RL30304 - The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
4-Apr-2006; Pamela J. Jackson; 16 p.
Update: June 19, 2006
Abstract: 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 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.
President Bush recently signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) on July 29, 2005. This act provides a six-year extension of the Highway Trust Fund excise taxes that were scheduled to expire in 2005. Thus, the gasoline excise tax is now scheduled to expire after September 30, 2011. The act also established a Motor Fuel Tax Enforcement Advisory Commission. Among the Commission’s duties will be to review motor fuel revenue collections, investigations related to motor fuel taxes and to help develop and review legislative proposals with respect to motor fuel taxes.
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