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Wednesday, March 21, 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.

For FY2011, the Congressional Budget Office estimated 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 estimated 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 HTF.

On November 9, 2011, the Senate Environment and Public Works Committee marked up and reported favorable on the highway provisions of S. 1813, the Moving Ahead for Progress in the 21st Century Act (MAP-21). S. 1813 is a two-year reauthorization bill for FY2012-FY2013 that basically funds the Federal-Aid Highway Program at the baseline level, adjusted for inflation. This bill would also make substantial changes to the structure, formulas, and funding distribution of the federal highway program. As of February 7, 2012, all committees of jurisdiction had marked up their titles. On March 1, 2012, these titles were folded into S.Amdt. 1761 to S. 1813.

On March 5, 2012, in response to a request from Senate Majority Leader Harry Reid, the Congressional Budget Office (CBO) issued estimates for S. 1813, MAP-21, with amendment. CBO estimated that implementing the bill would have discretionary costs of $47.0 billion over the FY2012-FY2017 period. In addition, CBO estimated that implementing the provisions of the bill for the remainder of FY2012 and for FY2013 would result in an end-of-year balance in 2013 of approximately $2 billion in the highway account of the HTF and about $3 billion in the transit account of the HTF. On April 1, 2012, current surface transportation programs are scheduled to expire, and taxes that support the Highway Trust Fund are scheduled to expire or decline. The primary revenue source for the HTF, the gasoline tax, will decline from 18.4 cents per gallon to 4.3 cents per gallon.

Date of Report: March 9, 2012
Number of Pages: 18
Order Number: RL30304
Price: $29.95

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