NCPA - National Center for Policy Analysis

What Should Replace the Gas Tax?

September 20, 2012

Legislatures are looking at alternatives to the excise tax on gasoline and diesel fuel that has long provided the government with a source of funds for maintaining highway infrastructure. Today, however, the tax can't provide the same funds it did for the decades previously, says the Wall Street Journal.

  • The federal tax, at 18.4 cents for gasoline and 24.4 cents for diesel, hasn't changed since 1993.
  • But, the costs of highway construction and repair are rising.
  • Furthermore, improved fuel economy and electric vehicles means that there are less overall gasoline sales.
  • The Congressional Budget Office predicts that new federal fuel-economy standards will reduce revenue by 21 percent by 2040.
  • To put it in perspective, there would be a $57 billion decrease in revenue between now and 2022.

The tax on gasoline and diesel is unpopular with the public, which has made it difficult for policymakers to entertain any initiative that may increase it. As a result, many politicians have looked to alternatives as a means of generating revenue. These include:

  • Taxing miles: This would tax motorists on the miles they drive. However, it is difficult to enforce a tax like this, as many people can tamper with their odometers. States have looked into tracking devices, which are unpopular with a public worried about privacy.
  • Taxing roads: This would rely on toll roads to make up for lost gas revenues. Sixty-one percent of Americans would prefer toll roads to increased federal gas tax or a tax on miles.
  • Index the tax to inflation: Use the Consumer Price Index or an index of highway construction costs to change the rate of the tax, which can be adjusted quarterly or annually.
  • Tax oil instead: This would broaden the tax base by taxing every barrel of oil. It is estimated that a 17 percent oil tax would have generated $83 billion a year in 2010.
  • Tax cars: Just as states do, the federal government can assess a charge on vehicle registration to finance highway construction and repairs. A fee of $2.75 for cards and $5.50 for light trucks could raise as much as $1 billion a year.

Source: Michael Totty, "The Gas Tax Is Running Low. But What Should Replace It?" Wall Street Journal, September 17, 2012.


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