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Thursday, November 17, 2011

The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History

James M. Bickley
Specialist in Public Finance

Excise taxes have long been a part of our country’s revenue history. In the field of gasoline taxation, the states led the way with Oregon enacting the first tax on motor fuels in 1919. By 1932, all states and the District of Columbia had followed suit with tax rates that ranged between two and seven cents per gallon. The federal government first imposed its excise tax on gasoline at a one-cent per gallon rate in 1932. The gas tax was enacted to correct a federal budgetary imbalance. It continued to support general revenue during World War II and the Korean War.

Economists know the gasoline excise tax as a “manufacturer’s excise tax” because the government imposes it at production (i.e., the producer, refiner, or importer) for efficiency in collection. Particularly in the short run, when the demand for gasoline is relatively inelastic, economists recognize that any increase in the gasoline tax ultimately falls on the consumer.

The Highway Revenue Act of 1956 established the federal Highway Trust Fund for the direct purpose of funding the construction of an interstate highway system, and aiding in the finance of primary, secondary, and urban routes. Each time Congress has extended the Highway Trust Fund it has also extended the federal excise tax on gasoline.

As recently as 1990 and 1993, Congress passed legislation dedicating a portion of gasoline tax revenue for deficit reduction. However, none of the current 18.4-cent-per-gallon tax imposed on gasoline is dedicated to the General Fund. One-tenth of one cent per gallon is dedicated to the Leaking Underground Storage Tank Trust Fund; 2.86 cents per gallon is allocated for mass transit purposes and earmarked to the Mass Transit Account within the Highway Trust Fund; and the balance, 15.44 cents per gallon, is earmarked to the Highway Account, also within the Highway Trust Fund.

On July 29, 2005, President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). This act provided a six-year extension of the Highway Trust Fund excise taxes that were scheduled to expire in 2005. Thus, the gasoline excise tax is scheduled to expire after September 30, 2011. The act also established a Motor Fuel Tax Enforcement Advisory Commission. Among the commission’s duties are to review motor fuel revenue collections, to conduct investigations related to motor fuel taxes, and to help develop and review legislative proposals with respect to motor fuel taxes.

For FY2011, the Congressional Budget Office estimates that revenues and interest credited to the Highway Trust Fund will total $36.9 billion, which will be divided into the Highway Account ($31.8 billion) and the Mass Transit Account ($5.1 billion). CBO also estimates that the fund’s three primary revenue sources and their yields will be the gasoline tax ($24.0 billion), the diesel tax ($8.7 billion), and the tax on trucks and trailers ($2.2 billion).

On September 16, 2011, President Obama signed H.R. 2887, Surface and Air Transportation Programs Extension Act of 2011 (P.L. 112-30), which extended, through March 31, 2012, current surface transportation programs and the motor fuel, heavy truck, and truck tire taxes that support the Highway Trust Fund. Congress is considering legislation to further extend the time of Highway Trust Fund expenditure authority and other highway taxes in order to finance surface transportation programs including the Moving Ahead for Progress in the 21st Century Act.

Date of Report: November 8, 2011
Number of Pages: 17
Order Number: RL30304
Price: $29.95

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