3 Charts Explaining the Debate Over Gasoline Taxes

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Is there ever a good time to raise taxes? With crude oil sliding to its lowest level in years and gasoline prices following suit, some politicians believe now is the most appropriate time to hike gas taxes.

The federal government and all states tax gasoline purchases. Currently, the federal government taxes gas at $0.18 per gallon, while states tax gas at an additional $0.23 per gallon on average. Congress has not increased the federal rate since 1993 and rejected the idea of doing so last summer, despite the highway trust fund facing insolvency. Forty-two states and Washington, D.C., have raised gas taxes since 1993, but only 21 states did so by more than $0.05 per gallon, according to the Tax Policy Center.

Former Pennsylvania Gov. Ed Rendell and former Congressman Barney Frank have both appeared in the media recently to call for higher gas taxes. They believe higher taxes could be absorbed, since prices at the pump have fallen more than $0.50 per gallon over the past year. More tax revenue to repair the nation’s roads could — at least theoretically — also lead to savings in the long run for drivers.

Raising the cost of something as visible as gas prices is politically unpopular, especially when Americans are reminded on a seemingly daily basis of government inefficiency. However, it’s hard to ignore the major trends in transportation and our ongoing infrastructure needs for a growing population.

Let’s take a look at three charts from the Tax Policy Center that are energizing the gas tax debate.

1. Gas tax revenue

On a real per-capita basis, state and local motor fuel tax revenue has plunged over the past couple of decades as Americans change their driving habits and vehicles become more fuel efficient. As the chart above shows, revenue has declined from $145 in 1993 to $132 in 2011. Furthermore, as a percentage of total state and local general revenues, motor fuel taxes have fallen nearly a third from 2.3% in 1993 to 1.6% in 2011.

2. Gas tax percentage

Federal and state taxes as a percentage of gas prices has declined significantly in recent years. Combined federal and state taxes peaked at 39% of the cost of gas in December 2001, but then fell throughout much of the following decade, reaching the low teens in 2011. When the price of gas reached $3.51 per gallon last year, taxes only accounted for 12% of the cost of regular grade gasoline. Although the recent decline in gas prices will help raise this percentage, the long-term trend has been to the downside.

3. Driving habits

If gas taxes stay the same, revenues can still increase as long as Americans increase demand enough. This was the scenario up until about 10 years ago. However, vehicle miles driven per capita have declined every year since 2004. In 2008, the Great Recession helped total vehicle miles traveled fall for the first time since the 1970s oil crisis and remain well below the 2007 peak. Newer cars and trucks also get more miles per gallon, albeit in part from government-imposed regulations.

What’s the solution? The Tax Policy Center notes that one way to ensure timely tax rate increases, at both the federal and state level, is indexing the rate to inflation. This would avoid yearly debates on how much to raise the gas tax. It would also tie gas tax revenue to something besides consumption. Yet problems are still evident with this approach. Policymakers in Massachusetts tried indexing its gas taxes in 2013, but voters repealed the effort in November 2014 with a ballot measure.

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