RL30304: THE FEDERAL EXCISE TAX ON GASOLINE AND THE HIGHWAY TRUST FUND: A SHORT HISTORY

Excise taxes have long been a part of our country's revenue history. In the field of gasoline taxation, the states led the way with Oregon enacting the first on motor fuels in 1919. By 1932, all states and the District of Columbia had followed suit with rates that ranged between two and seven cents per gallon. The federal government first imposed its excise on gasoline at a one cent per gallon rate in 1932. The gas was enacted to correct a federal budgetary imbalance. Economists know the gasoline excise as a manufacturer's excise tax because the government imposes it at production (i.e., the producer, refiner, or importer) for efficiency in collection. Economists think the is generally passed forward to the retailer translating into a higher retail gas sales price. Thus, the consumer ultimately pays the tax. Revenues collected from the federal support the Highway Trust Fund and the Leaking Underground Storage Trust Fund. All but 0.1 cent of the revenues supports the Highway Trust Fund. The Treasury Department transfers collections from the Highway Trust Fund to other trust funds dependent on the ultimate use of the gasoline. The Highway Revenue Act of 1956 established the federal Highway Trust Fund for the direct purpose of funding the construction of an Interstate System, and aiding in the finance of primary, secondary and urban routes. This Act increased the on gasoline from two to three cents per gallon. Each time the Congress has extended the Highway Trust Fund it has also extended the federal excise on gasoline. Recently, crude oil prices have run up in price. This increase has resulted in higher prices for gasoline and other fuels. Some Members of Congress are exploring a reduction in federal excise rates on gasoline and diesel fuel as one method to lower costs to consumers. Concerns have been expressed on how these costs might affect the economy.