: Part I

Congress has not raised the federal gas tax since "the beginning of the Clinton administration," remarked Oregon Congressman Earl Blumenauer in a recent push to raise the federal gas tax.  Blumenauer pointed out that, “Today, with inflation and increased fuel efficiency for vehicles, the average motorist is paying about half as much per mile as they did in 1993."  Technological improvement and a failure to index the tax rate to inflation have resulted in declining revenues. The drop in revenues coincides with a steady increase in costs (raw materials, labor, maintenance are all impacted by inflation). Under current policy, the gap between revenue and needed expenditures will continue to grow. 

 The Congressman argues that a gas tax increase enjoys widespread support, "There’s a broad and persuasive coalition that stands ready to support Congress, including the U.S. Chamber of Commerce, National AFL-CIO, the construction and trucking industry, cyclists, professional groups, numerous associations of small and medium businesses, local governments, and transit agencies." These groups recognize that infrastructure plays a vital role in maintaining U.S. economic competitiveness in the 21st century, and they realize our current policies are inadequate to the task. 

Yet, the gas tax advocates seem unlikely to succeed. Raising the gasoline tax would, after all, require raising taxes. In the 2012 republican primary, Newt Gingrich blamed President Obama for rising gas prices, and pledged to bring gasoline down to $2.50 a gallon. Exactly how the speaker would accomplish this he dclined to explain, but his pandering struck a populist chord. Americans depend on automobiles to get to and from jobs, grocery stores, family and friends, and the gasoline tax's regressive structure assures middle and lower income Americans will feel the most pressure from a tax hike. 

 Currently federal funding accounts for about 50% of transportation spending nationwide.  Raising the national tax has certain advantages. The increase is uniform, and the proceeds can be distributed (or redistributed) to the areas of greatest need and highest expected return on investment. It was during the depression that Congress first imposed a federal tax on gasoline. . Congress added the tax as part of the Revenue Act of 1932, in which Congress, at the urging of President Hoover, tried desperately to balance the federal budget in the face of crushing declines in revenue.

The tax was controversial, but easy to collect. Cooperation from producers such as the American Petroleum institute allowed . As income taxes, and other wealth based revenue sources declined alongside the dipping economy, excises and consumption taxes became an increasingly attractive way to fill the treasury. The depression continued, and states raised gasoline taxes often diverting the money to plug holes in the budget. 

The federal gas tax stayed at 1 cent, until the Revenue Act of 1951 raised it to 2 cents. State highway officials, and other organized interests opposed the federal tax, arguing for exclusive power to tax motor fuel. State politicians and the highway lobby continued to oppose the federal gas tax, until the proposal for the interstate highway system.

 The interstate highway system was a juicy piece of distributive policy, promising millions in federal spending, the promise of economic growth, and a coordinated policy effort on a massive scale. It also promised to make the federal gas tax a permanent feature of U.S. transportation policy. 

The Federal-Aid Highway Act of 1956 called for a 3 cent tax. The bill placed funds in the Federal Highway Trust Fund (modeled on the social security trust fund). With the construction of the Interstate Highway System, the federal gas tax was here to stay. 

Since 1956 Congress has raised the tax relatively infrequently, and always by direct legislation. Reagan signed off on a 9 cent increase in 1983, Bush on a 4 cent raise in 1990, and Clinton on another 3 cent bump in 1993. While Congressman Blumenauer wants to raise the tax, others have argued that the federal government should give up the tax and devolve responsibility to the states. With gridlock paralyzing Washington Congress seems unlikely to act decisively in either direction. But the federal gas tax is only one of multiple revenue sources.

States began taxing gasoline long before the federal government. Oregon introduced the first gasoline tax in 1919, and in less than ten years the gas tax swept the country. In those days, the gas tax was popular. The people wanted good roads, and were willing to pay for them. By 1928 every state imposed a levy on fuel.

In 2013 many states again turned to increases in gasoline taxes to cover spending deficits. According to the Center for Tax Justice (a non-profit think tank), "lawmakers in nine states are seriously considering raising (or have already raised) their gas tax in 2013: Iowa, Maryland, Massachusetts, Michigan, New Hampshire, Pennsylvania, Vermont, Washington, and Wyoming."  

Currently, state tax rates vary widely. Different states have different needs, and states use gasoline taxes for different purposes. Some dedicate all revenue to direct transportation spending, while others turn over funds to the general treasury. For example, California's rate is about 3.5 times higher than New Jersey's.The following map provided by the Tax Foundation (a non-profit think tank) shows differences in state level rates. 

Inaction in Washington will likely lead to further efforts at the state level. Competition between states creates dueling incentives. Looking to attract jobs and industry they will face incentives to improve infrastructure. Fighting to keep taxpayers and businesses they will resist tax increases. States will look for new ways to bridge revenue gaps and meet infrastructure spending demands, but evidence suggests they might just as easily return to history. Raising gasoline taxes was popular in the 1920's, it might become popular again in 2014. 

-- John Louis
Is a PhD Candidate in Political Science at Boston College. He studies infrastructure politics and American Political Development, and has presented research on U.S. Infrastructure Politics at the Northeastern, New England, and Midwestern Political Science Association Conferences.