Fuel Tax: Road to Ruin

No easy way out of looming shortfall in the Highway Trust Fund

Samantha Oller, Senior Editor/Fuels, CSP

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Imagine if you were living today on the same $1-per-week allowance your parents gave you as a child. It would be tough to pay the mortgage, buy food and find transportation, much less visit the doctor and hairdresser and otherwise keep yourself presentable.

That’s the situation facing the Highway Trust Fund (HTF), created by the federal government back in 1956 to pay for highway construction and maintenance. Feeding the fund is an 18.3-cents-per-gallon federal tax on gasoline and 24.4-cents-per-gallon tax on diesel—the same level set back in 1993.

Meanwhile, the cost of road construction and maintenance has gone up. In fact, due to inflation alone, the gas and diesel taxes have lost more than 40% of their 1993 purchasing power, according to the Institute on Taxation and Economic Policy. And vehicles are requiring fewer gallons of gas while drivers are driving less, which has prevented further growth of the revenue base.

The U.S. Department of Transportation anticipates a $100 million shortfall in the HTF to hit around August 2014, based on the current rate of revenue generation and expenditures, unless the problem is fixed. Fortunately, there are several possible remedies, although none of them is perfect.

They include:

  • Tax Increase: Perhaps the most basic step is an increase in the federal fuel tax, either as a fixed cents-per-gallon increase or tying the tax to inflation, so that it can keep pace with road construction and repair costs.

According to the Congressional Budget Office, if the HTF had been indexed to inflation starting in 1993, the gas tax today would be 29 cents per gallon instead of 18.4. Of course, any mention of a tax increase, regardless of its worthiness, is anathema in the current political environment, especially under the weight of the November midterm elections. Indeed, President Obama has already said he opposes raising the fuel tax, and lead transportation chairs Sen. Barbara Boxer (D-Calif.) and Rep. Bill Shuster (R-Pa.) said recently that there are not enough votes in Congress in support of an increase to the federal gas tax in 2014.

  • Mileage-Based User Fee: Based on the idea that drivers should help support the upkeep of roads the more they use them, some have proposed a vehicle miles traveled (VMT) tax, which is based on the number of miles driven by a particular vehicle. A mileage recorder would be installed in a vehicle, log the miles and report them back to the state or federal government to levy the tax. Oregon is testing such a scenario. However, there are privacy concerns with a device that tracks an individual’s movement, and this model could unfairly penalize rural drivers who must travel greater distances.
  • Tax Swap: This past September, Sen. Boxer proposed eliminating the federal fuel tax and instead waging a percentage-based tax at the wholesale level. The state of Virginia and the District of Columbia have replaced their per-gallon taxes with a wholesale gas tax. However, this disconnects drivers from sharing the cost of using roads.
  • Taxing Alternative-Fuel Vehicles: In Virginia, hybrid-vehicle owners were going to face a $64 annual license tax to help pay for transportation funding, although the state’s house of delegates later voted to rescind it. Drivers of all-electric vehicles, however, still must pay the tax. But considering that alternative-fuel vehicles make up only about 13% of the U.S. vehicle fleet, it would have little effect on the HTF in the short term.

The question is: Which fix—or mix of fixes—will win out?

“The easiest thing is to increase the fuel tax,” says John Eichberger, vice  president of government relations for NACS, Alexandria, Va. “But it doesn’t address the problem with alternative fuels and high-fuel-efficiency vehicles. The most equitable [approach] is a VMT—but the implementation is so complicated and so anti-consumer, it’s difficult.” Eichberger does not know which fix will bear out, although he suspects it will be a mix of proposals or something not yet discussed.


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