The U.S. federal government funds infrastructure projects through the highway trust fund. This trust fund receives revenue mainly from the excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on gasoline and uses the revenue to pay for transportation projects through grants to state and local governments.
The taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es and spending associated with the highway trust fund are based on the benefit principle of taxation, which states that what one pays to the government should be connected to the benefits one receives.
Currently, the federal government levies a $0.184 per gallon tax on gasoline. In addition, state and local governments levy an average gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. per gallon of about $0.34. This is an average combined rate of about $0.52 a gallon as of 2019, down slightly from $0.56 a gallon in 2017 and close to the amount levied in 2015.
The U.S. combined gas tax rate is lower than rates in other industrialized countries. According to data from the Organisation for Co-operation and Economic Development (OECD), the average gas tax rate among the 36 advanced economies is $2.24 per gallon. In fact, the U.S.’s gas tax is the second lowest (Mexico is the only country without a gas tax) and has a rate 25 percent lower than that of the next highest country, Canada, which has a rate of $0.74 a gallon.
On top of excise taxes, all OECD countries levy their value-added tax (VAT)A Value-Added Tax (VAT) is a consumption tax assessed on the value added in each production stage of a good or service. Every business along the value chain receives a tax credit for the VAT already paid. The end consumer does not, making it a tax on final consumption. on gasoline consumption. In the United States, only a few states (California, Connecticut, Georgia, Illinois, Indiana, Michigan, and New York) levy an additional sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on gasoline purchases. This means that the difference between taxes paid on gasoline in the United States and other OECD countries is even larger than the data on just excise taxes implies.
Without data on what the gas tax revenue is used for across the OECD, it’s hard to make a direct comparison between the U.S. and other countries. For instance, the Netherlands, which has the highest gasoline excise tax in the OECD ($3.36 a gallon), may only use a small fraction of the revenue for roads. The rest may be used for other government spending. If this is the case, its gas tax doesn’t conform to the benefit principle as strictly as it does in the United States. In other words, the Netherlands’ gas tax is high not because the country spends more on roads but because it chooses to tax gas more.
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Source: “Consumption Tax Trends 2018,” Organisation for Co-operation and Economic Development
Excise taxes on gasoline have fallen in American dollars in most of the OECD since 2013. The average gas excise tax fell from $2.62 in that year to $2.24 in 2017. Iceland raised its gas excise tax by 36 percent, from $1.97 per gallon in 2013 to $2.68 in 2017, the largest gas tax increase in the OECD. By contrast, Turkey, Canada, Israel, and Norway experienced large reductions in their gas tax levies. In many cases, as with Turkey and Israel, the country’s currency depreciated between 2013 and 2017, lowering the value of the tax in American dollars. In others, such as Canada, policymakers reduced the excise tax rate on gasoline.
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