Over the past century, Americans have witnessed a marked increase in mobility through safe and reliable roadways. This improvement has undoubtedly increased the overall quality of life in the United States. Gasoline taxes have provided the required funds to build the roads that brought America into the transportation age.
Gasoline taxes are often mentioned as the best form of taxation from an economic perspective because they provide road funding simply by charging road users when they fill up their vehicles’ fuel tanks. This “user tax” adheres to what economists refer to as the benefit principle of taxation. Simply stated, the benefit principle says consumers of government services should be taxed in proportion to the benefit they obtain from them.
Early gasoline taxes in the states were explicitly created to charge road users for the privilege of using roads. However, from the very inception of gasoline taxation, public officials have faced temptation to divert revenue to projects only tangentially related to transportation … and often motivated purely by politics.
Pandering Trumps Principles
In all too many instances, benefit-principle taxation has taken a backseat to political pandering.
For instance, current federal highway legislation authorized more than 6,000 earmarks from the highway trust fund. Some of these went to legitimate transportation programs, but others were for items such as the infamous “bridge to nowhere” in Alaska.
Today gasoline tax revenue is spent on everything from public education and museums to graffiti removal and parking garages.
The federal government taxes each gallon of gas 18.4 cents. Diesel fuel is taxed at 24.4 cents a gallon. These rates have been in effect since 1997.
In addition, states and various municipal governments levy gas taxes of their own. As a result, the combined burden of local, state, and federal gas taxes costs American drivers 46.9 cents per gallon on average. The average American now pays $269 annually in gasoline and diesel taxes.
Support for Tax Falling
Today’s gasoline taxes are not nearly as popular as the early gasoline taxes in the states. A recent Tax Foundation/Harris Interactive poll found respondents consider gasoline taxes to be the least fair of all state and local taxes. Only 5 percent of respondents believed state-level gasoline taxes were “very fair.”
At the federal level, only the estate tax was seen as less fair than the federal gasoline tax.
The revenue derived from federal gasoline taxes is distributed into three accounts. One–the Leaking Underground Storage Tank Fund for clean-up at gas station sites–gets a sliver of revenue, one-tenth of a cent for each gallon of gasoline or diesel sold.
All other federal gas taxes flow into the Federal Highway Trust Fund, which divides the revenue into two accounts. The highway account receives 15.44 cents for each gallon of gasoline and 21.44 cents for each gallon of diesel. The mass transit account receives 2.86 cents for each gallon of gasoline or diesel sold.
States Pile On
Every state levies a statewide excise tax on gasoline. In addition, seven states apply their general sales taxes to gasoline purchases, and some states levy taxes based on the per-gallon gross production of petroleum products. Some states levy environmental fees and other taxes on gasoline purchases. These state taxes on gasoline can significantly add to the tax burden on motorists.
Motorists in California pay the highest combined gasoline tax, at 62.8 cents per gallon, while Alaskans pay the least–26.4 cents per gallon.
On average, the combined state tax rate on diesel fuel is six cents per gallon greater than on gasoline. The national average tax on diesel fuel is 52.9 cents per gallon. Hawaii has the highest combined diesel taxes in the nation at 69.5 cents per gallon, while Alaska taxes it at the national low of 32.4 cents per gallon.
The annual per-capita burden of state and federal gasoline and diesel taxes ranges from $166 in Alaska to $366 in Connecticut. While federal gasoline and diesel tax rates have remained unchanged since 1997, 14 states have enacted gasoline tax rate hikes since then, and seven others automatically increase the tax by indexing it for inflation.
In light of the I-35 bridge collapse in Minnesota in August 2007, lawmakers would be wise to carefully scrutinize the practice of using gasoline tax dollars for anything other than legitimate road construction or repair.
The reputation of gasoline taxes serving as user fees has been tarnished by the mismanagement of transportation funds throughout the United States.
Jonathan Williams ([email protected]) is director of the tax and fiscal policy task force at the American Legislative Exchange Council. This article is based on a study he prepared while an economist at the Tax Foundation.
For more information …
“Topline Results, 2007 Annual Survey of U.S. Attitudes on Tax and Wealth,” March 22, 2007: http://www.taxfoundation.org
“Paying at the Pump: Gasoline Taxes in America”: http://www.taxfoundation.org/files/bp56%20final.pdf