NCPA - National Center for Policy Analysis


September 26, 2005

Why are gas prices so high? Gas prices are largely determined by supply and demand, but gasoline taxes are a significant portion, says the Tax Foundation.

In 1932, the first federal gas tax was imposed; it started as a temporary levy with a rate of just 1 cent per gallon, but over the years it has increased significantly:

  • The Revenue Act of 1941 made the federal gas tax permanent and increased the rate to 1.5 cents per gallon to help fund the war effort.
  • A decade later, the tax was increased to 2 cents per gallon to assist the Korean War.
  • After President Eisenhower's idea of an interstate highway system had been instituted, the federal gas tax was raised to 4 cents per gallon and remained that way until the Eighties.
  • Significant increases in 1982, 1990 and 1993 raised the federal gas tax by 14.4 cents per gallon, or by 360 percent.

Today, the federal gas tax equals 18.4 cents for every gallon purchased, says the Foundation. Every state has a formal tax on gasoline and the average state gas tax is 20.8 cents per gallon, plus, consumers pay local excise taxes on gasoline purchases.

Indeed, the combined burden of federal, state and local gas taxes costs Americans an average of 45.9 cents per gallon; that amounts to an annual gas tax burden of roughly $271 for every man, woman and child in the United States. American consumers should remember that gasoline taxes have a significant impact on the amount they spend at the pump, says the Foundation.

Source: Jonathan Williams, "Local, State and Federal Gas Taxes Consume 45.9 Cents Per Gallon on Average," Tax Foundation, September 13, 2005.

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