Federal Gasoline Tax to Expire in September Unless Extended

August 19, 2011

The average price of a gallon of gasoline is about $3.59 nowadays, including a federal 18.4 cent per gallon tax plus state excise taxes on gasoline.

At least until September 30. Unless Congress acts on what is normally a routine vote to extend the federal gasoline tax, the tax rate will drop to 4.3 cents per gallon, a 14.1 cent per gallon drop. The tax current generates about $30 billion per year, which is used to pay for part of approximately $42 billion in annual federal highway spending and $14 billion in annual federal transit spending. The desire to have the gasoline tax cover all of these expenses is what led to the Bowles-Simpsons deficit reduction commission’s recommendation of a 15 cent per gallon gasoline tax increase. The AFL-CIO and Chamber of Commerce have jointly called for an even larger increase.

Politically, a vote to renew the gasoline tax will come at a tough time. Gas prices have risen steadily in the past few months, and sentiment against taxes is at a high level. In a similar run-up in 2008, Republican presidential nominee John McCain called for a temporary suspension of the federal tax; earlier this week, Rep. Michele Bachmann (R-MN) pledged that the price of gasoline would fall below $2 if she were elected president. Four states have actually done temporary gas tax holidays in the past decade or so.

At the same time, the gasoline tax is coming under immense pressure; inflation erodes how far the money raised from the stagnant tax can go. In 1962, the 4 cent tax (then being used to construct the Interstate Highway System) was the equivalent of 30 cents today; the pre-increase 1992 rate of about 14 cents is equivalent to 22 cents today. Drivers are also driving more in increasingly fuel-efficient cars as proposed highway and transit expenses rise.

Time asks whether states could just take over the federal transportation role by raising their gasoline taxes as the federal one expires (although they quickly dismiss the notion). But if no action happens as the end of September approaches, such ideas might seem reasonable.

More on gasoline taxes here.

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