The Fuel Tax is Defunct, and Innovation is the Culprit
Per-gallon taxes are a 20th Century idea. When the range of fuel efficiency in the automotive fleet was narrower, this mindset was defensible, but innovation has led to expansive automotive diversity. Taxing drivers per gallon of gas no longer brings in enough revenue and creates an unfair tax burden.
The federal gas tax was implemented in 1932. The tax was set at its current 18.4 cent-per-gallon perch in 1993. Since then, vehicles are more efficient, some use no gasoline at all, heavier cars are exerting more strain on roadways, and inflation has soared.
The fuel tax is not equipped to address these issues, and failure to engage the issue has threatened the Highway Trust Fund with looming insolvency for a decade. This is the story of how innovation killed the gas tax, and why Congress must recreate its user-pay tax.
In 1975, Corporate Average Fuel Economy (CAFE) standards were born, mandating that new entrants to the vehicle fleet travel farther on the same amount of fuel. The idea was to reduce dependence on foreign oil, limit pollution, and eventually ween dependence on fossil fuels.
While innovation would achieve this anyway, the CAFE rules required the advance in technology. Government mandates plus natural competition led to vehicle efficiency improving by leaps and bounds. Not only can traditional vehicles travel farther than 15 years ago, but now hybrids and electric cars can hit the road and keep hitting it without stopping for hundreds of miles, if at all.
The fuel tax is increasingly disproportionate, because some pay vastly different taxes due to efficiency. In 1975, the range between least and most fuel efficient vehicles on the highway was 27mpg. In 2020, excluding electric vehicles, that range is 45mpg. This means drivers pay disproportionately, with some actually paying less while driving more.
It seems one Congressional hand does not know what the other is doing. With one, Congress forced vehicles to travel farther on the same gallon of gasoline, and with the other tried to fund road repair and maintenance with a per-gallon tax.
Naturally then, revenue has declined along with roads conditions. Blame CAFE or not, innovation in efficiency is the culprit. But innovation strikes elsewhere.
Vehicles are getting heavier. That means that taxing fuel to pay for road repair is a failed proxy right out of the gate. Some cars create more wear than others but pay the same amount in fuel taxes. Worse, some pay nothing at all and create more damage than others.
Electric vehicles are heavier than gasoline counterparts. They do not pay into the Highway Trust Fund, but wear down roads more than those who are paying. This is a policy failure, not a mark against electric vehicles.
From the outset, the fuel tax was a weak user-pay scheme. At its best, it was imprecise and failed to internalize weight or miles traveled. Now, innovation has allowed some vehicles to bypass the tax altogether, and those that remain subjected pay unfair burdens.
A new system is needed. The gas tax should be retired, even if that means scheduling it to sunset in 15 years. In the meantime, we must find an efficiency-neutral and innovation-proof road use fee. It must account for all drivers, meaning hybrid and electric vehicles should likely see fuel-tax equivalent surcharges or registration fees. On a longer timescale, a new system should account for vehicle weight, number of tires, and actual miles driven. These are the direct factors for wear and tear, and the fuel tax simply does not account for them.
The major hurdle to overcome will be political and fairness concerns. Many do not think about the federal and state taxes that go into the price at the pump. To many, it is just the price of gas. And because we pay at the pump, there is virtually perfect compliance. Moving away from a fuel tax, which innovation has necessitated, will raise challenges for compliance, fairness, and collection.
These are not insurmountable challenges, and many pilot programs are already addressing them. But we must act before our infrastructure costs are insurmountable. America’s roads and bridges are in unprecedented disrepair. The Highway Trust Fund is rated for insolvency. The gas tax cannot survive in an innovative technological landscape. And Congress has an obligation –for taxpayer fairness and public safety– to fix the funding mechanism so we can fix our roads.
Benjamin R. Dierker, Director of Public Policy for the Alliance for Innovation and Infrastructure