Mercedes Mullins
Fuel tax rates vary widely across the United States. As of 2024, California had the highest gas tax rate at 68.1 cents per gallon, followed by Illinois (66.5 cents) and Pennsylvania (58.7 cents). Alaska had the lowest rate at 8.95 cents per gallon, with Mississippi (18.4 cents) and Hawaii (18.5 cents) close behind. The US federal gasoline tax has been unchanged since 1993 at 18.4 cents per gallon (4.86 cents per litre). However, some states have considered replacing their gas taxes with vehicle miles travelled (VMT) taxes, which would use actual miles driven as the metric for the user fee instead of gas consumed.
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What You'll Learn
US federal fuel tax
The US federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. The tax on aviation gasoline is $0.194 per gallon, and kerosene for aviation fuel (jet fuel) is generally taxed at $0.244 per gallon. The US federal gasoline tax has not been changed since 1993 and is not indexed to inflation, which had increased by 111% from October 1993 to December 2023. This has resulted in a significant loss in the real value of gas tax revenue, impacting infrastructure spending needs.
The revenue generated from the federal fuel tax is primarily directed towards highway repair and maintenance, as well as other government infrastructure projects. Approximately 60% of federal gas taxes are allocated for highway and bridge construction, with the remaining 40% going towards earmarked programs, including mass transit projects. In Fiscal Year 2016, federal fuel taxes generated $36.4 billion, with $26.1 billion from gasoline taxes and $10.3 billion from diesel and special motor fuel taxes.
The first federal gasoline tax in the United States was enacted on June 6, 1932, with the Revenue Act of 1932, which taxed 1 cent per gallon. Over time, the tax rate has increased, but it has remained unchanged at the current rate since 1993. The federal fuel tax is not a recent development, and it has a long history in the United States, with the first state to tax fuel being Oregon, which introduced a 1 cent per gallon tax in 1919.
While the federal fuel tax provides essential funding for infrastructure and transportation projects, there are critics who argue that the revenue is often diverted to other government programs and debt servicing unrelated to transportation. Additionally, the improvement in vehicle fuel efficiency and the growing popularity of electric vehicles have impacted the tax base, further complicating the funding situation. Nonetheless, the federal fuel tax remains a significant source of revenue for the government, and any changes to the tax rate can have economic implications, as evidenced by the debates during the inflationary pressures and geopolitical tensions in 2022.
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State fuel tax rates
The United States federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. The federal tax was last raised in 1993 and is not indexed to inflation. On average, state and local taxes and fees add 34.24 cents to gasoline and 35.89 cents to diesel. This equates to a total US volume-weighted average fuel tax of 52.64 cents per gallon for gas and 60.29 cents per gallon for diesel.
Some states have recently increased their gas taxes, including Florida, Georgia, Massachusetts, Minnesota, Nebraska, New Jersey, and Utah. For example, in Massachusetts, a fee that funds the state's underground storage tank cleanup fund increased to about 3.4 cents per gallon, combined with a small environmental fee and a 24-cent excise tax, bringing the total to 27.4 cents per gallon. In Minnesota, the state excise tax on gas rose by 3.3 cents to 31.8 cents per gallon, and drivers also pay about 2.1 cents per gallon in environmental fees, bringing the total to 33.9 cents per gallon.
In Utah, the motor fuel tax rate went up by 2 cents to 38.5 cents per gallon, and drivers also pay an environmental fee of about 0.7 cents per gallon, bringing the total to about 39.2 cents per gallon. In Nebraska, the state motor fuels tax rate rose by 0.8 cents to 30.4 cents per gallon, and drivers pay a total of 31.3 cents per gallon in state taxes.
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Fuel tax and inflation
The fuel tax in the United States has not been raised since 1993 and remains at 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel. This has resulted in a decline in purchasing power, with the tax worth approximately 45% less in 2021 than it was in 1993. The purchasing power of fixed-rate gas taxes has also decreased due to rising infrastructure construction costs and improvements in vehicle fuel efficiency.
Some states have implemented fuel taxes that are pegged to inflation, and there have been calls to increase the federal gas tax and index it to inflation. However, critics argue that this would lead to higher costs for families and that the additional revenue may not necessarily result in better roads. Additionally, tying the gas tax to inflation could reduce political accountability, as politicians would not need to explain tax increases to their constituents.
On the other hand, increasing the fuel tax could encourage the use of more fuel-efficient vehicles and reduce America's dependence on foreign oil. It could also help address funding shortfalls for transportation infrastructure projects. The Congressional Budget Office (CBO) has projected that increasing the federal excise tax rates on gasoline and diesel fuel by 15 cents or 35 cents per gallon and indexing it to inflation would significantly increase revenues.
While the federal fuel tax has remained unchanged, some states have increased their gas taxes. For example, Florida, Georgia, Massachusetts, Minnesota, Nebraska, New Jersey, and Utah have all recently raised their state fuel taxes. These increases vary from state to state, with some states also implementing environmental fees and other assessments.
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Aviation fuel tax
The tax rate varies depending on the type of fuel and the usage. Aviation fuel includes jet fuel and aviation gasoline (avgas). In the United States, jet fuel is generally taxed at $0.244 per gallon, while aviation gasoline is taxed at $0.194 per gallon. When avgas is used in a fractional ownership program aircraft, it is also subject to a surtax of $0.141 per gallon. For jet fuel removed directly from an on-airport terminal into the fuel tank of an aircraft for non-commercial aviation, the tax rate is lower at $0.219 per gallon. These taxes are based on an operator's use of the system, with small aircraft using less fuel and paying lower taxes, while larger aircraft use more fuel and pay higher taxes.
In addition to the federal aviation fuel tax, some states may have their own taxes and credits related to aviation fuel. For example, Illinois has an Aviation Fuel Sales and Use Tax, which is imposed on all aviation fuel sold, used, or distributed within the state. Illinois also offers a Sustainable Aviation Fuel Purchase Credit (SAFPC) for the use of sustainable aviation fuel, which can be claimed through specific forms.
The aviation fuel tax is supported by the general aviation community as it provides funding for the FAA and helps decrease noise and congestion. It encourages the purchase of newer, cleaner, quieter, and more fuel-efficient aircraft. Additionally, it incentivizes the use of less congested airports, as operators are taxed based on fuel consumption, which is higher at congested airports due to increased taxi and air time.
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Environmental taxes
One example of an environmental tax is a fuel tax, which is levied on the purchase of gasoline or diesel fuel. In the United States, the federal excise tax on gasoline is currently 18.4 cents per gallon, while the tax on diesel fuel is 24.4 cents per gallon. These taxes have remained unchanged since 1993 and are not indexed to inflation. However, state and local taxes and fees can add to these amounts, resulting in a higher total tax burden on fuel purchases. For example, in Massachusetts, drivers pay a total of 27.4 cents per gallon in state taxes and fees, which includes a small environmental fee and an excise tax.
The impact of fuel taxes on consumer behaviour and the environment has been studied extensively. Research suggests that fuel taxes can effectively reduce fuel consumption, leading to a decrease in local air pollution and greenhouse gas emissions. For instance, a study examining the impact of a diesel fuel carbon tax reform found that fuel carbon taxes are less than fully passed through to consumer prices, indicating that consumers and the supply chain share the burden of these taxes. Additionally, fuel taxes can generate significant revenue for governments, which can be used to fund environmental initiatives and infrastructure projects.
Despite the potential benefits of environmental taxes, there are concerns about their impact on consumers and the economy. Critics argue that increased fuel taxes can place a financial burden on individuals and businesses, particularly those in low-income areas or rural communities. Additionally, there are concerns about the effectiveness of environmental taxes in isolation, as carbon prices remain inefficiently low, and global fossil fuel subsidies continue to place a negative indirect price on carbon emissions. Therefore, comprehensive tax reforms and policy design are necessary to address these challenges and promote sustainable development.
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Frequently asked questions
The federal fuel tax rate in the US is 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel.
California has the highest gas tax rate in the US at 68.1 cents per gallon.
In most states, the fuel tax is a per-unit tax, meaning the consumer pays tax based on the number of gallons purchased rather than a percentage of the final purchase price.
Yes, fuel tax rates vary widely across states. For example, in 2024, California had the highest rate at 68.1 cents per gallon, while Alaska had the lowest rate at 8.95 cents per gallon.
