The troubled history of the gasoline tax shows how difficult it is to finance new infrastructure

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Theodore J. Kury, University of Florida

(THE CONVERSATION) As the Biden administration and Republicans negotiate a possible infrastructure spending package, how to pay for it has been a key sticking point.

President Joe Biden and Congressional Democrats want to raise taxes for the rich, while some Republicans have pushed for a gas tax hike – which would be the first in 28 years. A bipartisan group of senators recently crafted a compromise bill that would pay just under $ 1 trillion in spending on railways, roads and bridges over five years, in part by indexing the tax on l gasoline to inflation. Democrats call it regressive because it would raise taxes for American workers.

As the Director of Energy Studies at the University of Florida’s Utility Research Center, I studied both energy taxes and how the government spends money on infrastructure.

Throughout the controversial history of the gasoline tax, policymakers have frequently called upon this source of revenue when a serious investment in infrastructure is required.

The first 40 years


This resilient tax is today a major source of US funding for roads and public transportation. It arose during the Great Depression as a “temporary” gasoline tax of one cent per gallon. Back then, a gallon cost about 18 cents, or about $ 2.90 in 2021 dollars.

In signing the Revenue Act of 1932, President Herbert Hoover praised “the willingness of our people to accept this additional burden in these times in order to impregnate the credit of the federal government”.

The original gasoline tax, an emergency measure intended to bolster the budget and finance national defense spending, not meet transportation needs, was due to expire in 1933. Instead, deficits Persistent fiscal budgets throughout the New Deal and WWII kept it in effect throughout the Franklin D. Roosevelt administration despite objections from the petroleum, auto, and travel industries. It became a permanent 1.5 cent levy in 1941.

Since then, multiple efforts to remove the gasoline tax have failed.

For example, Congress scheduled the tax to be repealed again in 1951 when it raised it to 2 cents as a source of Korean War related revenue. Instead, lawmakers agreed to keep the tax on the books to help pay for one of President Dwight D. Eisenhower’s top priorities, the Interstate National Highway System.

In 1956, the levy increased once again, to 3 cents, when Americans paid about 30 cents for a gallon of gasoline. At the same time, the government created the Highway Trust Fund to use gasoline tax revenues to pay for the construction and maintenance of new highways.

The tax rose to 4 cents a gallon in 1959 and froze at that level for more than two decades.

Runs empty

Gasoline tax revenues ceased to track spending they were supposed to cover in the early 1970s following a severe surge in inflation and the OPEC oil embargo. Gasoline prices in the United States climbed from about 36 cents per gallon in 1972 to $ 1.31 in 1981.

Responding to what members of both major political parties saw as a transportation infrastructure crisis, Congress more than doubled the tax to 9 cents per gallon under the Surface Transportation Assistance Act of 1982. The same law divided the Highway Trust Fund and its income stream. in two parts: the first 8 cents would finance road works while the other cent would finance public transport projects.

This hike may have hit drivers like a big increase, but public spending on transport infrastructure would continue to decline as a percentage of all spending.

In 1984, Congress increased spending on freeways by funneling the proceeds of fines and other penalties that companies pay for safety violations, such as failing to label hazardous materials or forcing drivers to work too much. hours in a row.

Congress increased the tax twice in the 1990s, but primarily to reduce the then-booming federal deficit. Only half of a 5-cent increase in 1990 went to highways and public transit, while a 4.3-cent increase three years later went entirely to deficit reduction.

In 1997, the government redirected all gasoline tax revenues earmarked for deficit reduction to the Highway Trust Fund, where they continue to flow today.

Along the way, other federal fuel taxes emerged, including a diesel tax of 24.4 cents per gallon and taxes on methanol and compressed natural gas. And state fuel taxes, which in most cases began before the federal gasoline tax, range from 8.95 cents per gallon in Alaska to 57.6 cents per gallon in Pennsylvania.

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To do

Since 1993, when the federal gasoline tax was first set at 18.4 cents, inflation and rising construction costs have eroded its effectiveness as a source of transportation revenue. Additionally, American vehicles have globally become more fuel efficient, which means Americans use less fuel for every mile they drive.

As a result, spending on roads and public transportation far exceeded revenue from the gasoline tax and other sources. Since 2008, the government has transferred more than $ 80 billion to the fund, which it has had to draw from other sources.

But it is still not enough. The American Society of Civil Engineers, which gives US infrastructure a C-minus, calls on government and the private sector to increase spending on roads and bridges by at least $ 2.5 trillion within a decade.

While it is true that the gasoline tax can be regressive because low-income people pay the same rate as those with higher incomes, there are still some advantages to this tax.

On the one hand, it follows the “user pays” principle of providing government services. Under this principle, road users are required to pay for their maintenance. However, as the number of motorists using electric vehicles increases, this may become less true over time.

In addition, it would also create an incentive to at least slightly reduce the use of fossil fuels, accomplishing another objective of the administration.

Finally, the government could still subsidize the tax for the poor, perhaps through annual lump-sum payments, making it less regressive.

Clearly, America’s infrastructure is in dire need of modernization and investment. Ultimately, Americans will pay for it one way or another – whether in taxes or in the costs of dangerous and inadequate infrastructure, including lives lost. How the government pays for the investment may be less important than whether it ultimately does.

This is an updated version of an article first published on February 27, 2018.

This article is republished from The Conversation under a Creative Commons license. Read the original article here: https://theconversation.com/the-gas-taxs-tortured-history-shows-how-hard-it-is-to-fund-new-infrastructure-163152.


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