The Gas Tax is Failing to Fund Transportation Infrastructure

The gas tax is failing as a reliable source to fund transportation infrastructure in the United States. There are several reasons for the gas tax’s downfall. First, the federal gas tax and most state taxes on fuel are not indexed for inflation, so unless lawmakers enact new increases on a regular basis, inflation alone will eat away at gas tax revenues. The federal gas tax is not indexed to inflation and has sat at 18.4 cents per gallon since 1993. States, forced to make up for the lack of federal transportation infrastructure funds, have made some progress to increase their own gas taxes over the past decade but it might be too little too late. Note in the map below how lawmakers prefer to enact gas tax increases in non-election years.

A second reason that the gas tax is failing is that vehicles today are much more fuel efficient than vehicles in the past. As cars and trucks use less gas to go the same distance, less tax revenue will be collected to pay for road maintenance. Although consumer shifts towards larger SUVs and pickup trucks in recent years have slowed these efficiency gains. And finally, the emergence of hybrid and electric vehicles (EVs) and the expectation that EVs will replace gasoline-powered vehicles over the next few decades is the third and most existential reason that the gas tax is doomed. EVs skip the pump altogether, so EV drivers pay zero gas taxes. In response, most states have enacted special registration fees for EVs and hybrid vehicles in order to make up the difference. 

To make matters worse, as inflation, fuel efficiency, and a shift towards EVs has reduced the funds available to pay for transportation projects, the actual purchasing power of those funds is further diminished because prices for construction and maintenance keep going up, with highway construction costs consistently rising faster than inflation. In fact, the Federal Highway Administration says that highway construction costs have increased by 50% in the last two years alone. And politicians are incentivized to spend what little transportation infrastructure funds they have on new projects instead of maintaining the current stock of roads and bridges, further exacerbating the problem for future generations. 

Eventually, something’s got to give. One option is to continue down the road policymakers have detoured into so far: dip into the general fund and borrow money through bonds to pay for infrastructure projects and raise vehicle registration fees, especially on EVs that don’t pay into the gas tax. But if construction costs continue to outpace inflation and maintenance of current infrastructure is neglected, paying for transportation infrastructure out of the general fund will squeeze other important public programs, an especially difficult task for states that need to balance their budget each year. 

The policy wonk’s favorite gas tax replacement is to switch from a gas tax funding mechanism to a road usage charge system. Several states (e.g., Oregon, Utah, and Virginia) have piloted programs where drivers pay for the number of miles traveled instead of a tax on fuel usage. This option has the benefit of preserving the user-fee system of the gas tax, where the actual users of the roads pay for them. But road usage charges face fierce pushback over privacy concerns. Increasing the number of toll roads and adding congestion pricing to urban centers are also user fees that could ameliorate the problem, but they’re unlikely to solve the issue in the long term. Toll administrators are already losing significant revenue to drivers that purposely obstruct or use fake license plates to fool the license plate readers most modern tolls rely on to charge users. 

There’s no easy solution to replace the gas tax, which worked well as the main funding source for transportation infrastructure investment in the United States for many decades. Meanwhile, states will lead efforts to locate a viable solution.