Does the Gas Tax Cover the Full Cost of Roads?

The gas tax is a user fee levied on the sale of gasoline and diesel fuel, with the principle that road users should contribute to their upkeep. This revenue is a contributor to the nation’s network of highways, bridges, and transit systems. However, the tax is not sufficient to cover the full cost of roads. Examining its collection, how the revenue is spent, and a growing funding gap reveals why other financial mechanisms are needed to support the nation’s infrastructure.

The Federal Gas Tax and the Highway Trust Fund

The federal government imposes an excise tax on gasoline and diesel fuel that has not changed since 1993. The rate is 18.4 cents per gallon for gasoline and 24.4 cents for diesel, with the higher rate for diesel reflecting the greater road wear from heavier vehicles. This revenue is deposited into the Highway Trust Fund (HTF), which finances surface transportation projects.

The HTF is divided into a Highway Account and a Mass Transit Account. The Highway Account receives about 15.44 cents of the gasoline tax to fund highway and bridge projects. The Mass Transit Account receives 2.86 cents per gallon for public transportation like buses and railways.

The HTF also receives revenue from taxes on heavy vehicle sales, tires for heavy trucks, and an annual use tax on those vehicles. All of these sources finance the federal share of transportation spending, which is then distributed to states to carry out projects.

State and Local Gas Taxes

Beyond the federal levy, every state and the District of Columbia imposes its own gas tax, creating revenue for state-level transportation needs. These tax rates vary widely, with some states charging below 20 cents per gallon while others exceed 60 cents. This reflects different state approaches to funding infrastructure.

State-collected revenue is deposited into dedicated state transportation funds, similar to the federal Highway Trust Fund. These funds are earmarked for transportation-related expenses to maintain and improve the systems drivers use. State and local governments have collected over $50 billion annually from motor fuel taxes in recent years.

In some jurisdictions, local governments like counties or cities may levy their own additional gas taxes for more localized road and transit projects. To counteract inflation and changing driving habits, some states have implemented variable-rate gas taxes. These can adjust automatically based on factors like the price of fuel or inflation.

Allocation and Use of Gas Tax Revenue

Revenue from federal and state gas taxes is allocated to a broad range of transportation projects, not just road construction. Federal funds from the Highway Trust Fund are distributed to states through formula-based programs. These formulas consider factors like population, lane miles, and vehicle miles traveled to determine each state’s share of funding.

The primary use of these funds is for the construction, maintenance, and repair of highways and bridges, which accounts for the largest portion of spending. For example, about half of state motor fuel tax revenue is spent on highway projects. This funding enables projects like interstate expansions and major bridge rehabilitations.

A portion of gas tax revenue is also directed toward public mass transit systems, including support for buses, subways, and commuter rail. This is based on the rationale that public transit reduces highway congestion, benefiting all road users. Some funding is also set aside for pedestrian walkways and bicycle paths.

The Transportation Funding Gap

A challenge for the nation’s infrastructure is the growing gap between transportation funding needs and the revenue generated by the gas tax. This shortfall is caused by several factors that have eroded the purchasing power and collection base of this user fee.

A primary reason for the funding gap is that the federal gas tax rate has not been increased since 1993. Over the past three decades, inflation has diminished the value of this revenue. The 18.4 cents collected per gallon today buys substantially less in construction materials and labor than it did in the 1990s.

Compounding this issue is the increased fuel efficiency of modern vehicles. As cars and trucks travel more miles per gallon, drivers purchase less fuel, reducing the gas tax revenue collected for the same amount of road use. The growing adoption of electric vehicles (EVs) further exacerbates this problem, as they use no gasoline and contribute nothing to the Highway Trust Fund through fuel taxes.

Other Sources of Road Funding

As gas tax revenues are insufficient to cover all transportation costs, governments rely on a diverse mix of other funding sources. These sources shift some of the funding burden away from a model based purely on fuel consumption.

Direct user fees, aside from the gas tax, include tolls on specific highways, bridges, and tunnels. Vehicle registration and license fees are another source of revenue, collected from vehicle owners. Some states also levy taxes on the sale of new vehicles, with that revenue dedicated to transportation funds.

To finance large, long-term infrastructure projects, governments issue bonds, borrowing money that is paid back over time with interest. State and local governments also make direct appropriations from their general funds. This means revenue from broad-based taxes like income, sales, and property taxes is used to supplement transportation budgets, spreading the cost across the entire taxpayer base.