As he signed the Revenue Act of 1932 into law, President Herbert Hoover lauded “the willingness of our people to accept this added burden in these times in order impregnably to establish the credit of the federal government.”
Gas tax revenue stopped keeping up with the expenses it was supposed to cover in the early 1970s following a severe bout of inflation and OPEC’s oil embargo. U.S. gas prices soared from about 36 cents per gallon in 1972 to $1.31 in 1981.
Responding to what members of both major political parties saw as a transportation infrastructure crisis, Congress more than doubled the tax to 9 cents per gallon as part of the Surface Transportation Assistance Act of 1982. The same law split the Highway Trust Fund and its revenue stream into two parts: The first 8 cents would finance roadwork while the other penny would finance mass transit projects.
In 1984, Congress increased spending on highways by funneling proceeds from fines and other penalties that businesses pay for safety violations, such as failing to label hazardous materials or forcing drivers to work too many hours in a row.
Congress boosted the tax twice more in the 1990s but primarily to reduce the then-ballooning federal deficit. Only half of a 5-cent increase in 1990 went to highways and transit, while a 4.3-cent lift three years later went entirely to lowering the deficit.
As a result, highway and transit spending has significantly outpaced the revenue collected from the gas tax and other sources. Since 2008, the government has transferred over $80 billion to the fund that it had to take from other sources.
But it’s still not enough. The American Society of Civil Engineers, which gives U.S. infrastructure a C-minus, is calling on the government and private sector to increase spending on roads and bridges by at least $2.5 trillion within a decade.
While it’s true the gas tax may be regressive because lower-income people pay the same rate as those who earn higher incomes, there are still advantages to this tax.
For one thing, it follows the “user pays” principle of providing government services. Under this principle, the people using the roads are held responsible for paying for their upkeep. As the number of motorists using electric vehicles increases, however, this may become less true over time.
Finally, the government could always subsidize the tax for the poor, perhaps through annual lump-sum payments, making it less regressive.
Clearly, U.S. infrastructure is in dire need of upgrading and investment. At the end of the day, Americans will pay for it one way or another – whether in taxes or through costs of unsafe and inadequate infrastructure, including in lost lives. How the government pays for investment may matter less than that it finally does it.
This is an updated version of an article first published on Feb. 27, 2018.
Theodore J. Kury is the Director of Energy Studies at the University of Florida’s Public Utility Research Center, which is sponsored in part by the Florida electric and gas utilities and the Florida Public Service Commission, none of which has editorial control of any of the content the Center produces.