Increasingly irrelevant gas tax awaits a better idea
Electric vehicles are on the way, and fuel taxes aren't keeping up with the cost of building and maintaining highways
As lawmakers begin work on a massive infrastructure bill that they hope to pass by this summer, a key question lingers: What’s to become of the gas tax?
The federal gas tax, which through the Highway Trust Fund has paid for highways since 1956 and transit since 1982, has been a key revenue stream for a portion of the nation’s infrastructure but has lost its buying power as cars have become more fuel-efficient. It hasn’t been increased since 1993, so it has not kept up with inflation. And with automakers such as General Motors saying they’ll phase out gas-powered combustion engines altogether within the next 20 years, it faces looming irrelevance.
The problem is there’s no clear, easy replacement.
Lawmakers say they prefer the idea of having a user fee pay for highways, but they’re loath to ask people for the money. Democrats and Republicans alike have suggested replacing the gas tax with a fee based on vehicle miles traveled, but detractors argue that such a system is not yet ready for nationwide implementation.
That leaves general revenue.
The federal government has transferred more than $140 billion from the general fund to pay for highways and transit since 2008, according to the Tax Policy Center. Lawmakers and policy analysts increasingly say such transfers will likely continue.
[Congress weighs propping up a transforming transport system]
If approved by Congress, the mammoth investment in infrastructure that President Joe Biden has proposed will probably be paid for largely through general funds, debt or other financing measures.
But that bill, which includes everything from rail to broadband as well as highways, is characterized as a one-time infusion of federal dollars aimed at economic stimulus. If it does pass, Congress will still need a steady stream of funding for maintenance and to give state highway departments a level of certainty for planning.
Some argue lawmakers haven’t made the tough decisions on the gas tax because they haven’t felt sufficiently compelled to.
“Anytime we want money, we get money,” said Beth Osborne, director of Transportation for America, an advocacy organization for multimodal transportation. “We didn’t ask to pay for the relief packages. We just did it, because people wanted it done.”
Support for increase
As recently as 2019, a coalition of groups as broad-ranging as the U.S. Chamber of Commerce, the American Road and Transportation Builders Association and the American Association of State Highway and Transportation Officials were among those clamoring for an increase in the 18.3 cent per gallon federal tax on gasoline and 24.3 cents for diesel and kerosene.
House Transportation and Infrastructure Chairman Peter A. DeFazio, D-Ore., called for a hike in the tax. And advocates pointed to 31 states that have increased their gas tax since 2013 as evidence that even voters in conservative states would tolerate such a hike because of the nation’s obvious infrastructure needs.
But even those advocates have dialed down their zeal in the wake of stiff resistance from the Biden administration.
During his Senate confirmation hearings, Transportation Secretary Pete Buttigieg said he was open to all options, only to have a spokesman later correct that, saying the Biden administration would not be raising the gas tax. Biden has vowed not to increase taxes on anyone making less than $400,000 a year.
“The idea of raising a broad-based and regressive tax right now is just a political non-starter,” said Marc Scribner, a senior transportation analyst with the libertarian Reason Foundation.
DeFazio admitted in January that the prospect of raising the gas tax looked grim, telling a panel sponsored by The Hill, “it appears the administration doesn’t want to go that route.” Speaking to the Association of State Highway and Transportation Officials in late February, DeFazio suggested borrowing money in the short term, saying that while a miles-traveled system is probably the inevitable funding mechanism for the Highway Trust Fund, “we’re not ready to move there today.”
Ed Mortimer, vice president of transportation and infrastructure at the U.S. Chamber of Commerce, in an interview last month characterized increasing the fuel tax as “one of several solutions” to paying for roads and bridges and acknowledged that political “headwinds” may bar any adjustment to the tax. Mortimer said the likeliest scenario would be one more slight increase of the gas tax as the nation transitions to a national VMT system.
“Vehicle miles traveled is not ready, I don’t think, in a general sense, but it might be in some sort of targeted sectors,” said Sen. Shelley Moore Capito, R-W.Va., She said it will be harder to raise gas taxes with gas prices increasing. “The gas tax wasn’t going to come up, but that pretty much seals that,” she said.
But Rep. Sam Graves, R-Mo., the ranking Republican on the House Transportation and Infrastructure Committee, insists they could move to VMT “right now.”
He suggests a method that would charge those who use alternative fuels and adding a fee for electric vehicles during the registration process.
“I don’t want to overlay the VMT on the existing gas tax,” he said. “I want to eliminate one date certain and start the next one date certain.”
While the replacement is still under debate, Republicans are more united in their resistance to deficit-funding the overall infrastructure package. They may have an ally in Sen. Joe Manchin, D-W.Va., who has signalled he would not vote for reconciliation until every effort has been made to make the bill bipartisan.
“Here’s what I’m concerned about,” said Capito. “I’m concerned that we do surface transportation, we do drinking water, all these separate bills and that the leadership on the Democratic side decides they’re going to do reconciliation and none of it’s paid for. And that’s the drumbeat I’m sort of hearing and I think that obviously upsets the apple cart on a big bipartisan issue that we’ve been able to agree on.”
Buttigieg acknowledges that the gas tax “is not a long term solution,” given the evolving transportation system. He told state transportation officials in February that different possibilities and “even some principles” are on the table, including the idea of the user fee.
“What we know is it’s got to be sustainable, it’s got to be predictable, it’s got to be defensible, and in an evolving transportation system we’ve got to set it up in a way that it’s affordable, where it doesn’t place an unfair burdens on low income families or on rural areas where residents need to drive more frequently,” he said.
During his confirmation hearing, he acknowledged the possibility of continuing to pay for transportation through the general fund, saying, “I don't know whether Congress would want to continue doing that.”
Adie Tomer, head of the Metropolitan Infrastructure Initiative at the Brookings Institution, said he does not believe the gas tax will disappear. Instead, he said, it’ll be repurposed as a carbon tax.
He said for too long, the U.S. system of paying for infrastructure has been ineffective. “Our global peers do not use firewalled revenue sources to pay for their infrastructure spending,” he said.
The long-term nature of infrastructure building means that users aren’t necessarily paying for the roads they’re currently using. They’re just paying for the roads that are being planned for now.
“Why would someone driving a car need to pay for a highway or transit project that impacts their children?” Tomer asks. “It doesn’t add up.”