The Gasoline Tax: Too Low to Meet Current Needs

A World War II era poster.  The link between importing fuel and national security has long been understood.
A World War II era poster. The link between importing fuel and national security has long been understood. | Source


As congress reconvenes, they will shortly reconsider additional funds to the Highway Trust Fund and whether to increase the federal 18.4 cents per gallon gas tax. Republicans are clearly in no mood to raise any tax, but if any tax needs to change, it should be this one.

America needs to change its relationship with the automobile. The environmental problems of the roughly 200 million passenger cars are obvious, less obvious are the deleterious effects on the U.S. economy. The economic strain from oil expenditures, when it is not passed off as a mere consumer inconvenience, is most familiar when in the context of imported oil. Politicians routinely make hay out of the need for greater energy independence, one side vows to pursue independence through a “drill baby, drill” approach. In August, then Presidential candidate Michele Bachmann curiously even promised to bring back $2/gallon oil. The other side advocates greater efficiency and expansion of renewable sources. Both of these sides assume a common goal -- lower fuel costs. Rarely mentioned is the impact car ownership has on household wealth.

Certainly, the nation’s expenditure on fuel alone is staggering. In 2010, the Department of Commerce reported the United States’ trade deficit of $500 billion. News coverage of the trade deficit tends to focus on Chinese imports – our annual deficit with China was roughly half that figure, but no nation or category, not even manufacturing, exceeded the trade imbalance caused by the importation of $336 billion in petroleum products. Reduced by exports, the $265 billion petroleum trade deficit still amounted to a net GDP reduction of over $800 for every man, woman and child.

This fuel impact keeps the attention on oil prices. When they spike, Americans take notice. A sudden 20 or 30 cent a gallon increase sends many to web sites reporting the best local gas prices to shave a few dollars off their weekly fuel costs. Economists and the media extrapolate the price of a barrel of oil and an average price at the pump to their negative or stimulatory effect on the macro economy. The Bureau of Labor Statistics reports that in 2010 the average household spent $2,132 on gasoline and motor oil – a 15% increase could take $319 out of their pockets, but that analysis misses a larger point: However large the expense of fuel prices may be, it is the overall cost of car ownership itself, not just fuel that causes the problem. It is the automobile that devastates our national and personal savings.

New and Used Car Prices Rise

Many consumers find the current average new car price of nearly $30,000 prohibitive. While the durability, quality improvements and tight economy has led many previous new car consumers to the used car market, it has also increased price pressure there. Average prices for cars 1-5 years old increased from $10,500 to $13,200 between 2005 and 2010 according to the National Automobile Dealers Association Used Car Guide. During this same period, Americans experienced very low overall inflation or wage increases.

The problem is, for most suburban and rural Americans, car ownership is an economic necessity. Distances to work, grocery shopping and weekly errands all stretch the reasonable limits of walking and biking, but these communities’ sprawling design presume a mobile population and don’t have the critical mass of non-car owners to create public transit systems. Cities that do have public or mass transit, often have a behavior issue – drivers are reluctant to surrender the flexibility and independence of being able to come and go anywhere at any time they like. Although this problem has begun to hit an economic threshold for some. Whether due to the price of gas, cars, the cost of wear and tear on already-owned cars or other factors, Americans are driving less.

Data from the Department of Transportation, Federal Highway Administration
Data from the Department of Transportation, Federal Highway Administration | Source

The vehicle miles traveled reported by the U.S. Department of Transportation has grown every year since the Reagan administration, but that trend started to change around 2007. The Federal Highway Administration estimated that in 2007 the total vehicle miles traveled on all roads and streets was 3,031.1 billion; the estimate for 2011 is 2,717.1 billion, a reduction of roughly 10 % in four years. The significance of this reduction is hard to discount. The OPEC oil embargo and the second oil crisis in 1979 corresponding to the Iranian revolution created similar driving drops, but the current drop, though subtle, has been more sustained.

Average End-User Taxes on Gas by Country

Country
Average end-use taxes per gallon (in USD)
France
4.184
Germany
4.385
Italy
4.380
Spain
3.132
UK
4.721
Japan
3.081
Canada
1.416
USA
0.413
Despite protests of gas prices, Americans pay less for gas than most of the world. (Data from the International Energy Agency)

This confluence of higher gas prices, car prices and changing behavior signals an opportunity to make an infrastructure shift. Instead of merely seeking ways to mitigate the costs of oil by requiring higher fuel efficiency, flexible fuels and the like, this could be an opportunity to move away from the car trap -- actively discourage personal automobile use and promote public transit through tax policy. The Highway Trust Fund’s 18.4 cent a gallon rate is one of the lowest in the world. A 20 cent increase would keep our rate well below most of the developed world, but if a large portion is devoted to mass transit it could significantly bolster this underfunded aspect of our infrastructure, create jobs, reduce consumers need for automobiles and wean us from the billions now spent on foreign oil.

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Comments 9 comments

American Romance profile image

American Romance 4 years ago from America

I have never understood why gasoline is taxed at all? Had Obama really cared about the economy he would have in the very least saved us 18cents a gallon durin these hard times! Im taxed on my income, use what is left for food, that I'm taxed on, then fuel that I'm taxed on, and if I have a couple of bucks left to put in savings I'm taxed on that!.........Oil and natural gas are our two greatest energy sources, ........let us just leave them alone!


UnnamedHarald profile image

UnnamedHarald 4 years ago from Cedar Rapids, Iowa

I support an increased gas tax-- as long as it's used to fund the transportation infrastructure. That way, it's more of a use tax, which is fair. The more you use, the more you pay. Very good article. Voted up.


my_girl_sara profile image

my_girl_sara 4 years ago from Georgia

Are you kidding me, using Europe as our model for increasing taxes? Did you not know that Europe is about to be bankrupt? They have drained their citizens dry with all of their taxes so that they can pay for all of their "freebies." Not only do we pay a federal tax on gas, but also a state one. Maybe Washington needs to learn how to live on a budget like the rest of us do. Roads are important so they need to cut in other areas.


Brupie profile image

Brupie 4 years ago Author

Thanks to all for the responses.

American Romance: The gas tax was put in place in the 50's to help pay for the national highway system. It would have to be paid for one way or another. Take your pick - pay for it out of income taxes, sales taxes or the current excise tax.

UnnamedHarald: Thanks for the vote up!

my_girl_sara: A gas tax is hardly a European idea, nearly every country in the world has one and most, even some very prosperous ones, have much higher taxes than ours (e.g. Korea, New Zealand, Canada, China).


HSchneider 4 years ago from Parsippany, New Jersey

I totally agree with you, Brupie. We also need this tax high to help invest in alternatives due to the decreasing supply of oil as well as its dilatory effect on our environment. These funds are needed to maintain our roads and facilitate our transition to alternative renewable fuels.


Josak profile image

Josak 4 years ago from variable

Great hub, totally with you on this one. Voted up and interesting.


homesteadpatch profile image

homesteadpatch 4 years ago from Michigan

Using the federal figures provided, the total tax paid on a gallon of gasoline in my state is $1.475. This includes federal, state, and environmental taxes. On top of that a 6% sales tax is added. This tax is applied to a federally mandated Gasoline-Ethanol blend that contains less potential energy than pure gasoline (and thus lower fuel economy potential). While I believe we need to invest more into infrastructure, I emphatically do not believe giving more money to the Federal Government is the answer. Being as road maintenance is handled on a local and state level, I believe the Feds should keep their fingers out of the honey pot.. Perhaps if the money went directly to the municipalities making the repairs I would feel differently.


Brupie profile image

Brupie 4 years ago Author

homesteadpatch: Actually, the 18.4 cent per gallon rate is not a percentage, it is a flat rate. That is, no matter what the current price, 18.4 cents is collected. It is not, however, collected at the pump like the state gas taxes you mentioned. Instead it is collected at the point of production or importation.

You are only partially correct about road maintenance. Federal highways are maintained at federal expense, paid from the Highway Trust Fund, which comes from the 18.4 cent tax. State and local roads are paid for at the state and local level.


American Romance profile image

American Romance 4 years ago from America

To all who support the gas tax, if that is used for infrastucture, then what in the hell is the tax I pay when I purchase a car??? what in the hell do they do with my registration money each year? What in the hell do they do with my drivers license money? Give me a break! What happened to the trillion dollars that was supposed to go to infrastructure????

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