Transportation infrastructure is essential for economic growth. In order to maintain quality transportation infrastructure, sustainable funding is imperative. An Economic Commentary [PDF] by the Midwest Economic Policy Institute explores the role of the motor fuel tax both nationally and internationally. The United States currently suffers from insufficient funding due to a broken system. Without changes, more and more roads, bridges, and public transit systems will fall into disrepair.
The primary source of transportation funding in the United States is the motor fuel tax – also known as the gas tax or fuel tax. The federal gasoline and diesel taxes currently stand at 18.4 cents and 24.4-cents per gallon, respectively.
The revenue collected from federal fuel taxes is deposited into the Highway Trust Fund (HTF). While fuel taxes previously served as the primary source of funding for the HTF, comprising over 80 percent of its funding between 1995 and 2007, they have proven to be an unsustainable revenue source in recent years. Between 2008 and 2014, the HTF received $65 billion from the U.S. Treasury’s general fund to meet the fund’s obligations, since annual spending for highways and transit began to exceed the revenues generated.
As shown below, both the amount generated by fuel taxes and the total revenues of the HTF remained fairly consistent over time, until 2005; at that time, fuel tax revenues flattened out just above $30 billion. Consequently, other resources, like the General Fund, were required to make up the fuel taxes shortfalls.
These shortages can largely be attributed to the fact that the last federal increase occurred in 1993, when the gasoline tax was raised by 4.3-cents per gallon. Similarly, inflation has corroded the purchasing power of revenues; the federal fuel tax on gasoline would be 31-cents in 2016 if it had been indexed to inflation – almost 13-cents more per gallon. These issues, coupled with federal vehicle emissions standards, continue to plague the HTF.
On the international stage, motor fuel taxes remain a typical source of revenue. However, unlike the United States, other developed nations have significantly higher gasoline taxes. An analysis of four countries’ demographics and transportation trends was performed to understand how the United States compares worldwide. Consumers in the United States spend 85-cents less per gallon on gas taxes than those in Australia – the second lowest gas tax out of the five countries compared below. A driver in the United States spends anywhere from $1.56 to $4.71 less per gallon on fuel taxes than a comparable driver in Germany, Japan, or the United Kingdom. To put that into perspective, the gasoline tax per gallon in Germany and the United Kingdom are 7 and 11 times greater than the United States’ motor fuel tax.
Despite the differences in funding strategies for transportation investments across the world, the United States can learn from international policies supportive of higher motor fuel taxes. The United States currently does not have a gas tax rate that can sustainably fund transportation needs, yet Germany and the United Kingdom raise more money from their gas taxes than they spend on transportation investments. The United States must develop new ways to generate additional revenue to address its transportation infrastructure deficit and create a budget surplus. Raising the federal gas tax rate would generate additional needed revenue to fix crumbling transportation systems and build new transportation systems across America.
Check out our Fact Sheet on the report: