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Where is the discussion about fixing this outdated tax to a VMT or whether it should just be repealed with roads funded by the General Fund and tolls.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? Professor Annette Nellen, San Jose State University.
Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.
Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.
Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
Prior to joining SJSU, Annette was with Ernst & Young and the IRS.
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