America is facing a cost of living crisis fueled by the highest inflation rate in over four decades. In early June, as inflation woes were compounded by disruption to supply chains, the national average for a gallon of gas surpassed $5 for the first time on record.
In response to the increasing struggle facing consumers, President Biden has called on Congress to suspend federal gas tax for 90 days. This has raised a number of questions around the various taxes, fees, and duties levied on gas across the country and their impact on consumers, along with questions around infrastructure funding in general.
How does the federal gas tax work?
The federal gas tax currently stands at 18 cents for a gallon of regular gasoline, and 24 cents per gallon for diesel. This is on top of various taxes and fees in each state.
In California for instance, for every gallon of gas, consumers are paying a staggering $1.24 in taxes and fees on average – 18,4 cents in federal gas tax and $1.06 in state taxes and fees, such as the excise tax, carbon fee, greenhouse gasses fee, sales tax, and storage tank fee.
The average gas tax across the country is close to 50 cents per gallon when including the federal tax. However, a federal gas tax holiday would bring this down to around 31 cents per gallon – a reduction that would make a meaningful difference to struggling consumers. Several states have already suspended their gas taxes in response to the current crisis.
All of this raises the issue of how road construction and maintenance can continue to be carried out if the taxes that are supposed to fund this are suspended. However, in practice, the funding of road infrastructure is not so straightforward.
How is road infrastructure funded?
State and local governments use revenue from both motor fuel tax and highway tolls for spending on transportation. However, even the combined revenue from these sources is unable to contribute a majority of the funds used for road transportation spending.
In 2019, the $52 billion in revenue from state and local motor fuel tax provided 26 percent of the funds used for road and highway spending. A further 11 percent was provided by toll facilities and other fees, while the remainder of this funding was drawn from state and local general funds as well as federal funds.
Clearly, the current system for infrastructure funding is not working as it was intended. The status quo is poorly maintained roads across the United States. A reimagining of infrastructure is badly needed, and private solutions must be considered.
The gas tax is a regressive tax
Gas is already taxed far more than most products at the state level. Yet, what makes gas taxes particularly egregious is their regressive nature.
Millions of people depend on gas for their livelihoods, and the rising costs due to supply issues are proving challenging for many. High taxes on a product as essential to so many will always have a disproportionate effect on the poor. And in this instance, given America’s crumbling infrastructure, it would be difficult to convince those struggling with the cost of living that an ever-growing gas tax is a worthwhile trade-off.
America needs to address its infrastructure woes, but a regressive tax with a disproportionate impact on those who can least afford it is not the way to go about finding solutions.
If a federal gas tax holiday is implemented, it should be made permanent.
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This piece was first published on the Students For Liberty website.
This piece solely expresses the opinion of the author and not necessarily the organization as a whole. Students For Liberty is committed to facilitating a broad dialogue for liberty, representing a variety of opinions.