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Monday, September 17, 2012

The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History

James M. Bickley
Specialist in Public Finance

Excise taxes have long been a part of our country’s revenue history. In the field of gasoline taxation, the states led the way with Oregon enacting the first tax on motor fuels in 1919. By 1932, all states and the District of Columbia had followed suit with tax rates that ranged between two and seven cents per gallon. The federal government first imposed its excise tax on gasoline at a one-cent per gallon rate in 1932. The gas tax was enacted to correct a federal budgetary imbalance. It continued to support general revenue during World War II and the Korean War.

Economists know the gasoline excise tax as a “manufacturer’s excise tax” because the government imposes it at production (i.e., the producer, refiner, or importer) for efficiency in collection. Particularly in the short run, when the demand for gasoline is relatively inelastic, economists recognize that any increase in the gasoline tax ultimately falls on the consumer.

The Highway Revenue Act of 1956 established the federal Highway Trust Fund (HTF) for the direct purpose of funding the construction of an interstate highway system, and aiding in the finance of primary, secondary, and urban routes. Each time Congress has extended the Highway Trust Fund it has also extended the federal excise tax on gasoline.

In the 112th Congress, a series of extensions of the surface transportation legislation have occurred. These extensions reauthorized the federal government’s highway, mass transit, and surface transportation safety programs and levied highway user taxes. Extended taxes on gasoline and diesel fuels provided approximately 90% of the funding for the Highway Trust Fund and 80% of the funding for mass transit programs. Other extended taxes were levied on heavy trucks, truck tires, gasohol, and fuel from natural or petroleum gas.

On March 4, 2011, President Obama signed H.R. 662, the Surface Transportation Extension Act of 2011 (P.L. 112-5). This law extended federal-aid highway, highway safety, motor carrier safety transit, and other programs funded out of the Highway Trust Fund through September 30, 2011. On September 16, 2011, President Obama signed H.R. 2887, Surface and Air Transportation Programs Extension Act of 2011 (P.L. 112-30), which extended, through March 31, 2012, current surface transportation programs and the motor fuel, heavy truck, and truck tire taxes that support the HTF. On March 30, 2012, President Obama signed H.R. 4281, Surface Transportation Extension Act of 2012 (P.L. 112-102), which extended the federal surface transportation programs and financing through June 30, 2012. On June 29, 2012, President Obama signed H.R. 6064, Temporary Surface Transportation Extension Act of 2012 (P.L. 112-140), which extended the surface transportation programs and financing through July 6, 2012. On July 6, 2012, President Obama signed H.R. 4348, Moving Ahead for Progress in the 21st Century Act or Map-21 (P.L. 112-141). This law authorized appropriations for the federal surface transportation programs through October 1, 2014, and financing, including gasoline and diesel taxes, through September 30, 2016. The extended gasoline tax rate was 18.4 cents per gallon and the extended diesel tax rate was 24.4 cents per gallon. These rates include a 0.1 cent per gallon tax levied and deposited in the Leaking Underground Storage Tank (LUST) Trust Fund.

Date of Report: September 7, 2012
Number of Pages: 18
Order Number: RL30304
Price: $29.95

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