New Study on Gas Taxes

October 17, 2007

The Tax Foundation has released a new comprehensive study that looks at the gasoline tax at both the federal and state level, both today and in a historical context. Here’s an excerpt from the executive summary:

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.

The paper includes many unique bits of information, such as the year in which each state first introduced its gasoline tax. In 1919, Oregon was the first state to implement a gas tax. The last state to implement one (outside of Hawaii and Alaska) was actually New York in 1929. Today, New York ranks 3rd highest in the taxes imposed on a gallon of gasoline. (Such information is also available in the study.)

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