Tax Foundation Forum: Making Sense of Profit Shifting has reached its midpoint. In this halftime report, we provide a synopsis of the first nine of the 18 interviews in the series. This two-part review summarizes the key...
- Paying at the Pump: Gasoline Taxes in America
Paying at the Pump: Gasoline Taxes in America
Background Paper No. 56
Over the past century, Americans have witnessed a marked increase in mobility through safe and reliable roadways. This improved mobility has undoubtedly increased the overall quality of life in the United States. Gasoline taxes have provided the required funds to build the roads that brought America into the transportation age.
Gasoline taxes are often mentioned as the best form of taxation from an economic perspective because they provide a system of road funding by simply charging road users when they fill up their tanks. This "user tax" adheres to what economists refer to as the benefit principle of taxation.
Early gasoline taxes in the states were explicitly created in an attempt to charge road users for the privilege of using roads. However, from the very inception of gasoline taxation, public officials have faced temptation to divert gasoline tax revenue to projects that are only tangentially related to transportation and that are often purely politically motivated. When lawmakers do overcome the temptations to squander gasoline tax funds, and instead use the revenue strictly for road construction and maintenance, gasoline taxes can serve as a reasonable tax.
Gasoline taxes have been in operation for well over 80 years in the United States. Unfortunately, the years of political pressure have eroded the original intent of gas taxes. In all too many instances, benefit-principle taxation has taken a backseat to political pandering. For instance, current federal highway legislation authorized over 6,000 earmarks from the highway trust fund. Some of these went to legitimate transportation programs, but others were earmarked for items such as the infamous "bridge to nowhere." Today, gasoline tax revenue is spent on everything from public education and museums to graffiti removal and parking garages.
In light of the recent bridge collapse in Minnesota, lawmakers would be wise to carefully scrutinize the practice of using gasoline tax dollars for anything other than legitimate road construction or repair. The reputation of gasoline taxes serving as user fees has been tarnished with the mismanagement of transportation funds throughout the United States. Therefore, if we are ever to restore public trust to our system of highway finance, there must be proper accountability and oversight to avoid more waste and abuse of current resources.
Not only do benefit-principle taxes represent sound economic policy—they are popular with American drivers as well. History has clearly demonstrated that the most popular gasoline taxes have been those which directly linked gasoline tax revenue with road spending. If gasoline taxes are to survive as the "best tax," the benefit principle must be enforced.
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