Gasoline Excise Tax Outdated - What will come from recent House hearing on this?

The federal gasoline excise tax that helps fund road construction and maintenance has been 18 cents per gallon since 1993! The tax is not tied to the price of gasoline or adjusted for inflation. It requires an act of Congress to increase the tax.

For many years there have been federal and state government studies and ones by think tanks and academics on alternatives to the gasoline excise tax to fund roads, mainly driven by the fact that we drive more fuel efficient cars each year and today many cars run on electricity not gasoline. Since 2008, Congress periodically transfers money from the general fund to the Highway Trust Fund to help it out.

What's the remedy?

While the gasoline excise tax could be increased, that imposes a higher burden on those driving gasoline powered vehicles to fund the roads that are used by others as well. But at least tying the amount to inflation seems to make sense.

Fuel efficient cars and electric cars could be charged an annual registration fee equal to what they would likely pay in excise taxes if instead they drove a typical gasoline burning vehicle.

A road usage fee could be charged, such as a vehicle miles traveled tax (VMT), that has been heavily studied in Oregon and California (and likely elsewhere as well). It is not difficult to track how many miles someone drives and there are ways it can be paid monthly or at least annually when the owner registers their car with their state (with the state sending the tax to the federal government).

On October 18, 2023, the House Transportation & Infrastructure Committee held a hearing on this issue - Running on Empty: The Highway Trust Fund. One of the witnesses was the Oregon Dept. of Transportation Director who had lots of interesting testimony. It included that since 1993 when the current 18 cents per gallon tax was set, inflation on housing has been 306%, 280% on health care and gasoline at 276%.

The Oregon rep also explained road usage charges (RUC) noting that they might also be called VMT or mileage-based user fee (MBUF). Since Oregon has been studying and testing this system for some time, their testimony provides some of this background.

Key takeaways:

- A change is way past due to fund the Highway Trust Fund, or make a decision to get rid of it and fund roads from the General Fund.

- Convert to a RUC and use lessons learned from Oregon's pilot programs in this area.

- Don't keep postponing a fix because we'll continue to have more electric vehicles on the road in the next several years. I recall that around the time when tax reform was being discussed actively in 2011 through 2015 a subgroup of the Senate Finance Committee studied tax and infrastructure issues. They noted that we should move to a VMT and it would take about 10 years lead time to do so. But nothing was started and here was are 10 years later with no change.

What do you think?

Gasoline Excise Tax Is Not Too High

The gasoline excise tax has been 18.4 cents per gallon since 1993. It is not adjusted for inflation and Congress has not changed its rate or its operation. This tax funds the Highway Trust Fund for road construction and maintenance. Costs for those projects continue to go up yet we don't even adjust the gasoline excise tax for inflation. If we did, the tax would be 36 cents per gallon.  If the tax were adjusted for how we fuel our cars, we would have a vehicle miles traveled tax (VMT) rather than one tied to buying gasoline. Today, many cars use the road where owners buy no gasoline.

In 2020, the gasoline excise tax generated about $24 billion of revenue. That is not a lot for a roughly $3.5 trillion federal budget. It is not near enough to fund all needed road projects. Occasionally, such as with the recent Infrastructure Investment and Jobs Act (PL 117-59; 11/15/21), funds need to be transferred from the General Fund to the Highway Trust Fund. The gasoline excise tax needs a fix, not repeal, even if temporary.

So, why are a few members of Congress proposing to suspend the gas for the rest of the year? Inflation and helping drivers of cars that use gasoline. Here is their Senate bill to suspend the tax through the rest of 2022 and have funds moved from the General Fund to the HTF.

This might sound good, but is a bad idea. What will be cut to move the funds from the General Fund to the Highway Trust Fund or will the debt just increase? The smallest element of the price at the pump is likely the federal gasoline excise tax - it it just 18.4 cents per gallon.  I paid $5/gallon in fueling my Prius yesterday. State gasoline excise taxes are higher, ranging from 19 cents per gallon to 56.6 cents per gallon.

What is the point of having this system of trying to fund road projects if the tax is suspended? The tax is already half of what it should be if it had been adjusted for inflation since 1993. It also might not lower the cost of gasoline as those in the supply chain might just raise prices to absorb that tax cut.

Where is the discussion about fixing this outdated tax to a VMT or whether it should just be repealed with roads funded by the General Fund and tolls. Or, what about relief only for low-income individuals given the regressivity of the gasoline excise tax?

What do you think?

Vehicle Miles Traveled Tax Study Versus Action

Seven years ago I blogged about California's new legislation to study a vehical miles traveled (VMT) tax as an alternative to the gasoline excise tax (10/4/14 post). Oregon had already been studying one.

In July 2015, a Senate Finance Committee working group - working on tax reform, discussed a VMT in its report on infrastructure in reference to issues with the gasoline excise tax and Highway Trust Fund. Basically, with people driving more fuel efficient cars including electric cars that don't use any gasoline, not enough money goes to the HTF. And the gasoline excise tax has been 18.4 cents per mile since 1993!  It is not adjusted for inflation and hasn't been increased. The HTF has needed General Fund contributions since at least 2008 (the 2015 Senate report notes that over $65 billion had been transferred since 2008).

The 2015 report suggests a VMT as long-term option to fund the HTF. The working group noted that a VMT "has the potential to imprve the efficiency of highway financing because the tax can be calibrated closely to the costs that vehicles impose in terms of rod damage an dcongestion. Additionally, the tax coud be calculated based on time of day, congestion, type of road, type of vehicle, etc."

The Senate working group noted that it "take up to a decade to fully implement" a VMT. BUT, unfortunately, nothing was started!

I had this topic on my calendar for a while because I was going to note that the Build Back Better plan doesn't address the problems with the gasoline excise tax or suggest implementing a VMT.  A lot of study has already been done on a VMT by Oregon and California, academics and think tanks. We should move on it.

But new news - H.R. 3684, INVEST in America Act, the infrastructure bill passed by the Senate on 8/10/21 by a vote of 69-30, includes at Sec. 1630, a requirement that the GAO do a study on "per-mile user fee equity" within 2 years of enactment. This study would look at various issues of a per-mile user fee system including its effect on low-income individauls and the ability to access jobs and services.

Given use of the term "fee" and no reference to the gasoline excise tax, sounds like if such a fee were implemented, it would be in addition to the gasoline excise tax.

So, it is good that the concept of a VMT at the federal level is not completely forgotten, but more is needed to replace the out-dated gasoline excise tax with something more appropriate for funding the HTF. Let's see if something more comprehensive gets into the infrastructure bill. I think we need action rather than just more study.

What do you think?

Highway Trust Fund and Tax Reform

Deficits in the Highway Trust Fund have been "patched" since 2008, mostly with transfers from the General Fund. A recent patch was in PL 114-41 (7/31/15) to cover three months. I remain puzzled why elected officials at least don't adjust the gasoline excise taxes for inflation (the gasoline excise tax most of us pay has been 18.3 or 18.4 cents per gallon since 1993 (see history table from the Tax Foundation). The adjustment could even be transitioned in over a few years to ease the change (the rate today would be 30.2 cents per gallon). I believe the public knows that the costs of maintaining and building roads and assisting public transit go up annually for the costs of inflation, and realize that the key funding source should also be adjusted for inflation.  Oh well.  Note - on 8/6/15, Senator Carper (D-DE) introduced legislation to increase the gasoline excise taxes.

A new proposal from the Senate Finance Committee Tax Reform Working Group on Infrastructure was released in July. It calls for "deemed repatriation" to help the Highway Trust Fund for six years to also give us time for a long-term solution that likely would be a miles traveled tax.  They want to keep some type of match between road usage and paying for them and realize that the gasoline excise tax is deficient in a few ways. Most notably, as we have more cars on the road that don't even use gasoline, there is a disconnect between usage and contributing to maintaining the roads for such usage.

I have a short article in the AICPA Tax Insider (8/13/15) on the working group proposal. The article also has some additional background on the HTF and its problems.

What do you think?

Taxes and Deficits in the Highway Trust Fund

Today (May 6, 2014), the Senate Finance Committee is holding a hearing - New Routes for Funding and Financing Highways and Transit. The Highway Trust Fund (HTF) has had funding issues for several years and is projected to have another deficit for this fiscal year (ending 9/30/14).

Every time you buy a gallon of gasoline, you pay 18.4 cents of gasoline excise tax to the federal government (you also pay something to your state government). The 18.4 cent federal tax has been the same amount since 1997!  Of this amount, 15.44 cents goes to the HTF, 2.86 cents goes to the Mass Transit Fund and 0.1 cents goes to the Leaking Underground Storage Tank (LUST) Trust Fund. (For the history of the tax, see the Dept. of Transportation website.)  The HTF is used for maintenance and constructions of roads.

At March 2013, the Congressional Budget Office noted the expected growing deficits in the HTF:



http://www.cbo.gov/budget-options/2013/44853

Per the CBO, a 1 cent increase in the gasoline excise tax generates about $1.5 billion. Thus, a $20 billion shortfall could be addressed with a 14 cent increase.  That doesn't sound too bad. But that only helps through 2016. There are longer term problems.

Funding issues seem to be:

• The excise tax has remained at 18 cents per gallon since 1993. If it had been adjusted for inflation, it would be 30 cents today. Thus, part of the problem is that the tax is not adjusted for the effects of inflation.
• We continue to drive cars that are more fuel efficient. Thus, we may be driving the same amount (or even more), but purchasing fewer gallons of gas. And all electric vehicles buy no gas at all.

A few years ago, Oregon experimented with alternatives to a per gallon tax as they expected people to be buying less gas, but not reducing driving. One alternative is a tax per mile driven (VMT). Many view this as unpopular as it is more complicated to compute (you need to track your miles) and the use of technology that can make it easy to compute and pay raises privacy concerns for some. But those issues are all addressable.  Also, today, many people have fast pass devices in their cars to make it easy to pay road and bridge tolls so perhaps the privacy concern is not high.

The FY2015 House Budget Report notes problems with the HTF, but has no specific solutions. It makes no mention of raising the gasoline excise tax (see pages 43-45).

Congressman Camp's Tax Reform Act of 2014 discussion draft proposes to use funds generated from an international tax changes to support the HTF and mass transit fund (see pages 143-144).

I do not agree with using an income tax change to fund the HTF or not raising the tax. Of course, transfers from the General Fund to the HTF in recent years have had a similar effect to use of income taxes (and helped raise the deficit). The gasoline excise tax is to help fund highways and mass transit and can continue to do so. An increase to 35 cents per mile, even transitioned in over the next two years would be a good start. Long-term, a better remedy, such as the VMT, is needed.  Certainly, if we have more electric cars on the road, which don't generate anything for the HTF, but still use the roads, a funding mechanism tied only to gasoline purchases is outdated.

What do you think?

Highway Trust Fund Problems Continue

I was quoted in a MinnPost article today about a long-standing problem that I've blogged on before (see 9/5/08 post). With people driving more fuel efficient cars, less gasoline excise tax is collected, yet the roads still require the same amount of maintenance.

In today's Minn Post article ("Oberstar points to road problem: a shortage of federal gas-tax revenue"), Derek Wallbank explains why there will be about a $140 billion deficiency in the highway trust fund (HTF) due to a decline in gas tax revenues. He also notes that the gas tax has not been increased since 1993.

"Because it is not adjusted for inflation, the federal gas tax has experienced a cumulative loss in purchasing power of 33 percent since 1993 — the last time the federal gas tax was increased."

Possible short-term solutions - other than continuing the new practice of shifting large amounts of money from the already trouble General Fund to the Highway Trust Fund ($8 billion was transferred in 9/08):

• Increases to the gasoline excise tax should be phased in over a period of years starting January 1, 2011 (delayed until at least then to help the struggling economy).
• When CAFE standards are increased or dates for meeting them moved up, there should be an accompanying increase in the gasoline excise tax. [info from DOT]
• Review the work undertaken by Oregon a while back to get ready for this new issue of more fuel efficient cars. Many people don't like the VMT approach - where you pay based on miles driven, because then we need some way to track our miles (which our odometer already does, but doesn't record it anywhere) and it would not necessarily encourage more fuel-efficient vehicle purchases. The National Surface Transportation Infrastructure Financing Commission also has studied alternatives. They issued a comprehensive report in February 2009, but it doesn't seem to have received a lot of attention. The GAO also issued a report (shorter) in June 2009. There was a hearing in the House Budget Committee on 3/17/09.
• Look into value pricing. Some people are willing to pay more than they currently do and we should take advantage of that. For example, allow people to pay a premium to drive in the carpool lane during certain times of the day. [info from DOT]

What do you think?