Transportation, Federal Government, Government
How Little We Pay: Exploring the Current Transportation Tax “Burden”
Funding Future Mobility: Exit 2
February 17, 2012
This is the second stop in our transportation infrastructure thought leadership series. In “How Little We Pay,” we examine the actual cost of the U.S. gas tax and show how current investments in vital mobility resources stack up against other costs.
The Gas Tax
The primary source of transportation funding is the motor fuel tax. It was established decades ago and was intended to serve as a direct user charge for consumption of transportation. In general, the more we drive the more fuel we consume, and therefore the more gas tax we pay. It is a simple taxation system, which up until now has served the United States well.
However, the gas tax is becoming increasingly unsustainable due to political resistance to raising tax rates and continued increases in fuel efficiency. We’ll look at the longer term challenge of fuel efficiency in future posts, but today, the gas tax accounts for the vast majority of transportation funding at both the federal and state levels.
How Much is the Gas Tax, Really?
The current federal tax on gasoline is $0.184 per gallon, which has not increased in almost 20 years. Diesel fuel is taxed slightly higher at $0.244 per gallon, since it is primarily consumed by commercial vehicles that contribute to a higher share of infrastructure wear-and-tear. State gas taxes vary, but in 2010 they averaged $0.206 per gallon for gasoline and about a penny per gallon more for diesel. This means that the average combined state and federal gas tax rate in the United States is $0.39 per gallon.
This may sound like a lot, but it is actually minuscule compared to other countries. Gas tax rates in Europe average between $4 and $5 per gallon, pushing total gas prices to between $7 and $9 per gallon. In fairness, some of the gas tax revenue in Europe is not spent on transportation, but the overall investment in infrastructure in those countries is proportionally much higher than in the United States.
Price vs. Perception
One of the hardest parts about discussing the gas tax is that most Americans have no idea how little they actually pay. Over the years, I have asked hundreds of people how much they think they pay in gas taxes each month, and the most common response is “I have no idea.” Those who venture a guess are usually in the range of $100 or more per month.
What do we actually pay? Since fuel consumption varies by car and driver, let’s use a car that gets 25 miles per gallon and is driven 12,000 miles per year as an example. That vehicle consumes an average of 40 gallons of fuel per month. At that rate, the average combined state and federal gas tax is only $15.60 per month per vehicle. This is much less than what most people assume they are paying.
Given the enormous importance we place on mobility, it is amazing how little we ask our drivers to pay. The gas tax is usually lumped in with all other forms of taxes—especially by elected officials who hear the constant drumbeat that taxes are too high. In reality, the gas tax amounts to a very small share of total tax paid.
Putting it in Perspective
Let’s look at the gas tax in comparison to other taxes. Federal tax rates vary widely by income level, as does car ownership. For annual income levels between $25,000 and $100,000, the gas tax represents between 1.7 and 5.6 percent of all federal and state taxes paid. It is difficult to justify our substantial underinvestment in transportation infrastructure, given that the gas tax represents such a small amount of taxes paid for most people.
Many have proposed increasing the gas tax in recent years, but proposals of raising any type of tax are dead on arrival in Congress. The U.S. Finance Commission recently recommended increasing the federal gas tax $0.10 per gallon, which would have increased federal funding capacity by more than 50 percent and only cost the average driver between $4 and $5 more per month. Elected officials in a northeastern state resisted increasing the state’s gas tax by $0.05 per gallon, even though it would only cost drivers about $2 more per month.
Since mobility is one of several imperatives we need each day to survive and prosper—such as heat and water—another way to look at the gas tax is to compare it to what we pay for other utilities. The average household spends more than $300 per month on utilities like electricity and communication. As the costs of virtually all other utilities continue to rise, the federal gas tax has remained stagnant since 1993, even though costs and congestion have increased and our infrastructure is crumbling.
A Demand for Higher Investment
Maybe if people were more aware of how little they pay for mobility, they would demand higher investment in transportation infrastructure. The first step in building public support and political consensus for increased investment may be to get the word out on how little Americans are asked to pay today, and how small a role the gas tax plays in the larger tax discussion.
A 100-percent increase in transportation funding would cost the average driver only about $15 per month per vehicle. Is that too much to pay to help fix our crumbling roads and bridges? It is time to de-link transportation taxes from the broader tax discussion if we are to even begin solving our infrastructure problems.
Ed Regan is a CDM Smith senior vice president based in Columbia, South Carolina, USA, and a preeminent thought leader on transportation finance and planning. Nearly 4 decades of dedication to the toll industry have fed his passion to advocate sustainable solutions for funding transportation infrastructure today and in the future