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The Controversial Gas Tax: What is It and How Does It Work

By Dom Einhorn Subscribe to RSS | December 10th 2011 | Views:

The United States is one of the many countries in the world that extracts federal excise tax on gasoline. The decades-long policy was in danger of being placed on the chopping block after some representatives in Congress expressed the desire of letting the gas tax expire on September 30th of this year. According to The New York Times, the Republican right supports ending the gas tax; the organization Americans for Tax Reform was already planning on asking legislators to phase out the gas tax way before its September 30 expiration. The debate about the gas tax also entered the picture during the presidential campaigns of 2008, wherein presidential candidates Hillary Rodham Clinton and John McCain pushed for what they called a “gas tax holiday”. At that time, Barack Obama dismissed the idea as nothing but a gimmick, citing that any moves to reduce or remove the gas tax will not be beneficial in any way to consumers and to the country’s dependency on foreign oil.

In Defense of the Gas Tax

The New York Times shares this stand, as featured in its August 2011 editorial where it cited several reasons why the Gas Tax needs to be extended. The excise tax collected on fuels goes to the Highway Trust Fund, which in turn finances the upkeep and building of bridges, highways, and mass transit systems all over the country. The gas tax is the primary source of the trust fund. It comprises almost nine-tenths of the Highway Trust Fund which, at present, stands at $37 billion. According to the NY Times, this amount can hardly cover the expenses of maintaining the nation’s roads and railways; as of 2011, $72 billion is still required to meet the demands of bridge repairs alone, and billions of dollars more are needed to ensure road serviceability and enhance traffic safety in both roads and railways. The Treasury Department had to step in to make sure the Highway Trust Fund is able to break even…and yet its obligations continue growing. At present inflation rates, the gas tax’s buying power is only 11 cents – a massive loss compared to the growing number of motorists and longer driving mileage that contribute greatly to the declining state of the American highway system. The gas tax collects 18.4 cents per gallon exclusive of state taxes; this number remains unchanged since 1993. When state taxes are computed in, American consumers pay an average of 43 cents per gallon of gasoline. This is ten times less than what’s being paid by motorists in the United Kingdom, where a gallon of gasoline costs $4 in taxes. Considering the comparative differences in gas taxes and the requirements of the Highway Trust Fund, parties from both sides of the Congress (except some select representatives from the House Republicans who push for the tax to lapse) back an increase in the gas tax in order to support the United States highway transport system. Another reason cited for the extension and possible hike of the gas tax rests on the argument that gas tax receipts, when used in public investment, ultimately put that money back into the American economy. Increasing the gas tax is also seen as a way to create additional jobs (a great balm in the face of this economy) as well as put pressure on motorists to switch to more fuel efficient vehicles. A tax hike may be unwelcome for some, but it clearly is a solution not only to the Highway Trust Fund but also to the economy and the environment.

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Dom Einhorn - About Author:
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