Federal Fuel Tax Used to Reduce Deficit in the Past

The National Commission on Fiscal Responsibility and Reform discussions concerning raising the user fee on fuel at the federal level has people asking how long it has been since the federal tax on gasoline has been increased. The answer is 17 years. Why has this issue been largely ignored for almost two decades? The reasons include the long-term nature of highway funding bills as well as the political distaste among many lawmakers for higher gasoline taxes.

What cannot be ignored is the fact that the federal motor fuels fee is the primary source of revenue for the Highway Trust Fund which supports the federal-aid highway construction projects. The Highway Trust Fund has insufficient revenue to maintain current funding levels, much less increase investment. Interestingly, the last two times the motor fuels fee was raised it was part of previous deficit reduction initiatives. Those revenues were eventually redirected to transportation investment.

The following provides key dates from the history of the federal fuel tax:

• 1932: The federal government levied its first fuel tax, at one cent per gallon.
• 1941: The federal tax became permanent under the Revenue Act of 1941.
• 1973 to 1980: Presidents Richard Nixon, Gerald Ford and Jimmy Carter considered gas taxes for a variety of reasons, from fighting inflation to spurring alternative energy development to reducing oil imports. None of these increases passed Congress.
• 1982: President Ronald Reagan proposed a gas tax to improve the nation’s highways, and Congress agreed. This raised the tax from four cents a gallon to nine cents a gallon.
• 1990: With President George H. W. Bush’s signature, Congress raised the gasoline tax to 14.1 cents a gallon, saying it would reduce the federal deficit.
• 1993: President Bill Clinton failed to get support for a broader energy tax, but Congress passed an alternative, raising the gasoline tax to 18.4 cents a gallon. The purpose was deficit reduction.