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 is generally passed forward to the retailer, translating into a higher retail gas sales price. Thus, the burden for much of the tax ultimately falls on the consumer.

The Highway Revenue Act of 1956 established the federal Highway Trust Fund for the direct purpose of funding the construction of an interstate highway system, and aiding in the finance of primary, secondary, and urban routes. This act increased the tax on gasoline from two to three cents per gallon. Each time Congress has extended the Highway Trust Fund it has also extended the federal excise tax on gasoline.

As recently as 1990 and 1993, Congress passed legislation dedicating a portion of gasoline tax revenue for deficit reduction. However, none of the current 18.4-cent-per-gallon tax imposed on gasoline is dedicated to the General Fund. One-tenth of one cent per gallon is dedicated to the Leaking Underground Storage Tank Trust Fund; 2.86 cents per gallon is allocated for mass transit purposes and earmarked to the Mass Transit Account within the Highway Trust Fund; and the balance, 15.44 cents per gallon, is earmarked to the Highway Account, also within the Highway Trust Fund.

On July 29, 2005, President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). This act provided a six-year extension of the Highway Trust Fund excise taxes that were scheduled to expire in 2005. Thus, the gasoline excise tax is scheduled to expire after September 30, 2011. The act also established a Motor Fuel Tax Enforcement Advisory Commission. Among the commission’s duties are to review motor fuel revenue collections, to conduct investigations related to motor fuel taxes, and to help develop and review legislative proposals with respect to motor fuel taxes.

For FY2011, the Congressional Budget Office estimates that revenues and interest credited to the Highway Trust Fund will total $36.9 billion, which will be divided into the Highway Account ($31.8 billion) and the Mass Transit Account ($5.1 billion). CBO also estimates that the fund’s three primary revenue sources and their yields will be the gasoline tax ($24.0 billion), the diesel tax ($8.7 billion), and the tax on trucks and trailers ($2.2 billion).

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 Highway Trust Fund.


Date of Report: September 21, 2011
Number of Pages: 16
Order Number: RL30304
Price: $29.95

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Federalism Issues in Surface Transportation Policy: Past and Present

Robert Jay Dilger
Senior Specialist in American National Government

American federalism, which shapes the roles, responsibilities, and interactions among and between the federal government, the states, and local governments, is continuously evolving, adapting to changes in American society and American political institutions. The nature of federalism relationships in surface transportation policy has also evolved over time, with the federal government’s role becoming increasingly influential, especially since the Federal-Aid to Highway Act of 1956 which authorized the interstate highway system. In recent years, state and local government officials, through their public interest groups (especially the National Governors Association, National Conference of State Legislatures, National Association of Counties, National League of Cities, U.S. Conference of Mayors, and American Association of State Highway and Transportation Officials) have lobbied for increased federal assistance for surface transportation grants and increased flexibility in the use of those funds. They contend that they are better able to identify surface transportation needs in their states than federal officials and are capable of administering federal grant funds with relatively minimal federal oversight. They also argue that states have a long history of learning from one another. In their view, providing states flexibility in the use of federal funds results in better surface transportation policy because it enables states to experiment with innovative solutions to surface transportation problems and then share their experiences with other states. Others argue that the federal government has a responsibility to ensure that federal funds are used in the most efficient and effective manner possible to promote the national interest in expanding national economic growth and protecting the environment. In their view, providing states increased flexibility in the use of federal funds diminishes the federal government’s ability to ensure that national needs are met. Still others have argued for a fundamental restructuring of federal and state government responsibilities in surface transportation policy, with some responsibilities devolved to states and others remaining with the federal government.

Congressional attention to federalism issues in surface transportation policy tends to increase during reauthorizations of the federal highway and mass transit program. The current highway and mass transit program, the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005: A Legacy for Users (SAFETEA; P.L. 109-59), after being extended eight times, is set to expire on March 31, 2012. Its reauthorization is expected to generate considerable legislative activity during the 112th Congress. Issues addressed by Congress in the recent past, and expected to receive continued attention, include SAFETEA’s funding level and financing, especially proposals addressing the Highway Trust Fund’s fiscal sustainability, state funding guarantees, and congressional earmarks.

This report provides an historical perspective on contemporary federalism issues in surface transportation policy that are likely to be addressed by Congress during the 112th Congress, including possible devolution of programmatic responsibility to states and proposals to change state maintenance-of-effort requirements and state cost matching requirements.


Date of Report: September 22, 2011
Number of Pages: 40
Order Number: R40431
Price: $29.95

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Emergency Relief Program: Federal-Aid Highway Assistance for Disaster-Damaged Roads and Bridges

Robert S. Kirk
Specialist in Transportation Policy

The major highways and bridges damaged during Hurricane Irene in 2011and the I-35W bridge collapse in Minneapolis of August 1, 2007 are part of the federal-aid highway system and were therefore eligible for assistance under the Federal Highway Administration’s (FHWA’s) Emergency Relief Program (ER). Following a natural disaster or catastrophic failure (such as the I-35W bridge), ER funds are made available for both emergency repairs and restoration of federal-aid highway facilities to pre-disaster conditions.

The ER program is administered through the state departments of transportation in close coordination with FHWA’s division offices (there is one in each state). Although ER is a federal program, the decision to seek ER funding is made by the state, not by the federal government. Most observers see the close and ongoing relationship between the FHWA’s staff at the state level and their state counterparts as facilitating a quick coordinated response to disasters.

The program is funded by an annual $100 million authorization from the highway trust fund and general fund appropriations that are provided by Congress on a such sums as necessary basis. A number of issues have arisen in recent years: 

•       The scope of eligible activities funded by ER has grown via legislative or FHWA waivers of eligibility criteria or changes in definitions that have expanded the scope of ER projects, sometimes beyond repairing or restoring highways to predisaster condition. 

•       The $100 million annual authorization has been exceeded nearly every fiscal year, requiring appropriations that can lead to delay in funding permanent repairs. 

•       Congress has directed that in some cases ER fully fund projects, without the normal 10% or 20% state matching share, putting financial pressure on the federal side of disaster highway assistance.

State requests for ER funding are at times backlogged. In a deficit-reduction environment, it is questionable whether the ER program can continue to loosen eligibility restrictions and forgo the state match without increasing the backlog.


Date of Report: September 23, 2011
Number of Pages: 11
Order Number: R42021
Price: $29.95

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Surface Transportation Program Reauthorization Issues for the 112th Congress

Robert S. Kirk, Coordinator
Specialist in Transportation Policy

William J. Mallett
Specialist in Transportation Policy

David Randall Peterman
Analyst in Transportation Policy

John Frittelli
Specialist in Transportation Policy

Linda Luther
Analyst in Environmental Policy

James E. McCarthy
Specialist in Environmental Policy

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

The law authorizing federal surface transportation programs expired at the end of FY2009, but Congress has failed to enact a new authorization. Surface transportation programs continue to operate on the basis of authority provided in extension legislation.

This situation should not be a surprise to those familiar with the history of the reauthorization process. Especially during the last two decades, reauthorization has become a difficult undertaking. This is primarily due to controversy over how and to whom federal-aid highway funds should be distributed. The most recent law, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU or SAFETEA) (P.L. 109-59), was enacted 22 months after previous legislation had originally expired. Previous reauthorization bills also were enacted well behind schedule.

The most difficult issue to be considered during reauthorization is how to finance federal surface transportation programs. The highway trust fund and the revenue sources that feed it have been a reliable mechanism for financing highway and transit programs for five decades, but this is no longer the case. Fuel taxes, which provide most of the money for surface transportation, are unlikely to provide a solid long-term foundation for the programs, although a rate increase could help in the near-term. The choice for policymakers, therefore, is to find new sources of income for the current-size program or an expanded program, or alternately, to settle for a smaller program that might look very different from the one currently in place. The growing consensus on the need to reduce the federal budget deficit will likely influence this debate.

Chairman John Mica of the House Committee on Transportation and Infrastructure (T&I) and Chairman Barbara Boxer together with Minority Ranking Member James Inhofe of the Senate Committee on Environment and Public Works (EPW) have proposed separate legislative initiatives that would reauthorize surface transportation programs. The House T&I initiative would reduce the size of the program to expected revenues over the next six years. The Senate EPW initiative would keep the program at the same size as the current year for two years but requires an extra $12 billion above currently expected revenues. Although the two initiatives differ greatly in scope and policy direction they deal with many of the same issues.

One perennial subject of debate concerning the highway program is whether grants to individual states are in line with the taxes those states’ motorists pay into the highway trust fund—the socalled donor-donee issue. Program consolidation, restructuring, and elimination are expected to receive extensive congressional attention due to public concerns about the condition of the nation’s transportation infrastructure and the efficiency of existing programs. The speed of project delivery and environmental review streamlining are of growing interest in Congress. Congress also can be expected to look closely at transit program spending levels and priorities. Freight and passenger rail issues have also been of growing importance in recent years and figure to get significantly more attention than in past reauthorization debates.


Date of Report: September 2, 2011
Number of Pages: 38
Order Number: R41512
Price: $29.95

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Surface Transportation Funding and Finance

Robert S. Kirk
Specialist in Transportation Policy

William J. Mallett
Specialist in Transportation Policy

Federal surface transportation programs are currently funded primarily through federal fuel taxes on gasoline, diesel, and other fuels that are deposited in the highway trust fund. Although there has been some modification to the tax system, the basic fuel taxes have not been increased at the federal level since 1993. Prior to the recession that began in 2007, annual increases in driving, with a concomitant increase in fuel use, were sufficient to keep revenues rising steadily on an annual basis. This is no longer the case. Further, future changes in the nation’s vehicle fleet as a result of federal fuel economy standards, including increased use of electric hybrid and fully electric vehicles, are expected to suppress future fuel use even if annual increases in vehicle mileage resume.

Congress has yet to address the surface transportation program’s revenue issues, except by increasing transport spending from the U.S. Treasury general fund. Many Members of Congress have expressed an aversion to raising fuel taxes, and alternative methods of financing surface transportation have not received serious legislative consideration.

These financial issues have delayed reauthorization of federal surface transportation programs. In the past Congress has reached agreement on reauthorization only when it could count on sufficient revenues to meet many of the competing demands for funding. With efforts to reauthorize the existing, but already expired, surface transportation program at a standstill, the programs authorized by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU or SAFETEA) (P.L. 109-59) continue to operate as a result of extension legislation and cash infusions to the trust fund from the U.S. Treasury general fund.

This report focuses on possible revenue sources for surface transportation infrastructure. It begins with a brief discussion of the problems associated with the trust fund financing system and then explores possible immediate and longer-term solutions to the financing problem. Some of the major issues discussed in this report are:

• Raising motor fuel taxes offers a simple short-term solution to the revenue issue, but is not a long-term solution due to likely future declines in fuel consumption. 
• Proposals such as replacing current motor fuel taxes with a fuel sales tax or a fee based on vehicle miles traveled (VMT) pose their own problems, and in any event will require overcoming numerous administrative and political barriers. 
• The trust fund system itself may be a barrier to increased or more effective federal transportation spending, and its continuation in its current form could be reconsidered. 
• The general aversion to taxation in the current economic climate has drawn attention to private and nontraditional funding sources, such as tolls, leveraging private capital through pubic-private partnerships (PPPs), existing federal loan guarantees, and creation of a national infrastructure bank. These nontraditional funding mechanisms could potentially make an important but somewhat limited contribution to overall national infrastructure needs.

Date of Report: September 2, 2011
Number of Pages: 32
Order Number: R41490
Price: $29.95

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