Katerina Swanson
When it comes to road funding, fuel taxes are often the first thing that comes to mind. Gas taxes, tolls, and user fees are all used to fund road infrastructure projects and repairs, but the amount that goes towards highway repair specifically can vary. In the US, the federal government and all 50 states impose gas taxes, with the average state gas tax being about 32.26 cents per gallon. While gas taxes are a significant source of funding for highway repairs, they don't always keep up with the maintenance costs, and other sources of funding, such as general taxes, are often needed to make up the difference. Additionally, some states use gas tax revenue for purposes other than road repair, such as law enforcement, environmental protection, and education.
| Characteristics | Values |
|---|---|
| Gas taxes | 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel |
| Highway Trust Fund (HTF) | 85% of the fund comes from gas taxes |
| State and local government funding | $131 billion in 2017 |
| Federal government budget for infrastructure spending | $1.2 trillion, including $110 billion for road and bridge repair and $39 billion for transit modernization |
| State gas taxes | Range from 9 cents per gallon in Alaska to 78 cents per gallon in California |
| Average state gas tax | 32.26 cents per gallon |
| Highway Use Fee (HUF) | Implemented in Virginia to compensate for fuel taxes that drivers with fuel-efficient and electric vehicles spend less on |
| Federal taxes from each fuel gallon for cleaning up leaks from underground petroleum storage tanks | One-tenth of a cent |
| Federal tax per gallon | 18.3 cents, with 15.44 cents going to the highway account and 2.86 cents to the mass transit account |
| State Transit Assistance funding | $700 million in 2017-18 |
| Share of transportation costs covered by gas taxes in the 1960s and early 1970s | More than 70% |
| General taxes paid by all taxpayers for highway construction and maintenance | $597 per U.S. household per year |
| Transit funding from government capital and operating funds | $43.3 billion |
| Bicycling and pedestrian programs funding | $821 million in federal funding |
| Passenger rail funding | $1.8 billion in government funding |
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What You'll Learn
The Highway Trust Fund
The HTF consists of two main accounts: the Highway Account and the Mass Transit Account. The Highway Account is dedicated to the construction and maintenance of highways and bridges, while the Mass Transit Account is used for payments related to buses, railways, subways, ferries, and other forms of public transit. The HTF plays a crucial role in supporting federal highway programs administered by the Federal Highway Administration (FWHA) and is overseen by the Congressional Budget Office (CBO).
While the HTF provides federal funding for highways, state and local governments bear the majority of the financial responsibility for repairing and maintaining highways and surface transportation. For example, in 2017, state and local governments funded nearly three-quarters of total spending on highways, amounting to $131 billion. The contribution from gas taxes to highway funding varies widely among states, ranging from 6.9 percent in Alaska to 71 percent in Hawaii.
The effectiveness of gas taxes in funding highway repairs has been a subject of discussion. On the one hand, gas taxes have not kept up with road maintenance costs, and their purchasing power has been eroded by inflation and improvements in vehicle fuel economy. This has led some states to legislate increases tied to inflation and adopt variable rates. On the other hand, there is a recognition that all Americans bear the cost of roads, and policy-makers are encouraged to consider transportation policy choices that benefit all modes of transportation, not just automobiles.
In recent years, the federal government has allocated significant funds towards infrastructure spending, including road and bridge repair. For instance, under the Infrastructure Investment and Jobs Act passed in 2021, $110 billion was budgeted for road and bridge repair, and $39 billion was allocated to modernize transit.
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Gas taxes and their purchasing power
Gas taxes are excise taxes levied on gasoline at both the federal and state levels. In the United States, the federal government and all 50 states impose gas taxes, with the revenue raised going primarily towards fixing highways and other infrastructure projects. The purchasing power of gas taxes has been declining due to several factors, impacting the funding available for highway repair and maintenance.
The purchasing power of gas taxes has been affected by inflation, which erodes the real value of the tax revenue over time. As the general price level of goods and services increases, the same amount of tax revenue can fund fewer goods and services, reducing its effectiveness in covering the costs of highway construction and maintenance. This has been exacerbated by the lack of indexing of federal and state gas taxes to inflation, resulting in a growing gap between tax revenue and the rising costs of road maintenance.
Another factor contributing to the decline in the purchasing power of gas taxes is the improvement in vehicle fuel economy. With the increasing popularity of fuel-efficient and electric vehicles, drivers are purchasing less fuel and, consequently, paying less in fuel taxes. This trend has led to a decrease in tax revenue available for highway repair and maintenance. To address this issue, some states have introduced a highway use fee for fuel-efficient and electric vehicles to compensate for their lower fuel tax contribution.
In addition to inflation and improved fuel economy, the stagnation in driving has also played a role in reducing the purchasing power of gas taxes. With slower growth in driving, the amount of tax revenue generated from fuel purchases has stagnated or decreased. This trend further exacerbates the funding challenges for highway repair and maintenance.
To compensate for the declining purchasing power of gas taxes, other sources of funding have become increasingly important. General taxes, such as income and sales taxes, now contribute significantly to funding local roads and state highway infrastructures. Additionally, the federal government has allocated substantial funds towards infrastructure spending, including road and bridge repair, under the Infrastructure Investment and Jobs Act passed in 2021.
While gas taxes remain a significant source of funding for highway repair, their purchasing power has been diminished by inflation, improved vehicle fuel economy, and stagnation in driving. To address the funding gap, policymakers must rethink transportation funding and explore alternative sources of revenue to ensure sufficient investment in the transportation system.
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General taxes and their impact
General taxes paid by all taxpayers are now almost as important as fuel taxes in funding the construction and maintenance of highways. In the 1960s and 1970s, gas taxes and other driver fees covered over 70% of highway construction and maintenance costs. However, due to inflation, improved vehicle fuel economy, and stagnation in driving, the purchasing power of gas taxes has declined. Today, general taxes paid by all taxpayers, such as income and sales taxes, are nearly as important in funding highways as fuel taxes. In 2022, the average US household paid an estimated $597 per year in general tax revenue dedicated to road construction and repair.
Fuel taxes remain a significant source of funding for highway repair and maintenance. The federal government and all 50 US states impose fuel taxes, with the revenue raised going towards fixing highways and other infrastructure projects. The average state fuel tax is about 32.26 cents per gallon, but this varies significantly between states, from under 9 cents per gallon in Alaska to nearly 78 cents per gallon in California. Some states also charge based on the amount spent rather than the volume of fuel purchased. The Highway Trust Fund, established in 1956, is funded largely by fuel taxes and provides funding for the construction and maintenance of highways and bridges. Fuel taxes account for about 85% of the Highway Trust Fund's revenue.
In addition to fuel taxes, general taxes play an important role in funding highways and other transportation infrastructure. Property taxes and other general local taxes are primarily used to fund local roads and streets used by pedestrians, cyclists, and vehicles. State and local governments provided almost three-quarters of the funding for highways in 2017, totalling $131 billion.
While fuel taxes remain a significant source of funding for highway repair, the share of transportation costs covered by these taxes is likely to continue declining. This is due to factors such as inflation, more fuel-efficient cars, and slower growth in driving. To address this, some states have legislated increases in fuel taxes tied to inflation and adopted variable rates. However, policy-makers need to recognise that all Americans now bear the cost of roads and make transportation policy choices that benefit all modes of transportation, not just automobiles.
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State and federal funding
In the United States, state gas taxes vary widely, ranging from just under 9 cents per gallon in Alaska to nearly 78 cents per gallon in California. On average, state gas taxes amount to about 32.26 cents per gallon. However, some states charge based on the amount spent rather than the volume of fuel purchased. Federal gas taxes have been fixed at 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel since 1993. These taxes contribute to the Highway Trust Fund, which provides funding for highway construction and maintenance.
In addition to fuel taxes, states may also levy fees and implement programs that impact gasoline prices. For example, California has a cap-and-trade program that requires fuel suppliers to purchase permits for greenhouse gas emissions, adding an estimated 23 cents per gallon to gasoline prices. States may also have low carbon fuel standard programs, where suppliers of high-carbon fuels must purchase credits from low-carbon fuel suppliers, impacting prices by about 8 cents per gallon.
General taxes, such as income and sales taxes, are also significant contributors to highway repair funding. In recent years, general taxes have covered nearly as much of the cost of building and maintaining highways as fuel taxes and driver fees. This shift has prompted policymakers to reconsider how transportation funding is raised and allocated.
At the federal level, the Fixing America's Surface Transportation (FAST) Act is a key source of funding for transit programs in California. Additionally, the Infrastructure Investment and Jobs Act, passed in 2021, allocated $110 billion for road and bridge repair and $39 billion for transit modernization.
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Transit and other modes of transportation
At the federal level, the Highway Trust Fund (HTF), established in 1956, is a critical source of funding for highways, bridges, and mass transit systems. In 2021, the federal gas tax rate was 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel, with nearly all of the revenue going into the HTF. However, the mass transit account receives a smaller portion, with 2.86 cents out of the 18.3 cents per gallon federal tax allocated to mass transit. Additionally, the Infrastructure Investment and Jobs Act passed in 2021 allocated $39 billion to modernize transit systems.
State and local governments also play a significant role in funding transit and other modes of transportation. For example, state transit assistance programs, funded through state sales taxes on diesel fuel, provide substantial funding for transit planning and operations. In California, the State Transit Assistance program distributed approximately $700 million in 2017-2018. Other state programs, such as the Low Carbon Transit Operations Program (LCTOP), the State of Good Repair Program (SGR), and the Transit and Intercity Rail Capital Program (TIRCP), also provide dedicated funding for transit improvements and expansions.
Furthermore, some states have recognized the need to prioritize transit and other modes of transportation in their policy decisions. For instance, New York spends more than a third of its gas tax proceeds on mass transit, while Texas dedicates a quarter of its gas tax revenue to schools. Additionally, 25 "self-help" counties in California have passed a one-half percent sales tax for transportation, a portion of which is allocated towards transit.
To address the funding gap, policymakers are exploring alternative funding sources and rethinking how transportation revenue is raised and spent. For example, the Highway Use Fee (HUF) in Virginia aims to compensate for the lower fuel taxes paid by drivers of fuel-efficient and electric vehicles. This fee supports the Commonwealth Transportation Fund, which helps maintain roads, highways, transit, and airports. Additionally, the Fixing America's Surface Transportation (FAST) Act provides federal funding for various transit programs, including the Urbanized Area Formula Program, the Rural Area Formula Program, and the Bus and Bus Facilities Grant Program.
In conclusion, while gasoline taxes have traditionally been a significant source of funding for highways and bridges, the decline in their purchasing power has led to a search for alternative funding sources for transit and other modes of transportation. State and local governments have stepped up with dedicated transit assistance programs and innovative funding mechanisms, while federal programs like the Highway Trust Fund and the Infrastructure Investment and Jobs Act continue to provide critical support for transit improvements and expansions.
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Frequently asked questions
This depends on the state. In 2021, out of the 18.3 cents per gallon federal tax, 15.44 cents went to the highway account. However, state gas taxes range from 9 cents per gallon in Alaska to 78 cents per gallon in California.
Fuel taxes are used to fund infrastructure maintenance and new projects. This includes bridges, buses, railways, subways, ferries, and other modes of public transit.
In addition to fuel taxes, general taxes paid by all taxpayers cover nearly as much of the cost of building and maintaining highways. This includes income and sales taxes.
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