Low-Energy Fridays: Should we junk the gas tax?

Two things most everybody hates are high gas prices and taxes—so whenever gas prices get uncomfortably high, you can count on someone proposing to suspend the gas tax as a form of relief. Presently, that someone is the president of the United States. President Trump recently advocated for a temporary suspension of the 18.4 cent per gallon federal gas tax, and Congress is currently considering the idea.

The gas tax does have its defenders, though. Some economists see it as akin to a user fee: Revenue from the gas tax goes to fund road construction and maintenance, and people who use the roads more tend to pay more in tax because they use more gasoline. Taxing gasoline also reduces consumption, which environmentalists appreciate because of the emissions associated with gas combustion.

Empirical research suggests that consumers would also benefit from a gas-tax suspension—at least in the short term. For example, when Connecticut announced a suspension of its 25 cents-per-gallon gas tax in 2022, gas prices fell by 23 cents per gallon over the course of two weeks. But prices rebounded by around half after six weeks had passed, proving that relief from a temporary suspension may really be only temporary.

The bigger issues with the federal gas tax are long term. The tax is not indexed to inflation, and Congress has been reluctant to increase its nominal value. Additionally, while the federal gas tax has remained at 18.4 cents per gallon since 1993, its real value has declined by more than half. Commuters might be glad the gas tax isn’t 40 cents per gallon, but since money from the tax is supposed to fund highways, the declining value strains the ability of governments to meet road construction needs.

Inflation isn’t the only concern, either. The average fuel efficiency of cars has more than doubled in the last 50 years, from 13.1 miles per gallon in 1975 to 27.1 miles per gallon in 2023. This means drivers can put double the amount of wear and tear on the road while paying the same amount in tax. The rise of electric vehicles (EVs) has also called the long-term viability of the gas tax into question. Since EVs use no gasoline, EV drivers need not pay the gas tax at all. And although EVs currently make up a small percentage of cars on the road, their market share has increased rapidly in the last decade.

One possible response would be to scrap the gas tax altogether and pay for roads out of general tax revenue. Another option is a vehicle miles traveled tax (VMT), which charges drivers based on the number of miles driven—thereby eliminating the EV and fuel economy issues discussed previously. However, a VMT does raise privacy concerns. While some are wary of potential abuse involving tracking data, pilot programs like the one in in Oregon indicate that a VMT can track distance traveled without recording vehicle location. (Frankly, given the amount of locational tracking we already carry around in our pockets, the added privacy risk is likely negligible.)

While replacing the federal gas tax with a VMT is probably beyond the political horizon of most current members, Congress must start thinking about long-term fixes for its shortcomings—regardless of what happens with the current gas-tax holiday proposal.