Gasoline Excise Tax Outdated - What will come from recent House hearing on this?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

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?

California to study alternative to current gas tax

California SB 1077 (Chapter 835, 9/29/14) calls for creation of a Road Usage Charge (RUC) Technical Advisory Committee by the Chair of the CA Transportation Commission. This 15-member committee is to study alternatives to the gas tax and make recommendations to the Transportation Agency for a pilot program to begin by the start of 2017. The preamble to the legislation notes that existing revenues “for highways and local roads are inadequate to preserve and maintain existing infrastructure and to provide funds for improvements that would reduce congestion and improve service.” It also describes the gas tax as “an effective mechanism” for long-term infrastructure needs due to a few factors including use of more fuel efficient cars. It is estimated that by 2030, fuel efficiency will decrease otherwise available gas tax revenues by half. The bill also notes that Oregon has already studied this issue. Any proposal is to consider privacy implications. The work of the committee and items it must consider are detailed in the legislation.

The Senate Floor Analysis (8/26/14) of SB 1077 describes a “trifecta of circumstances” warranting this study:

(1)  The current fuel excise tax is not indexed for inflation.

(2)  Federal and California policies have required greater fuel efficiency for cars, thereby leading to a drop in collections of a tax based on gallons purchased.

(3)  “Demographic trends and state policies are encouraging Californians to drive fewer miles per capital.”

For more about Oregon’s work on an alternative to the gas tax based on gallons purchased (which dates back to 2001) and other information on a vehicle miles traveled (VMT) approach, see:

·         Nellen blog post of 3/16/13 (with links to federal and Oregon activities)

·         Oregon’s Road Usage Charge Program – to test a mileage collection system for 5,000 volunteers starting 7/1/15. Per the website, “may assess a charge of 1.5 cents per mile for up to 5,000 volunteer cars and light commercial vehicles and issue a gas tax refund to those participants. This will not be another pilot program but rather the start of an alternate method of generating fuel tax from specific vehicles to pay for Oregon highways.”

·         Background on Oregon’s Road User Fee Task Force (created by 2001 legislation)

·         Information from the US Federal Highway Administration on Vehicle-miles Traveled (VMT) Fees.

·         CBO, Alternative Approaches to Funding Highways, March 2011

If you want to know more about the gas tax in your state or others - when added, rate, whether adjusted for inflation, etc., the Tax Foundation has a helpful website.

I think it makes sense to change the gasoline excise tax to tie to miles driven rather than gallons purchased. For example, why should someone with a hybrid or electric car, not have to pay for road maintenance and expansion? Technology should enable the necessary data to be collected while still protecting privacy. Also, when Oregon started its study back in 2001, I think there was a greater interest in privacy than exists today. For example, many people already have readers in their cars for toll booths. Also, lots of people post all kinds of private photos and information (including their location) on the web.

The California study sounds like it will explore more than a VMT.

What do you think?

Gas Tax and Tax Reform

I was recently asked by a reporter for StreetsBlog.org if tax reform might also include an increase in the gas tax.   "Will an Upcoming Tax Reform Finally Be thePlace to Hike the Gas Tax?" by Tanya Snyder,
Streetsblog Capitol Hill, 3/14/13.

I said no.  Tax reform discussions have focused on the income tax. Also, an increase to the gas tax is likely something more for a budget discussion - are more funds needed for the Highway Trust Fund (yes).

Yet, tax reform will focus on cutting back or eliminating tax preferences ("base broadening"). Will that include ones, such as repealing percentage depletion, that benefit the oil and gas industry? President Obama has already suggested this action in his FY2013 budget released in February 2012. If these changes are enacted, tax liabilities for oil companies will increase and quite possibly gas prices.  That doesn't bring in money for the Highway Trust Fund though.  It does make the public less inclined to accept a gasoline excise tax increase and for their elected officials to give them one.  So perhaps tax reform or budget dsicussions should include allocating a portion of the general fund to the Highway Trust Fund.

Tax reform, a time to review the system and identify weaknesses and how to fix them, should ideally consider these transportation-related items:

1. Gasoline excise tax reform - with more fuel efficient vehicles on the road, people buy fewer gallons of gasoline and thus pay less excise tax, but likely drive as many miles or even more than prior to owning the fuel efficient car.  So, a new system is needed.  A common suggestion is to switch to a vehicle miles traveled (VMT) tax rather than the current fixed cents per gallon of gas purchased.  For more on the VMT tax, see this Rand study or just do a Google search on the topic. Oregon has been studying it for years and even did a pilot of it (see 12/27/12 Governing blog post). 
2. Carbon tax - can this help reduce greenhouse gas emissions? Can it help reduce the deficit?  See this March 2013 paper on this topic from the Tax Policy Center.

Excise tax reform can be separate from income tax reform. If income tax reform is focused on the budget though, it should be considered as it affects the Highway Trust Fund. If deficit reduction is also a focus of tax reform, the carbon tax should be part of the discussion.  Note that I'm not advocating for a carbon tax as I think there are some complexities in it and a significant producer of GHG emissions is carbon, such as using gasoline.  So, can existing excise taxes help to reduce GHG emissions?

A 3/15/13 infographic from the White House suggests creation of an Energy Security Trust with "revenue from profitable oil and gas companies."  It suggests that the funds be used for energy projects that will also help create jobs.  Why not also have it help fund the Highway Trust Fund?

What do you think? Should the gasoline excise tax be raised? If yes, when? What about switching to a VMT tax? What about a carbon tax?