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October 31, 2013
Tax History: How Congress Broke the Gas Tax
Joseph J. Thorndike

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The gas tax is broken, and you can thank members of Congress for that. Lawmakers have refused to raise or modernize the tax for 20 years, hobbling its revenue capacity and leaving the Highway Trust Fund badly underfunded.

That sin of omission, while serious, is only part of the story. Congress broke the tax quite deliberately in the 1990s, when deficit hawks tried to transform it from a user fee to a deficit reduction tool. The experiment was short-lived, and lawmakers eventually repaired the link between gas taxes and road building. But the damage was done, and we're still paying the price.

Reforming the gas tax won't be easy, given the political toxicity of raising any tax, and especially one felt so keenly by consumers. But some sort of change is necessary, if only to keep the nation's bridges from falling down.

Multiple Problems

The federal gasoline tax has been pegged at 18.4 cents per gallon since 1993. Along with other motor fuels taxes, it raises more than $30 billion annually, almost of all of which goes to the Highway Trust Fund. But it's not enough. In the last five years, Congress has been forced to shore up the trust fund with $53 billion drawn from general revenue. Similar infusions will be necessary soon.1

The inadequacy of the gas tax stems from two factors. First, and most importantly, construction costs have continued to rise with inflation. Since the tax was last raised, the cost of building roads has risen 55 percent, according to The Wall Street Journal.2 Second, improvements in vehicle fuel efficiency have allowed consumers to drive more miles on less gas -- great for the wallet but not so good for road funding.

To make matters worse, lawmakers and lobbyists have asked a lot of the gas tax. "Over time the gasoline tax has come to represent more than just a funding mechanism for infrastructure," wrote law professor David Herzig in a recent Tax Notes piece. "It has acted as an environmental tax, a general revenue raiser, and a spur of economic growth through a well-developed infrastructure."3 That broad mandate has weakened the tax, at least in political terms. Sometimes a tax that does too much ends up doing nothing well. That's especially true of excise taxes, which usually depend on narrow and specific justifications for their existence.

Calls for Reform

The problems plaguing the gas tax are well understood, and experts have been warning for years that the levy needs reform. "Without a fix soon, we could face having to cut all federal highway funds by a third simply to keep the trust fund solvent," warned Sen. Patty Murray, D-Wash., back in 2008. As chair of the Senate Appropriations subcommittee responsible for transportation funding, Murray understood the stakes. "That is the last thing we should be doing when infrastructure needs are up, construction jobs are down and Americans are struggling through tough economic times."4

Business and labor groups, each with a large stake in construction spending, have been vocal. "The money is running out," declared Thomas J. Donohue, president of the U.S. Chamber of Commerce, in congressional testimony earlier this year. "So we need to phase in a moderate increase in the gas tax over a number of years and index it to inflation. Shippers and truckers are all on board to pay a little more as long as the money goes to where it's needed."5

Labor leaders have echoed those sentiments. "The fact that Mr. Donohue and I appear before you today does not mean that hell has frozen over or unicorns are now roaming the land," said AFL-CIO President Richard Trumka during a joint appearance with Donohue at a 2011 congressional hearing. "The gas tax has not been raised since 1993. It now provides diminishing levels of funding and should be raised."6

Broad and bipartisan support for raising the gas tax is a good thing, and probably necessary if anything is ever going to get done. But so far, it hasn't been enough. Worried about a backlash from unhappy motorists, politicians have been reluctant to act. "The gasoline tax was like the electrified piece of metal that runs alongside subway tracks," observed one expert trying to explain congressional inertia. "It was not to be touched."7

When it comes to getting elected, most politicians know what they're doing. Their wariness about the gas tax is supported by poll data, which show broad hostility to any sort of increase. In an April 2013 Gallup poll, two-thirds of respondents opposed increasing state-level gas taxes. There's no reason to think they feel differently about federal levies.8

But poll data leave a key question unanswered: Why do Americans so dislike a tax that was once relatively well tolerated and uncontroversial? There are many possible answers, including long-term increases in gasoline prices -- and long-term stagnation in lower- and middle-class incomes.

Part of the explanation for the gas tax's unpopularity lies in congressional efforts to use the tax for something other than infrastructure. When lawmakers tried to use the tax for deficit reduction, they broke with its history -- and broke the tax in the process.

User Fee or Not?

The history of the gas tax begins, not surprisingly, with the commercialization of automobiles in the early 20th century. The levy first appeared in 1919 at the state level, when Oregon adopted a gas tax to help pay for road construction. "Because it answered a desperate need for highway revenue without overburdening the existing tax structure, it spread through the nation in the 1920s and even into Canada and Mexico," explained one later historian.9 By 1932, every state and the District of Columbia had a gas tax, levied at rates ranging from 2 to 7 cents per gallon.10

Traditionally, states paid for roads with a variety of levies, but most often with state and local property taxes. That patchwork funding led to patchwork roads, with some areas well served and others barely passable by motor vehicles. States responded with a wave of revenue reform, and the federal government offered help in the form of matching funds.11

State highway officials were pivotal in spreading the "gasoline tax contagion," and they were the first to develop a coherent user fee rationale for the levy.12 In the preamble to Oregon's law, legislators made the case directly, justifying the new tax as a way to link costs with benefits:

    Whereas it is necessary for the enforcement of good order and the protection and the safety of the public, as well as the protection of the public roads and highways constructed by this state and the various counties thereof, that the state expend large sums of money for the regulation and supervision of such vehicles, machines and engines used and traveling upon the public highways of the state of Oregon, and for the repair of the damage done to said highways by such vehicles, machines and engines traveling thereon. . . .13

The user fee argument was compelling not just in Oregon but across the country, and state after state adopted the tax with hardly any dissent. Legislatures in Delaware, Utah, and Louisiana actually approved their versions unanimously, while levies in Texas and Tennessee drew only token resistance. Opponents were hard to find, even among affected industries, and the tax was off to a smashing, and somewhat surprising, start. "Who ever heard, before, of a popular tax?" exclaimed one state tax official in 1926.14

By most accounts, the tax was indeed well tolerated by the public -- or at least not widely reviled. One widely cited survey by highway officials in Nevada found universal public support, at least as reported by highway officials in other states.15 And no wonder. As historian Christopher W. Wells has noted, "The tax was neither onerous nor obvious -- paid a few cents at a time, with the exact amount unadvertised -- and it funded conspicuous, large-scale road construction."16

A popular and productive tax was necessarily tempting to cash-strapped lawmakers, and some legislatures of the 1920s and 1930s tried to divert gas tax revenues from road construction to other, equally pressing needs. But oil companies and good-road advocates resisted, and by 1960, more than half the states had approved constitutional barriers to those diversions.17

Congress Grabs the Cash

State lawmakers could prevent themselves from raising gas tax revenues, but they couldn't stop Congress. In 1932 lawmakers saddled drivers with a new federal gas tax of 1 cent per gallon. It was no user fee. Instead, it was defended as an "emergency" tax necessary to close a gaping budget shortfall brought on by the Great Depression. The new tax was slated to disappear in 1933.18

In its first year, the new federal tax raised $124.9 million -- real money in those days, representing 7.7 percent of all internal revenue collections during fiscal 1933. That was too good to give up, and Congress soon extended the tax for another year and increased its rate to 1.5 cents per gallon. It remained on the books for the rest of the decade, although lawmakers did allow it to drop back to its original 1 cent per gallon. World War II brought back the half-cent increase, while also prompting lawmakers to make the tax permanent. By the end of 1951, the gas tax reached 2 cents per gallon.19

But the middle 1950s brought major change to the gas tax. In 1956, as part of the Federal Highway Act, Congress raised the tax to 3 cents per gallon and used it to fund the new Highway Trust Fund.20 Both the tax and the trust fund were initially designed to be temporary, albeit fairly long-lived, but Congress repeatedly extended both in the decades that followed.

The 1956 reforms returned the gas tax to its state-level roots as a user fee, and in that role it paid for America's new system of interstate highways. Indeed, the tax was remarkably effective in sustaining both infrastructure and itself. As Wells noted, "The system, coupled with new highway-planning methods that prioritized 'self-funding' highways, resulted in a powerful self-replicating system in which new highways generated new traffic, which in turn generated new revenues that were legally reserved for more new highways."21

When Congress Broke the Tax

To be sure, the gas tax required some fine-tuning over the years.22 But it remained essentially intact until Congress made another grab for the cash. In 1990 lawmakers approved an increase in the federal gas tax but allotted only half of the new revenue to construction projects. The other half was dedicated to deficit reduction. In 1993 Congress approved another gas tax increase and again devoted additional revenue to deficit reduction.

By 1997, Congress was done with that experiment, and lawmakers redirected all gas tax revenues back to the Highway Trust Fund. But the damage was done. Long justified as a user fee, the tax had been successful and relatively uncontroversial. But in the wake of the 1990 experiment, it became less successful in keeping the Highway Trust Fund afloat and more unpopular.

The causal connection is uncertain, of course, but the correlation is hard to ignore. It's also hard to ignore the timing of the gas tax's stagnation: The last increase came in the midst of the 1990s revenue grab. Lawmakers have been unwilling to raise or modernize it ever since.

When Congress severed the link between the gas tax and infrastructure, it broke the tax itself. The levy worked best when it did a single thing and did it well. As a user fee, the gas tax was easily understood and widely tolerated. But once redefined as a tool to shrink the deficit, it attracted the same antitax animus that Americans direct at all federal levies.

Maybe the unpopularity is worth it; maybe the deficit is a bigger problem than chronic trust fund shortfalls. But ultimately, the gas tax won't save us from fiscal ruin (assuming, for the sake of argument, that ruin is in the cards). It makes no sense to undermine the levy's functionality as a user fee for the sake of making a relatively modest contribution to deficit reduction.

That's not exactly a controversial position; while some fiscal hawks still hope to use the gas tax to balance the government's books, most recent talk of reform has focused on restoring the tax as a useful funding source for infrastructure.

Raising the tax would be a good start. But other reforms are needed, too. In particular, the tax should be indexed to inflation to prevent its gradual erosion. The Institute on Taxation and Economic Policy has suggested a more flexible "variable-rate tax structure" that would increase each year to account for rising construction cost inflation and fuel-efficiency growth. Had it been enacted in 1997, during the last big congressional rethink of the gas levy, that kind of tax would have raised $215 billion to build and maintain U.S. infrastructure -- more than enough to keep the trust fund afloat.23

It's long past time to fix the gas tax. But once Congress gets the levy working again, lawmakers should keep their hands off it. The tax has suffered, in Herzig's words, because it's been used to advance "many, disparate social goals," including deficit reduction, infrastructure building, traffic alleviation, and environmental improvement.

The impulse to leverage a well-functioning tax is understandable. But it's also destructive. Congress should let the gas tax do one thing well, rather than many things poorly.


1 Institute on Taxation and Economic Policy, "A Federal Gas Tax for the Future," Sept. 2013, at 1.

2 "Is Raising the Federal Gasoline Tax the Best Way to Pay for Highways?" The Wall Street Journal, Apr. 14, 2013, available at

3 Herzig, "Examining the Gasoline Tax," Tax Notes, June 10, 2013, p. 1291 .

4 Richard Simon, "U.S. Highway Trust Fund Veers Toward Crisis," Los Angeles Times, July 21, 2008, available at

5 Statement of the U.S. Chamber of Commerce before the House Committee on Transportation and Infrastructure, Feb. 13, 2013, at 18, available at

6 Testimony of Richard Trumka before the Senate Environment and Public Works Committee, Feb. 16, 2011, available at

7 Jeffrey Ball, "The Gas Tax Is Our Political Third Rail," The Wall Street Journal, July 18, 2013, available at

8 Alyssa Brown, "In U.S., Most Oppose State Gas Tax Hike to Fund Repairs," Gallup Politics, Apr. 22, 2013, available at

9 John Chynoweth Burnham, "The Gasoline Tax and the Automobile Revolution," The Mississippi Valley Historical Review, Dec. 1961, at 435.

10 James M. Bickley, "The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History," Congressional Research Service, Sept. 7, 2012, at 1 .

11 Burnham, supra note 9, at 436.

12 Id. at 445.

13 General Laws of the State of Oregon, 1919 (Salem, Ore., 1919), at 808-809.

14 Burnham, supra note 9, at 445.

15 Id. at 446.

16 Christopher W. Wells, "Fueling the Boom: Gasoline Taxes, Invisibility, and the Growth of the American Highway Infrastructure, 1919-1956," Journal of American History, June 2012, at 75.

17 Burnham, supra note 9, at 455.

18 CRS, supra note 10, at 1.

19 Id. at 2-3.

20 Id. at 3.

21 Wells, supra note 16, at 72.

22 For a more complete history of the tax, including revisions in the 1970s and 1980s, see CRS, supra note 10.

23 Institute on Taxation and Economic Policy, supra note 1, at 1.