The History of the Gas Tax in the United States

The gas tax is a per-gallon excise tax on gasoline that funds transportation infrastructure across the United States. Levied by both federal and state governments, the revenue is directed toward the construction and maintenance of roads, bridges, and public transit. The tax functions as a user fee, where the amount paid is proportional to fuel consumption, linking the cost of maintaining the network to a motorist’s usage.

The State-Level Origins of the Gas Tax

The concept of a gasoline tax first emerged at the state level, born from a need to address a changing transportation landscape. In the early 20th century, the rise of the automobile created an unprecedented demand for better roads. Existing roadways, designed for horse-drawn carriages, were ill-suited for motor vehicles, prompting a search for a sustainable funding mechanism.

Oregon became the first state to implement a solution, enacting a one-cent-per-gallon gasoline tax on February 25, 1919. This legislation established a direct link between road usage and road funding. The underlying logic, often referred to as the “user-pays” principle, was that motorists who benefited from and caused wear on the roads should bear the cost of their upkeep.

The success of Oregon’s experiment resonated with other states facing similar infrastructure challenges. The idea of a user-funded system for road development was seen as an equitable way to finance improvements. Consequently, the gas tax concept spread rapidly, and by 1929, every state had adopted its own version of the tax for financing road projects.

Federal Adoption During the Great Depression

The federal government’s entry into gasoline taxation occurred under different circumstances than the state-level initiatives. The federal gas tax was introduced as a component of the Revenue Act of 1932, a broad piece of legislation aimed at addressing a severe national crisis. During the Great Depression, the federal government faced a significant budget deficit, and this tax was a revenue-raising tool.

Unlike the state taxes, the initial federal gas tax was not for road funding but to help stabilize the nation’s finances. This marked a clear departure from the user-pays principle that had defined the state-level taxes. President Herbert Hoover’s administration defended the tax as an emergency measure.

The initial federal tax was one cent per gallon, raising nearly $125 million in its first year. Though introduced as a temporary measure, Congress made the tax permanent during World War II. Its revenue continued to flow into the general treasury without a formal dedication to transportation.

The Highway Trust Fund and the Interstate System

The transformation of the federal gas tax to a dedicated transportation fee occurred in the post-World War II era. A growing consensus held that a modern highway network was necessary for economic prosperity and national defense. President Dwight D. Eisenhower, influenced by his experiences with Germany’s Autobahn, became a proponent for creating a comprehensive Interstate Highway System.

This vision was realized with the Federal-Aid Highway Act of 1956. The act established the Highway Trust Fund, a dedicated account to receive and disburse federal fuel tax revenues. For the first time, money collected from the federal gas tax was formally earmarked for transportation projects, primarily the construction of the new Interstate System.

To finance this undertaking, the 1956 act raised the federal gas tax to three cents per gallon. This increase, coupled with the creation of the Highway Trust Fund, aligned the federal tax with the user-pays principle. The fund provided a stable, long-term funding mechanism that enabled the construction of the 41,000-mile Interstate Highway System over the following decades.

Rate Adjustments and Modern Stagnation

Following the establishment of the Highway Trust Fund, the federal gas tax rate was periodically adjusted to meet transportation needs and rising construction costs. The rate was increased to four cents per gallon in 1959. The Surface Transportation Assistance Act of 1982 raised the tax to nine cents per gallon and created a Mass Transit Account within the Highway Trust Fund, dedicating one cent to public transportation.

The last increase to the federal gas tax occurred in 1993, when the rate was set at 18.4 cents per gallon for gasoline and 24.4 cents for diesel fuel. Since that time, the rate has remained frozen. This period of stagnation has impacted the purchasing power of the revenue, as decades of inflation have eroded the value of the tax.

This decline in real-dollar value, combined with increasing vehicle fuel efficiency, has strained the Highway Trust Fund’s solvency. The fund has faced recurring shortfalls because the revenue collected is often insufficient to cover outlays for national transportation projects. This has led to a situation where the funding mechanism for federal highway and transit programs is no longer able to keep pace with its obligations.