.
The Federal Excise Tax on GasolineMotor Fuels and the
Highway Trust Fund: A Short History
James M. Bickley
SpecialistCurrent Law and
Legislative History
Sean Lowry
Analyst in Public Finance
September 7, 2012February 23, 2015
Congressional Research Service
7-5700
www.crs.gov
RL30304
CRS Report for Congress
Prepared for Members and Committees of Congressc11173008
The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
Summary
Excise taxes have long been a part of our country’s revenue history. In the field of gasoline
taxation, the states led the way with Oregon enacting the first tax on motor fuels in 1919. By
1932, all states and the District of Columbia had followed suit with tax rates that ranged between
two and seven cents per gallon. The federal government first imposed its excise tax on gasoline at
a one-cent per gallon rate in 1932. The gas tax was enacted to correct a federal budgetary
imbalance. It continued to support general revenue during World War II and the Korean War.
Economists know the gasoline excise tax as a “manufacturer’s excise tax” because the
government imposes it at production (i.e., the producer, refiner, or importer) for efficiency in
collection. Particularly in the short run, when the demand for gasoline is relatively inelastic,
economists recognize that any increase in the gasoline tax ultimately falls on the consumer.
The Highway Revenue Act of 1956 established the federal Highway Trust Fund (HTF) for the
direct purpose of funding the construction of an interstate highway system, and aiding in the
finance of primary, secondary, and urban routes. Each time Congress has extended the Highway
Trust Fund it has also extended the federal excise tax on gasoline.
In the 112th Congress, a series of extensions of the surface transportation legislation have
occurred. These extensions reauthorized the federal government’s highway, mass transit, and
surface transportation safety programs and levied highway user taxes. Extended taxes on gasoline
and diesel fuels provided approximately 90% of the funding for the Highway Trust Fund and 80%
of the funding for mass transit programs. Other extended taxes were levied on heavy trucks, truck
tires, gasohol, and fuel from natural or petroleum gas.
On March 4, 2011, President Obama signed H.R. 662, the Surface Transportation Extension Act
of 2011 (P.L. 112-5). This law extended federal-aid highway, highway safety, motor carrier safety
transit, and other programs funded out of the Highway Trust Fund through September 30, 2011.
On September 16, 2011, President Obama signed H.R. 2887, Surface and Air Transportation
Programs Extension Act of 2011 (P.L. 112-30), which extended, through March 31, 2012, current
surface transportation programs and the motor fuel, heavy truck, and truck tire taxes that support
the HTF. On March 30, 2012, President Obama signed H.R. 4281, Surface Transportation
Extension Act of 2012 (P.L. 112-102), which extended the federal surface transportation programs
and financing through June 30, 2012. On June 29, 2012, President Obama signed H.R. 6064,
Temporary Surface Transportation Extension Act of 2012 (P.L. 112-140), which extended the
surface transportation programs and financing through July 6, 2012. On July 6, 2012, President
Obama signed H.R. 4348, Moving Ahead for Progress in the 21st Century Act or Map-21 (P.L.
112-141). This law authorized appropriations for the federal surface transportation programs
through October 1, 2014, and financing, including gasoline and diesel taxes, through September
30, 2016. The extended gasoline tax rate was 18.4 cents per gallon and the extended diesel tax
rate was 24.4 cents per gallon. These rates include a 0.1 cent per gallon tax levied and deposited
in the Leaking Underground Storage Tank (LUST) Trust Fund.
This report will be updated as issues develop, legislation is introduced, or as otherwise warranted.
Congressional Research Service
The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
Contents
Gasoline Excise Tax for Deficit Reduction—1932.......................................................................... 1
National Defense Requirements ...................................................................................................... 2
Highway Trust Fund ........................................................................................................................ 3
Gasoline Excise Tax for Deficit Reduction...................................................................................... 5
Reversion from Deficit Reduction to User Tax Status..................................................................... 6
Extensions in the 112th Congress ..................................................................................................... 8
Issues.............................................................................................................................................. 11
Tables
Table 1. Summary of Changes in the Rate of the Federal Manufacturers’ Excise Tax on
Gasoline...................................................................................................................................... 11
Appendixes
Appendix. Extensions of Funding for the Highways Trust Fund: 108th-111th Congresses ............ 13
Contacts
Author Contact Information........................................................................................................... 15
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
A
lthough excise taxes have long been a source of federal tax revenue, the federal
manufacturers excise tax on gasoline was first incorporated into the federal tax structure
by the Revenue Act of 1932, which became law on June 6, 1932.1 A manufacturer’s
excise tax is one that is collected at the level of production. A tax imposed at the production or
importation level provides ease in administration and revenue collection.2
Prior to the 1932 act, there had been a reluctance on the part of federal officials and Congress to
impose this tax at the federal level. Instead, they preferred to relinquish this revenue source to the
states to help them finance their revenue needs. Oregon was the first state to levy a gasoline tax in
1919. As of January 1932, all of the states and the District of Columbia had enacted legislation
imposing a tax on gasoline with rates that ranged from two to seven cents per gallon.
However, during the severe depression of the 1930s, federal revenues were sharply reduced and
higher expenditures were made for relief and public works programs. As a result, the Secretary of
the Treasury, in his annual report for FY1931, reported that the federal government had incurred a
budgetary deficit of some $903 million that year. This marked the first year in more than a decade
when federal receipts failed to exceed federal expenditures and produce a budgetary surplus.
Moreover, the Secretary of the Treasury estimated then that even higher deficits were anticipated
in the years immediately following: $2.1 billion in FY1932, and $1.4 billion in FY1933.
Gasoline Excise Tax for Deficit Reduction—1932
To correct this budgetary imbalance, the Secretary of the Treasury submitted comprehensive taxraising and expenditure-reduction proposals for congressional action. Among the tax
recommendations were those for legislation increasing individual and corporation income, estate
and gift, excise, and other taxes. Included in the excise tax proposals was the request for a new
federal manufacturer’s excise tax on gasoline, to be levied at the rate of one cent per gallon and
scheduled to end in 1934. It was estimated that adoption of such a tax would yield the U.S.
Treasury approximately $165 million in revenues during FY1933.
The House of Representatives, in its consideration of and action on these revenue-raising
proposals, initially refused to impose a new federal tax on gasoline. The Senate amended the
House-passed bill, however, authorizing a gasoline tax at the rate of one cent per gallon. Congress
retained the tax in the final version of the bill approved by the House and Senate conference
committee and signed into law.
As approved, Section 617(a) of the Revenue Act of 19323 imposed a federal tax on gasoline sold
by a producer or importer at the rate of one cent per gallon. Under Section 617(c) of this
legislation, the term “producer” included a “refiner, compounder, or blender, and a dealer selling
gasoline exclusively to producers of gasoline, as well as a producer.” Gasoline was defined to
include gasoline, benzyl, and any other liquids used primarily as a fuel to propel motor vehicles,
motor boats, or airplanes. Section 629 of this act made this tax effective on June 21, 1932, for a
temporary period, with provision for its end just over a year later on June 30, 1933. The Annual
1
The author updated this report, which was previously written by Pamela J. Jackson.
For an analysis of the economic effects of a change in the amount of the gasoline tax, see CRS Report R40808, The
Role of Federal Gasoline Excise Taxes in Public Policy, by Robert Pirog.
3
Revenue Act of 1932, P.L. 154, 72nd Congress, approved June 6, 1932.
2
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
Report of the Commissioner of Internal Revenue for FY1933 reported that the federal government
derived $124.9 million from the excise tax on gasoline. Thus, the gasoline tax represented 7.7%
of the total Internal Revenue collection of $1.62 billion derived from all sources during FY1933.
Shortly before the tax was scheduled to expire, Congress approved two bills that extended this tax
for an additional year and increased its rate. Under P.L. 73 approved by the 73rd Congress,4
Congress extended this tax until June 30, 1934. The National Industrial Recovery Act,5 signed
into law on the same day, included provisions governing the rate of this tax. Section 211(a) of this
act authorized the increase in federal gasoline tax from one cent to 1.5 cents per gallon, effective
June 17, 1933. Section 217(b) provided for this tax to be reduced to one cent per gallon on the
first day of the calendar year following the date proclaimed by the President when either of the
following occurred: (1) the close of the first fiscal year ending after 1933 when total federal
receipts exceeded total federal expenditures, or (2) the repeal of the 18th amendment to the
Constitution, establishing national prohibition (repeal would bring in additional revenues to the
U.S. Treasury from alcohol taxes).
Subsequently, President Franklin D. Roosevelt proclaimed repeal of the 18th amendment to the
Constitution on December 5, 1933. Therefore, under authority of Section 217(b) of the National
Industrial Recovery Act, the federal gasoline tax reverted to its former rate of one cent per gallon
on January 1, 1934.
Section 603 of the Revenue Act of 1934,6 approved in the spring of 1934, continued this tax at the
rate of one cent per gallon beyond its scheduled expiration date of June 30, 1934.
National Defense Requirements
The one-cent rate was maintained until just before the United States entered World War II, when,
as a result of increased national defense requirements, Congress again took action increasing this
tax. Section 210 of the Revenue Act of 19407 authorized an increase to 1.5 cents per gallon for the
five-year period beginning on July 1, 1940, and continuing through June 30, 1945, as part of a
defense tax.
The following year, under Section 521(a)(20) of the Revenue Act of 1941,8 this rate was made
permanent by elimination of the June 30, 1945, expiration date that had been specified in the
Revenue Act of 1940.
The 1.5-cent per gallon rate continued for more than a decade until the outbreak of the Korean
War, when Congress increased the rate to two cents per gallon under authority of Section 489 of
the Revenue Act of 1951.9 This rate became effective on November 1, 1951, and Congress
4
Act to Extend the Gasoline Tax for One Year, to Modify Postage Rates on Mail Matter and for other Purposes, P.L.
73, 73rd Congress, approved June 16, 1933.
5
National Industrial Recovery Act, P.L. 67, 73rd Congress, approved June 16, 1933.
6
Revenue Act of 1934, P.L. 216, 73rd Congress, approved May 10, 1934.
7
Revenue Act of 1940, P.L. 656, 76th Congress, approved June 25, 1940.
8
Revenue Act of 1941, P.L. 250, 77th Congress, approved September 20, 1941.
9
Revenue Act of 1951, P.L. 183, 82d Congress, approved October 20, 1951.
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
authorized it to continue until March 31, 1954. After this date, Congress scheduled the rate to be
reduced to its former rate of 1.5 cents per gallon.
Before this reduction took place, Congress passed the Excise Tax Reduction Act of 1954,10 and
under Section 601(a)(6) of this legislation, the two-cent per gallon rate was extended for an
additional year—until March 31, 1955.
During the next two years Congress passed legislation granting one-year extensions of the twocent per gallon tax on gasoline by approval of the Tax Rate Extension Act of 195511 (Section
3(a)(3)) and the Tax Rate Extension Act of 195612 (Section 3(a)(3)), which continued the rate first
to March 31, 1956, and then to March 31, 1957.
P.L. 466, approved by the 84th Congress,13 provided that the Treasury Department refund those
taxes paid on gasoline used on farms for farming purposes purchased after December 31, 1955.
Highway Trust Fund
The Federal Aid Highway Act of 195614 provided for a significant expansion in the federal-aid
highway program and authorized federal funding over a longer period to permit long-range
planning. It was considered necessary to authorize the entire interstate highway program to assure
orderly planning and completion of this network of highways throughout the United States as
efficiently and as economically as possible. Consequently, this act authorized appropriations for
the 13-year period from FY1957 through FY1969 for this highway system. To make the federal
aid highway program self-financing, the Highway Revenue Act of 195615 was incorporated as
Title II of this legislation and imposed new taxes and increased others levied on highway users
who directly benefitted from this program.
Section 205 of this Highway Revenue Act authorized an increase in the federal gasoline tax from
two to three cents per gallon for the 16-year period from July 1, 1956, through June 30, 1972.
After that, the Congress scheduled the tax to be reduced to 1.5 cents per gallon.
Section 209 of this act authorized the creation of the Highway Trust Fund, to which there was to
be appropriated from the General Fund of the Treasury certain percentages of receipts derived
from highway-user taxes: gasoline, diesel and special motor fuel, tread rubber, tires and inner
tubes, trucks, buses, etc. One hundred percent of the federal gasoline tax receipts were transferred
to the Highway Trust Fund.
It was argued that transferring such taxes to the Highway Trust Fund was necessary to cover
anticipated expenditures to be made under the federal aid highway program for the 16-year period
from FY1957 through FY1972. H.Rept. 2022 (84th Congress), issued on this legislation,
10
Excise Tax Reduction Act of 1954, P.L. 324, 83rd Congress, approved March 31, 1954.
Tax Rate Extension Act of 1955, P.L. 18, 84th Congress, approved March 30, 1955.
12
Tax Rate Extension Act of 1956, P.L. 458, 84th Congress, approved March 29, 1956.
13
Act to Amend the Internal Revenue Code of 1954 to Relieve Farmers from Excise Taxes in the Case of Gasoline and
Special Fuels Used on Farms for Farming Purposes, P.L. 266, 84th Congress, approved April l 2, 1956.
14
Federal-Aid Highway and Highway Revenue Act of 1956, P.L. 627, 84th Congress, approved June 29, 1956.
15
Ibid.
11
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
estimated that highway-user taxes would yield some $38.5 billion in revenues for this trust fund
during this 16-year period—enough to cover anticipated expenditures of approximately $37.3
billion (during this same period) for the federal aid highway program.
This legislation also arranged for refunding a certain portion of federal gasoline taxes paid that
were used for non-highway purposes or by local transit systems.
Since enactment of this legislation, Congress has continued to pass laws extending the life of the
Highway Trust Fund and extending and increasing the rates imposed on gasoline.
Under Section 201(a) of the Federal Aid Highway Act of 1959,16 the federal gasoline tax was
increased from three to four cents per gallon, a change that was to be in effect from October 1,
1959, through June 30, 1961.
Under Section 201(b) of the Federal Aid Highway Act of 1961,17 this four-cent rate was extended
beyond June 30, 1961. The scheduled reduction to 1.5 cents per gallon, which the Highway
Revenue Act of 1956 had authorized to take place on July 1, 1972, was deferred until October 1,
1972.
Following the 1961 act, the next law affecting the federal gasoline tax was the Federal-Aid
Highway Act of 1970.18 Under Section 303(a)(6) of this act, the scheduled reduction in the rate of
this tax to 1.5 cents per gallon was deferred from September 30, 1972, to September 30, 1977.
Again in 1976, an extension of excise tax rates without the scheduled rate reductions allocated to
the Highway Trust Fund was provided in Title III of the Federal Aid Highway Act of 1976.19 The
Interstate Highway System was obviously not going to be completed in 1977 (it was estimated in
1976 that it might be completed in 1988). Lack of time to study and report to Congress on
modifications to the Highway Trust Fund led to the two-year extension. Congress was concerned
that without this legislation funding would be interrupted. Thus, Congress delayed decisionmaking until it could gather additional information.
Two years later, Congress had not yet decided on modifications to the trust fund and its related
taxes. The Ways and Means Committee accepted the recommendation of the Public Works
Committee and approved an extension of the trust fund and the taxes payable to the fund. This
five-year extension through September 30, 1984, became part of the Surface Transportation
Assistance Act of 1978.20
Congress gathered extensive information on highway finance and related taxes in 1982. Two
major studies were submitted to Congress. The first was a cost allocation study done by the
Department of Transportation in May 1982. The second was a study of the excise tax structure
that the Department of the Treasury provided to Congress in December 1982. Further, Congress
16
Federal-Aid Highway Act of 1959, P.L. 86-342, approved September 21, 1959.
Federal-Aid Highway Act of 1961, P.L. 87-61, approved June 29, 1961.
18
Federal-Aid Highway Act of 1970, P.L. 91-605, approved December 31, 1970.
19
Federal-Aid Highway Act of 1976, P.L. 94-280, approved May 5, 1976.
20
Surface Transportation Assistance Act of 1978, P.L. 95-599, approved November 6, 1978.
17
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
held more than a dozen hearings before the passage of the Surface Transportation Assistance Act
of 1982.21
The act contains what is commonly called the 4R Program: interstate reconstruction, resurfacing,
restoration, and rehabilitation. The completion and selective expansion of the Interstate Highway
System remained the primary goals under the bill. Congress raised the gasoline excise tax from its
previous level of four cents per gallon to nine cents per gallon. With this increase, Congress
eliminated some highway user charges while increasing others. The act also provided that one
cent of the five-cent increase in the motor fuel taxes was to be allocated for mass transit purposes.
The bill set up a special Mass Transit Account for expenditures made under the Urban Mass
Transportation Act of 1964.
In 1986, in response to concerns about the cost for cleanup of leaking underground storage tanks
containing petroleum products, Congress established the Leaking Underground Storage Tank
Trust Fund.22 This fund received revenues of 0.1 cent per gallon on the sale or use of gasoline
(first effective January 1, 1987). Congress scheduled the tax to expire on the earlier of December
31, 1991, or the last day of the month in which the Secretary of the Treasury estimated that net
revenues in the fund were at least $500 million. This additional tax ended after August 31, 1990,
because the Leaking Underground Storage Tank Trust Fund had reached its net revenue target for
cancellation.23
The Surface Transportation and Uniform Relocation Assistance Act of 198724 extended the
highway-related excise taxes (including the tax on gasoline) through September 30, 1993.
Gasoline Excise Tax for Deficit Reduction
Under provisions of the Omnibus Budget Reconciliation Act of 1990 (OBRA90),25 the tax rate on
highway and motorboat fuels was increased by five cents per gallon. Thus, the tax increased from
nine to 14 cents per gallon of gasoline. Half of the increase in revenues from the gasoline tax
imposed on highway use vehicles was dedicated as additional funding for the Highway Trust
Fund. The remaining half of revenues was deposited in the General Fund and dedicated for
federal deficit reduction. Of the 2.5-cent increase dedicated to the Highway Trust Fund, 0.5 cents
were dedicated to the Mass Transit Account in that trust fund. Thus, Congress raised the Mass
Transit Account funding from one cent to 1.5 cents. OBRA90 also reinstated the Leaking
Underground Storage Tank Trust Fund (LUST). The LUST tax recommenced at the same 0.1cent-per-gallon tax rate.26 The 14-cent tax rate was scheduled to expire on September 30, 1995,
while the LUST tax was scheduled to terminate three months later on December 31, 1995.
21
Surface Transportation Assistance Act of 1982, P.L. 97-424, approved January 6, 1983.
Superfund Revenue Act of 1986, P.L. 99-499, approved October 17, 1986.
23
Internal Revenue Service Announcement 90-82, released June 27, 1990.
24
Surface Transportation and Uniform Relocation Assistance Act of 1987, P.L. 100-17, approved April 2, 1987.
25
Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, approved November 5, 1990.
26
This act also instituted a new 2.5-cent per gallon tax on fuels used in rail transportation effective on December 1,
1990. Rail transportation generally uses diesel fuel. All revenues from this new tax go to general fund revenues with
the tax scheduled to expire on October 1, 1995.
22
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
The conventional view that had held since the establishment of the Highway Trust Fund, which
was that the gasoline tax was a user tax, was challenged. With the passage of OBRA90, the
gasoline tax returned to the role it served prior to 1957: a General Fund revenue source, at least in
part.
The following year Congress passed the Intermodal Surface Transportation Efficiency Act
(ISTEA) of 1991.27 The revenue title is the Surface Transportation Revenue Act of 1991. This act
extended the highway-related excise taxes (including the tax on gasoline in Section 8002(a)(3))
for four years. Hence, this law extended the tax on gasoline (without an increase in tax rate)
through September 30, 1999. In addition, under provisions of the act, states were permitted to
spend their Highway Trust Fund grants on a broader range of alternative transportation modes and
related infrastructure needs. This was done in response to the argument that highway users benefit
from expenditures on mass transit and other transportation modes because the availability of these
travel alternatives alleviates congestion on existing highways, which in turn reduces the need to
build additional roadways.
Also included in provisions of ISTEA was the establishment of a new trust fund known as the
National Recreational Trails Trust Fund. This fund receives tax transfers from the Highway Trust
Fund that represent tax receipts (imposed on gasoline, diesel, and special motor fuels) collected
from non-highway recreational fuel use. Examples of recreational fuels are those used in vehicles
on recreational trails or back-country terrain, and non-business fuel used in outdoor recreational
equipment, such as camp stoves.
Once again, the gasoline excise tax was changed under provisions of the Omnibus Budget
Reconciliation Act of 1993 (OBRA93, Section 13241(a)).28 Under provisions of OBRA93, the
additional 2.5-cent gasoline tax dedicated for deficit reduction was transferred to the Highway
Trust Fund beginning October 1, 1995. This additional 2.5-cent tax rate was extended from
October 1, 1995, to September 30, 1999. The highway portion of the fund receives two cents,
while the Mass Transit Account is credited with 0.5 cent of the increased funding. In addition,
OBRA93 provided for a permanent, additional 4.3 cents per gallon tax on gasoline starting on
October 1, 1993. Thus, the combination of the 2.5-cents OBRA90 gasoline tax rate and the
permanent 4.3-cent OBRA93 gasoline tax rate resulted in a total of 6.8 cents per gallon dedicated
to deficit reduction purposes between October 1, 1993, and October 1, 1995. Revenues collected
from this 6.8-cent portion of the tax were placed in the General Fund of the U.S. Treasury.
As previously related, provisions of OBRA90 terminated the LUST tax rate of 0.1 cent on
December 31, 1995. Thus, the 18.3-cent federal gasoline excise tax rate was in effect from
January 1, 1996, to October 1, 1997, before increasing to 18.4 cents with the reintroduction of the
LUST tax. This 18.3-cent rate includes the permanent 4.3 cents initially dedicated to federal
deficit reduction but which now goes to the Highway Trust Fund.
Reversion from Deficit Reduction to User Tax Status
During the early months of 1996, the price of gasoline at the pump was rising and a renewed
interest developed in federal gasoline excise taxes. Three principal views developed. The first
27
28
Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991, P.L. 102-240, approved December 18, 1991.
Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, approved August 10, 1993.
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
view was that the 4.3 cents increase in federal excise taxes imposed under OBRA93 should be
repealed. Proponents of repeal argued that the 4.3 cents repeal could lead to a similar reduction in
gasoline pump prices. Two camps developed which supported retaining the tax. Some supporters
of the tax expressed the view that while the 4.3-cent tax should be retained, the tax revenues
should be returned to the Highway Trust Fund for long-term capital improvements. They argued
for increased funding of the nation’s highway infrastructure. Others expressed the view that the
monies should continue to be collected and used for deficit reduction. This camp of supporters
argued that the gasoline price increase was temporary and that over the long term prices would
trend lower. Partially in response to this debate, the chairman of the House Ways and Means
Committee, Representative Bill Archer, appointed a bi-partisan group to examine the tax
treatment of each of the transportation modes with a goal of rationalizing the current myriad tax
rules applying to the transportation sector.
Included in the Taxpayer Relief Act of 199729 was a provision that returns the General Fund
portion of the tax back to the Highway Trust Fund. This provision, first added by a Senate
amendment (and modified in conference), provides that the 4.3-cent tax is divided between the
Highway Account (3.45 cents) and the Mass Transit Account (0.85 cent). The provision was
effective on October 1, 1997. Thus, of the total 18.3 cents dedicated to the Highway Trust Fund,
15.44 cents goes to the Highway Account and 2.86 cents to the Mass Transit Account.30 As a
consequence, the disposition of revenues was altered by the act so that all revenues now accrue to
the Highway Trust Fund and none are applied to deficit reduction. Consumers experienced no
price change due to enactment of this provision since the federal tax rate on gasoline remained the
same.
In addition, the Taxpayer Relief Act of 1997 reinstated the Leaking Underground Storage Tank
Trust Fund excise tax, which had expired January 1, 1996.31 The tax was reinstated at its prior tax
rate of 0.1 cent per gallon on all types of motor fuels. The tax rate change was effective from
October 1, 1997, through March 31, 2005.32 The LUST excise tax was then extended for an
additional seven months (through September 30, 2005).33 Under a provision contained in the
Energy Policy Act of 2005 the LUST tax is extended through September 30, 2011. The imposition
of the gasoline tax is codified under IRC Section 4081.
Although the component of the federal gasoline tax formerly (but no longer) applied to deficit
reduction continues without an expiration date, the 14 cents scheduled to expire on September 30,
1999, has been extended. Congress not only extended the gasoline excise tax but also the other
highway-related excise taxes. The House had proposed to extend the heavy truck tire tax until
October 1, 2000, whereupon it would expire. However, in conference with the Senate, all the
highway-related excise taxes were extended through September 30, 2005. The legislative vehicle
for this extension was the Transportation Equity Act for the 21st Century34 generally known as
29
Taxpayer Relief Act of 1997, P.L. 105-34, approved August 5, 1997.
A technical correction contained in the Transportation Equity Act for the 21st Century (discussed later in this report)
provides that deposits are to be equal to 2.86 cents per gallon rather than the 2.85 cents provided in the 1997 Act.
31
Ibid.
32
For additional information and a discussion of the LUST tax, see CRS Report RS21201, Leaking Underground
Storage Tanks (USTs): Prevention and Cleanup, by Mary Tiemann.
33
Extension of the Leaking Underground Storage Tank Trust Fund Financing Rate, P.L. 109-6, approved March 31,
2005.
34
Transportation Equity Act for the 21st Century, P.L. 105-178, approved June 9, 1998.
30
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TEA-21. The revenue portion of this act (Title IX) was titled the Surface Transportation Revenue
Act of 1998.
This act also provided that the Highway Trust Fund no longer earns interest on unspent balances
(effective September 30, 1998). The balance of funds that exceed $8 billion in the Highway
Account was canceled on October 1, 1998. In addition, TEA-21 provided that the National
Recreational Trails Trust Fund established under ISTEA be repealed. In the absence of an
appropriation of funds, no revenues had been available for expenditure. The conference
agreement noted that similar expenditure purposes are provided by authorized amounts from the
Highway Trust Fund.
Beginning in the 108th Congress, a series of laws were passed extending the funding for Highway
Trust Fund. These extensions during the 108th-111th Congresses are described in the Appendix.
Extensions in the 112th Congress
In the 112th Congress, a series of extensions of the surface transportation legislation have
occurred. These extensions reauthorized the federal government’s highway, mass transit, and
surface transportation safety programs and levied user taxes. Extended taxes on gasoline and
diesel fuels provided approximately 90% of the funding for the Highway Trust Fund and 80% of
the funding for mass transit programs.35 Other extended taxes were levied on heavy trucks, truck
tires, gasohol, and fuel from natural or petroleum gas.
For FY2011, the Congressional Budget Office estimated that revenues and interest credited to the
Highway Trust Fund will total $36.9 billion, which was divided into the Highway Account ($31.8
billion) and the Mass Transit Account ($5.1 billion).36 The three primary revenue sources were
the gasoline tax ($24.0 billion), the diesel tax ($8.7 billion), and the tax on trucks and trailers
($2.2 billion).37 The tax on trucks and trailers would only finance highways.
On March 4, 2011,President Obama signed H.R. 662, the Surface Transportation Extension Act of
2011 (P.L. 112-5). This law extended federal-aid highway, highway safety, motor carrier safety
transit, and other programs funded out of the Highway Trust Fund through September 30, 2011.
On May 17, 2011, the Senate Finance Committee held a hearing on the “Highway Trust Fund and
Paying for Highways.” Joseph Kile, Assistant Director for Microeconomic Studies at CBO,
testified:
The law that authorizes collection of taxes for and spending from the Highway Trust Fund is
set to expire on September 30, 2011. Even if the provisions of that law are extended, the trust
fund will be unable to meet its obligations in a timely manner by the summer or fall of 2012,
35
Detailed information about some of this legislation is available in CRS Report R42445, Surface Transportation
Reauthorization Legislation in the 112th Congress: MAP-21, H.R. 7, and H.R. 4348—Major Provisions, coordinated
by Robert S. Kirk.
36
Ibid., p. 4.
37
Ibid.
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CBO projects, unless transfers similar to those in the past are made, other sources of revenue
are identified, or spending is reduced.38
Different options for financing highways were examined.39
On July 13, 2011, Representative Mica, chairman of the House Transportation and Infrastructure
Committee, sent a letter to the U.S. Chamber of Commerce opposing the chamber’s support for a
gasoline tax increase.40 In his letter, he stated:
The reaction from National Chamber of Commerce representatives to the rollout of the
Republican Surface Transportation Reauthorization outline was most disappointing and a
potential setback to enacting a long term transportation reauthorization. During my years of
service on the Transportation and Infrastructure Committee I have seen the National
Chamber of Commerce evolve from an Association that would advocate strong infrastructure
and responsible fiscal policy on behalf of its members to an organization whose primary
purpose in the national infrastructure arena appears to be to lead the lobby for tax increases.41
Representative John Mica and Senator Barbara Boxer, chairwoman of the Senate Environment
and Public Works Committee, proposed long-term highway bills, which had substantial
differences.42
On August 31, 2011, President Obama called on Congress to pass a clean extension of funding for
the surface transportation law.43 In response, Representative John L. Mica issued a press release
that stated:
Republicans have offered positive and financially responsible alternatives to get these
measures moving. As Chairman of the House Transportation Committee, I will agree to one
additional highway program extension, this being the eighth of the overdue transportation
reauthorization.44
On September 13, 2011, the House approved H.R. 2887, Surface Air Transportation Programs
Act of 2011, which extended through March 31, 2012, current surface transportation programs
and the motor fuel, heavy truck, and truck tire taxes that support the Highway Trust Fund.45 On
38
Ibid., p. 1.
Nicola M. White, “Finance Committee Seeks Ways to Fund Transportation Infrastructure,” Tax Notes, May 23,
2011, p. 797. For an examination of different possible revenue sources for surface transportation infrastructure, see
CRS Report R41490, Surface Transportation Funding and Finance, by Robert S. Kirk and William J. Mallett.
40
Adam Snider, “U.S. Chamber’s Support for Gas Tax Hike Imperils Surface Transport Bill,” Mica Says, Daily Tax
Report, August 19, 2011, p. G3.
41
Representative John L. Mica, letter to Thomas J. Donohue, President and CEO of the U.S. Chamber of Commerce,
July 13, 2011.
42
Keith Laing and Bernie Becker, “Gas Tax Issue Could Be Next Political Fight in Congress,” The Hill, vol. 18, no.
118, August 10, 2011, p. 4.
43
Michael M. Gleeson, “Obama Calls for Clean Extension of Highway, Aviation Authorization and Taxes,” Tax Notes
Today, September 1, 2011, pp. 1-2.
44
John Mica, Statement on President’s Transportation Remarks, Press Release, August 31, 2011, p. 1.
45
Adam Snider, “House Passes Transportation Stopgap But Coburn Could Slow Senate Floor Action,” Daily Report
for Executives, September 14, 2011, p. A18.
39
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
September 15, 2011, the Senate approved H.R. 2887.46 On September 16, 2011, President Obama
signed H.R. 2887, P.L. 112-30.47
On October 31, 2011, Senator Amy Klobuchar introduced the Rebuild America Jobs Act (S.
1769). This bill included $50 billion for road, transit, rail, and aviation investments and $10
billion for the creation of a national infrastructure bank.48 The bill proposed a 0.7% surcharge on
households earning more than $1 million per year. On November 2, 2011, Senator Orrin Hatch
introduced S. 1786, Long-Term Surface Transportation Extension Act of 2011, which would
extend for two years Highway Trust Fund expenditure authority and highway-related taxes and
rescind unspent federal funds to offset revenue losses.49 On November 3, 2011, both S. 1769 and
S. 1786 failed to obtain the 60 vote procedural threshold necessary for further consideration in the
Senate.50
On November 4, 2011, Senators Barbara Boxer and James Inhofe introduced a two-year
reauthorization of U.S. surface transportation programs at current funding levels, Moving Ahead
for Progress in the 21st Century Act or (MAP-21).51 This bill would also have made make
substantial changes to the structure, formulas, and funding distribution of the federal highway
program. On November 9, 2011, the Senate Environment and Public Works Committee marked
up and reported favorable on the highway provisions of S. 1813, the Moving Ahead for Progress
in the 21st Century Act (MAP-21). By February 7, 2012, all committees of jurisdiction had
marked up their titles. On March 1, 2012, these titles were folded into S.Amdt. 1761 to S. 1813.
On March 5, 2012, in response to a request from Senate Majority Leader Harry Reid, the
Congressional Budget Office (CBO) issued estimates for S. 1813, MAP-21, with S.Amdt. 1761.
CBO estimated that implementing the bill would have discretionary costs of $47.0 billion over
the FY2012-FY2017 period. In addition, CBO estimated that implementing the provisions of the
bill for the remainder of FY2012 and for FY2013 would result in an end-of-year balance in 2013
of approximately $2 billion in the highway account of the Highway Trust Fund and about $3
billion in the transit account of the Highway Trust Fund.52
On March 30, 2012, President Obama signed H.R. 4281, Surface Transportation Extension Act of
2012 (P.L. 112-102), which extended the federal surface transportation programs and financing
through June 30, 2012. On June 29, 2012, President Obama signed H.R. 6064, Temporary Surface
Transportation Extension Act of 2012 (P.L. 112-140), which extended the surface transportation
programs and financing through July 6, 2012. On July 6, 2012, President Obama signed H.R.
4348, Moving Ahead for Progress in the 21st Century Act or Map-21 (P.L. 112-141). This law
authorized appropriations for the federal surface transportation programs through October 1,
2014, and financing, including gasoline and diesel taxes, through September 30, 2016. The
46
Adam Snider, “Senate OKs Transportation Policy Stopgap After Promise for Long-Term FAA Measure,” Daily
Report for Executives, September 16, 2011, p. A27.
47
Adam Snider, “Obama Signs Highway, FAA Stopgap Bill, Avoiding Lapse in Aviation, Motor Fuel Taxes,” Daily
Report For Executives, September 19, 2011, p. G5.
48
Christine Grimaldi, “Democrats’ Infrastructure Bill with Surtax, GOP Alternative Fail to Advance in Senate,” Daily
Tax Report, November 4, 2011, p. G6.
49
“Hatch Bill Would Extend Highway Trust Fund, Highway Taxes,” Tax Notes Today, November 3, 2011, p.1.
50
Christine Grimaldi, “Democrats’ Infrastructure Bill With Surtax, GOP Alternative Fail To Advance in Senate,” p.
G6.
51
“Senators Boxer, Inhofe Unveil Surface Transportation Reauthorization Bill,” Daily Report for Executives,
November 4, 2011, p. 1.
52
Congressional Budget Office, Letter to Honorable Harry Reid about cost estimates for S. 1813, March 5, 2012, p. 1.
Congressional Research Service
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
extended gasoline tax rate was 18.4 cents per gallon and the extended diesel tax rate was 24.4
cents per gallon. These rates include a 0.1 cent per gallon tax levied and deposited in the Leaking
Underground Storage Tank (LUST) Trust Fund.
Issues
In economic theory, there are two principles often cited for determining how the burden of a tax
ought to be distributed. The first is the ability-to-pay principle, which suggests that a tax ought to
be positively related to an individual’s economic welfare. The second principle, the benefit
principle, suggests the burden should relate to an individual’s return from the government good or
service funded by the tax. Currently, an excise tax on gasoline seems to most closely follow the
benefits principle. In fact, the excise tax has commonly been referred to as a “user fee.” However,
this is not the only economic rationale that could be forwarded in support of a gasoline tax. Some
argue that gasoline taxes, and energy taxes, more generally, can be imposed to influence behavior,
specifically as a mechanism to reduce, or internalize the costs of, social and environmental
externalities such as congestion and pollution.53 The economic benefits derived from the
expenditure of funds for transportation infrastructure, while important to the analysis, are distinct
from the associated costs and benefits related to the method of raising the necessary revenues.
Particularly in the short run, when the demand for gasoline is relatively inelastic, economists
recognize any increase in the gasoline tax is generally passed forward to consumers in the form of
higher prices. As consumers modify their behaviors to respond to the increase in price (depending
upon the magnitude), economic theory would predict consumers would purchase less gasoline, all
else being equal. As a result, producers and retailers may not be able to pass on the entire
magnitude of the tax to consumers. Although consumers would likely bear the majority of the
excise tax increase on gasoline, producers may have lower net revenues and, thus, share some
portion of the burden. See Table 1 for a complete summary of the gasoline tax rate changes.
Table 1. Summary of Changes in the Rate of the
Federal Manufacturers’ Excise Tax on Gasoline
Rate of Tax (in cents per gallon)
Period to Which Applicable
1
June 21, 1932, to June 16, 1933
1.5
June 17, 1933, to December 31, 1933
1
January 1, 1934, to June 30, 1940
1.5
July 1, 1940, to October 31, 1951
2
November 1, 1951, to June 30, 1956
3
July 1, 1956, to September 30, 1959
4
October 1, 1959, to March 31, 1983
9
April 1, 1983, to December 31, 1986
9.1
January 1, 1987, to August 31, 1990a
53
In economics, an externality arises when either the production or consumption of a good or service results in an
indirect cost or benefit, which is not reflected in market prices.
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
Rate of Tax (in cents per gallon)
Period to Which Applicable
9
September 1, 1990, to November 30, 1990
14.1
December 1, 1990, to September 30, 1993
18.4
October 1, 1993, to December 31, 1995b
18.3
January 1, 1996,c to September 30, 1997
18.4
October 1, 1997,d to September 30, 2016
4.3
November 1, 2016, and thereafter
Source: Prepared by the Congressional Research Service.
a.
This act provided that the 0.1-cent per gallon tax will terminate on the earlier of December 31, 1991, or
when the Secretary of the Treasury determines that taxes equivalent to at least $500 million in net
revenues are in the Trust Fund. This additional tax terminated after August 31, 1990, because the LUST
Trust Fund had reached its net revenue target for termination. (Internal Revenue Service Announcement
90-82, released June 27, 1990.)
b.
Beginning on October 1, 1995, the revenues collected from the 2.5-cent “deficit reduction” rate are to be
credited to the account of the Highway Trust Fund. Thus, while the gasoline excise tax rate holds constant
at 18.4 cents, the distribution of amounts collected from the gasoline excise tax changes. The Highway
Trust Fund will receive increased revenues as the rate credited to that fund increases from 11.5 to 14 cents.
At this same time, the amount credited to the General Fund decreases from 6.8 to 4.3 cents.
c.
Pursuant to provisions of OBRA90, the LUST tax terminated on December 31, 1995.
d.
Beginning on October 1, 1997, the Taxpayer Relief Act of 1997 provides that amounts previously dedicated
for deficit reduction be redirected to the Highway Trust Fund through March 31, 2005. Additionally, the
LUST tax which had terminated on December 31, 1996, was re-authorized for the period October 1, 1997,
through March 31, 2005. A seven month extension (P.L. 109-6) extended the gasoline tax through
September 30, 2011. Passage of the Energy Policy Act of 2005 extended the LUST financing tax rate. On
March 4, 2011, President Obama signed H.R. 662, Surface Transportation Extension Act of 2011 (P.L. 112-5).
This law extended the gasoline tax through September 30, 2011. On September 16, 2011, President Obama
signed H.R. 2887, Surface and Air Transportation Programs Extension Act of 2011 (P.L. 112-30), which extended
the gasoline tax until March 31, 2012. On March 30, 2011, President Obama signed H.R. 4281, Surface
Transportation Extension Act of 2012 (P.L. 112-102), which extended the gasoline tax through June 30, 2012.
On June 29, 2012, President Obama signed H.R. 6064, Temporary Surface Transportation Extension Act of 2012
(P.L. 112-140), which extended the gasoline tax through July 6, 2012. On July 6, 2012, President Obama
signed H.R. 4348, Moving Ahead for Progress in the 21st Century Act or Map-21 (P.L. 112-141). This law
extended the gasoline tax through September 30, 2016.
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
Appendix. Extensions of Funding for the Highways
Trust Fund: 108th-111th Congresses
Extensions in the 108th Congress
Lawmakers first enacted the Surface Transportation Extension Act of 2003 (P.L. 108-88), which
was a short-term extension of the highway, highway safety, motor carrier safety, transit, and other
programs funded out of the Highway Trust Fund. The five-month extension was signed into law
by President Bush September 30, 2003. Four additional short-term extensions were enacted after
the expiration of this initial extension. The Surface Transportation Extension Act of 2004 became
P.L. 108-202 in February 2004. Part III of the Surface Transportation Extension Act of 2004, P.L.
108-263, was enacted in June 2004, and Part IV of the act, P.L. 108-280, became law at the end of
July 2004. The Surface Transportation Extension Act of 2004, Part V became P.L. 108-310 and
provided extensions through May 31, 2005, for those programs authorized by the Transportation
Equity Act for the 21st Century (TEA-21). This last extension provided $31.8 billion in contract
authority, of which $2.7 billion was for FY2004 and $29.1 billion was available for the eightmonth period from October 1, 2004, through May 31, 2005. Under provisions of the
Transportation Equity Act for the 21st Century, expenditures from the trust fund would have
ceased if Congress had failed to approve these short-term extensions.54
The revenue sources for the Highway Trust Fund include six different excise taxes, which are
taxes on the highway motor fuels, gasoline, diesel fuel, and kerosene; a retail sales tax on heavy
highway vehicles; a manufacturers’ excise tax on heavy vehicle tires;55 and an annual use tax on
heavy vehicles. These excises were not affected by the temporary extensions, since under the law
at that time the excise taxes were not scheduled for expiration until September 30, 2005.
Extensions in the 109th Congress
The 109th Congress initially had until Memorial Day to complete work on the new highway bill.
That extension included language that provided for the 2.5 cents per gallon tax on ethanol to be
deposited into the Highway Trust Fund for one year. Those monies had previously been deposited
into the general fund. That change was estimated to generate $940 million in new revenue for the
Highway Trust Fund. Also included was a one-year extension of the budgetary fire walls that tie
gas tax revenue to highway and transit programs, while at the same time waiving for one year the
Byrd self-solvency test for the trust fund and releasing the $716 million the Federal Highway
Administration was holding onto as a result of the trust funds failure of that test. Further, the
extension “also included a new ‘supplemental minimum guarantee’ program that was designed to
54
For an additional historical perspective on extension legislation, see CRS Report RS21621, Surface Transportation
and Aviation Extension Legislation: A Historical Perspective, by John W. Fischer and Robert S. Kirk.
55
The American Jobs Creation Act of 2004 (P.L. 108-357) replaced the tax on tires from one based on tire weight to a
tax based on tire load capacity. This legislation also added definitions of “taxable tires,” “bias ply tires,” and “super
single tires.” Additional clarification of the definition for “super single tires” was provided with passage of the Energy
Policy Act of 2005.
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
ensure that all states continue to receive their 90.5% minimum guaranteed rate of return on fuel
taxes sent to the Highway Trust Fund.”56
Again in the 109th Congress, it was necessary to pass a number of extensions so that the Highway
Trust Fund could continue operations until enactment of a longer term re-authorizing measure.
Accordingly, these extensions were known as the Surface Transportation Extension Acts of
2005.57
Just prior to the summer recess, Congress sent legislation (H.R. 3) to the President which
extended trust fund expenditures through FY2009 and continued the highway related taxes
through FY2011. The legislation also included provisions aimed at stopping fuel fraud, provided
tax-exempt financing authority to finance highway projects and rail-truck transfer facilities, and
modified a number of excise taxes (both highway and non-highway related). President Bush
signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users
(SAFETEA-LU) (the “Highway Act”) into law on August 10, 2005. The act extended for six
years the Highway Trust Fund excise taxes due to expire in 2005 until 2011. All of the excise
taxes, including the federal excise tax on gasoline, were continued at the prior tax rates. The act
established the Motor Fuel Tax Enforcement Advisory Commission, which was scheduled to
terminate on September 30, 2009. In other legislation, the Energy Policy Act of 2005 extended
the Leaking Underground Storage Tank (LUST) Trust Fund financing rate for the same six-year
period that the highway excise taxes were extended. Thus, the LUST tax will expire after
September 30, 2011.
Extensions in the 110th Congress
At the time of passage of SAFETEA-LU, tax changes, the unexpended balance in the trust fund
and economic growth were expected to provide sufficient financing for the Highway Trust Fund.
But shortfalls developed which required general fund contributions.58 On September 15, 2008,
P.L. 110-318, To Amend the Internal Revenue Code of 1986 to Restore the Highway Trust Fund
Balance, was passed. This law transferred $8.017 billion from the U.S. Treasury to the Highway
Trust Fund, which provided financing through the end of FY2008.
Extensions in the 111th Congress
According to the Congressional Budget Office,
In 2010, the Hiring Incentives to Restore Employment Act (P.L. 111-147) authorized the
most recent transfer from the general fund and the resumption of interest credits to the trust
fund. That law also shifted certain refunds for tax-exempt use of motor fuels, such as fuel
consumed by state and local governments, from being paid out of the Highway Trust Fund to
56
Heather M. Rothman, “Highway Funding Extension Bill Cleared, With Provisions for AMT Relief, Expensing,”
Daily Tax Report, October 1, 2004, No. 190, p. G-11.
57
Surface Transportation Extension Act of 2005, Part I, P.L. 109-14, approved May 31, 2005. Part II, P.L. 109-20,
approved July 1, 2005. Part III, P.L. 109-35, approved July 20, 2005. Part IV, P.L. 109-37, approved July 22, 2005.
Part V, P.L. 109-40, approved July 28, 2005. Part VI, P.L. 109-42, approved July 30, 2005.
58
CRS Report R41490, Surface Transportation Funding and Finance, by Robert S. Kirk and William J. Mallett, p. 2.
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The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
being paid out of the general fund, also boosting trust fund balances. Because of the infusion
of general revenues, at the end of 2010, the account balances were positive.59
On December 22, 2010, the Continuing Appropriations and Surface Transportation Extension
Act, 2011 (H.R. 3082) became P.L. 111-322. This law extended SAFETEA-LU authorization of
appropriations out of the Highway Trust Fund through March 4, 2011.
Author Contact Information
James M. Bickley
Specialist in Public Finance
jbickley@crs.loc.gov, 7-7794
59
Congressional Budget Office, The Highway Trust Fund and Paying for Highways, Statement of Joseph Kile,
Assistant Director for Microeconomic Studies, before the Senate Committee on Finance, May 17, 2011, p. 7.
Congressional Research Service
15Motor Fuels and the Highway Trust Fund
.
Summary
The federal government levies an excise tax on various motor fuels. Under current law, the tax
rate is 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel. A 0.1 cents per
gallon tax is also levied on top of these fuel tax rates to help fund expenses associated with fuel
regulation. These rates are not automatically adjusted for inflation. Specific tax rates also apply to
special motor fuels. Under current law, federal motor fuels excise tax collections are credited to
two federal spending accounts: the Highway Trust Fund (HTF) and the Leaking Underground
Storage Tank (LUST) Trust Fund.
On July 6, 2012, President Obama signed the Moving Ahead for Progress in the 21st Century Act
or MAP-21 (P.L. 112-141). This law provided for (1) federal surface transportation program
authority, (2) HTF expenditure authority, and (3) related tax authority through October 1, 2014. In
particular, current law gasoline and diesel tax levels are authorized through September 30, 2016.
Under current law, the tax rates on gasoline and diesel motor fuels are scheduled to decrease to
4.3 cents per gallon (regardless of fuel type) after September 30, 2016. The 0.1 cent per gallon
LUST Trust Fund tax is also scheduled to expire on this date.
A major policy debate surrounding the motor fuels excise tax relates to the ability of the HTF to
be self-sustaining. Approximately 90% of HTF receipts are composed of annual tax collections on
gasoline and diesel fuels. Since 2008, HTF spending obligations have exceeded receipts and
nearly $62 billion has been transferred from the Treasury’s general fund to temporarily address
these projected shortfalls. Tax collections have declined over time because of inflation’s effect on
the value of the tax rates, and reductions in vehicle miles traveled, among other factors. Future
declines in tax collections are anticipated because of scheduled increases in corporate average
fuel economy (CAFE) standards.
On August 8, 2014, President Obama signed the Highway and Transportation Funding Act of
2014 (P.L. 113-159). This short-term reauthorization of the HTF is funded by a $9.765 billion
transfer from the general fund and a $1 billion transfer from the LUST Trust Fund. The $10.765
billion in funding is estimated to provide enough funding for surface transportation programs for
approximately nine months (until the end of May 2015).
Although left unaddressed by P.L. 113-159, federal motor fuels excise tax rates could be a major
subject of debate if Congress seeks to pass a long-term surface transportation bill in the future.
The Update, Promote, and Develop America’s Transportation Essentials (UPDATE) Act of 2015
(H.R. 680) would phase in an increase in the motor fuels excise tax over three years and index the
tax rate for inflation over a 10-year period. Alternatively, other proposals in the 114th Congress
have been introduced that intend to transfer revenue raised from the general fund to the HTF
using provisions offset from other international and business tax provisions.
This report provides an overview of current law and a recent legislative history of federal motor
fuels excise tax rates (with an emphasis on gasoline and diesel fuel for highway use) and the HTF.
State motor fuels tax rates are mentioned in brief. The report also includes a discussion of
legislation in the 113th Congress that would modify federal motor fuels excise taxes and discusses
the funding provisions for the House and Senate transportation funding bills. Issues related to
HTF spending programs and infrastructure financing, more broadly, are beyond the scope of this
report, but are discussed in CRS Report R42877, Funding and Financing Highways and Public
Transportation, by Robert S. Kirk and William J. Mallett.
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The Federal Excise Tax on Motor Fuels and the Highway Trust Fund
.
Contents
Introduction...................................................................................................................................... 1
Current and Historical Motor Fuel Excise Tax Rates ...................................................................... 3
Federal Tax Rates ...................................................................................................................... 3
State and Local Tax Rates.......................................................................................................... 4
Recent History ................................................................................................................................. 5
Activity in the 113th Congress.......................................................................................................... 6
Extension of Funding for the Highway Trust Fund ................................................................... 7
Modifications to Excise Taxes on Motor Fuels ....................................................................... 10
Excise Tax Reductions and Highway Trust Fund Reform ................................................ 10
Excise Tax Increases ......................................................................................................... 11
Ways and Means Chairman Camp’s Tax Reform Proposal ..................................................... 12
Activity in the 114th Congress........................................................................................................ 12
UPDATE Act of 2015 (Blumenauer et al. Proposal) ............................................................... 13
President’s FY2016 Budget Proposal for Business Tax Reform ............................................. 13
Invest in Transportation Act of 2015 (Boxer-Paul Proposal) .................................................. 14
Alternative Policy Approaches ...................................................................................................... 16
Tables
Table 1. Federal Motor Fuel Excise Tax Rates Under Current Law ................................................ 3
Table 2. Summary of Changes in the Statutory Rate of the Federal Manufacturers’ Excise
Tax on Gasoline ............................................................................................................................ 4
Table 3. General Fund Transfers to the Highway Trust Fund .......................................................... 6
Table 4. House and Senate Transportation Bills, 113th Congress—Effects on Trust Fund
and General Fund Balances .......................................................................................................... 9
Table 5. Proposed Federal Motor Fuels Excise Tax Rates Under H.R. 680 .................................. 13
Appendixes
Appendix. History of the Federal Motors Fuels Excise Tax and the Highway Trust Fund ........... 18
Contacts
Author Contact Information........................................................................................................... 27
Acknowledgments ......................................................................................................................... 27
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The Federal Excise Tax on Motor Fuels and the Highway Trust Fund
.
Introduction
The federal government levies an excise tax on various motor fuels intended for highway use.1
Under current law, the tax rate is 18.3 cents per gallon on gasoline and 24.3 cents per gallon on
diesel fuel.2 A 0.1 cents per gallon tax is also levied on top of these fuel tax rates to help fund
expenses associated with fuel regulation. These rates do not automatically adjust for inflation.
The statutory motor fuel excise tax rates were last increased in 1993. Specific tax rates also apply
to special motor fuels, such as kerosene, compressed natural gas, and fuels derived from biomass.
Motor fuels that are not intended for highway use are exempt from these taxes, as are specific
federal government purchases of motor fuels.3
Under current law, federal motor fuels excise tax collections are credited to two federal spending
accounts: the Highway Trust Fund (HTF) and the Leaking Underground Storage Tank (LUST)
Trust Fund.
The HTF is a federal transportation fund that is divided into two accounts: (1) mass transit and (2)
highways. According to the language in authorizing legislation, the Federal Highway
Administration divides the receipts into the HTF between the states and territories.4 Although the
HTF has other sources of revenue and is also credited with interest paid on the fund balances held
by the U.S. Treasury, fuel taxes historically have provided almost 90% of the receipts to the
HTF.5 The mass transit account receives 2.86 cents per gallon of fuel taxes, with the remainder of
the tax revenue flowing into the highway account.6
The LUST Trust Fund receives 0.1 cents per gallon from the tax.7 Monies in the LUST Trust
Fund are used to pay expenses incurred by the Environmental Protection Agency (EPA) and the
states for preventing, detecting, and cleaning up leaks from petroleum underground storage tanks,
as well as programs to evaluate the compatibility of fuel storage tanks with alternative fuels,
methyl tertiary butyl ether (MTBE) compounds added to improve fuel combustion and air quality,
and ethanol and biodiesel blends.8
1
More specifically, the majority of federal excise taxes on motor fuels are collected when the fuel is removed from
bulk storage terminals. A tax imposed at the production or importation level provides ease in administration and
revenue collection. For more details about federal motor fuels excise tax administration, see U.S. Department of
Transportation, “Motor Fuel Tax Compliance Outreach - FAQs,” at http://www.fhwa.dot.gov/motorfuel/faqs.htm. For
generic analysis of federal excise tax policy, see CRS Report R43189, Federal Excise Taxes: An Introduction and
General Analysis , by Sean Lowry.
2
See 26 U.S.C. 4081(a)(2)(A). The tax on gasoline used as aviation fuel is 19.3 cents per gallon.
3
For exemption terms, see 26 U.S.C. 4041.
4
For more information, see CRS Report R41869, The Donor-Donee State Issue in Highway Finance, by Robert S.
Kirk; and U.S. Federal Highway Administration, “Motor Fuel and Highway Trust Attribution,” at
http://www.fhwa.dot.gov/policyinformation/motorfuel/aboutmf.cfm.
5
See U.S. Government Accountability Office, Highway Trust Fund: Options for Improving Sustainability and
Mechanisms to Manage Solvency, GAO-09-845T, June 25, 2009, p. 4, at http://www.gao.gov/new.items/d09845t.pdf;
and CRS Report R42877, Funding and Financing Highways and Public Transportation, by Robert S. Kirk and William
J. Mallett.
6
For more information, see CRS Report R42877, Funding and Financing Highways and Public Transportation, by
Robert S. Kirk and William J. Mallett.
7
See 26 U.S.C. 4081(a)(2)(B).
8
For more information, see U.S. Congress, Joint Committee on Taxation, Present Law and Background Information on
Federal Excise Taxes, committee print, 111th Cong., 2nd sess., January 2011, JCS-1-11 (Washington: GPO, 2011), pp.
(continued...)
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The Federal Excise Tax on Motor Fuels and the Highway Trust Fund
.
Some Members of Congress have expressed concern that the HTF is no longer self-sustaining. In
recent years, tax collections have declined largely because of inflation’s effect on the real value of
the tax rates and reductions in vehicle miles traveled. Future declines in tax collections are
projected largely due to scheduled increases in corporate average fuel economy (CAFE)
standards.9 Since 2008, Congress has prevented projected shortfalls in the HTF by transferring
more than $53 billion from the Treasury’s general fund to the HTF. While these general fund
transfers have been capable of fulfilling HTF obligations to the states temporarily, some Members
of Congress have considered increasing excise tax rates or other revenue reforms to more closely
align the growth of HTF receipts with the growth of obligations. Others, in contrast, have
suggested cutting programs to reduce HTF outlays.10
This report provides an overview of current law and a legislative history of the federal motor
fuels excise tax and financing of the HTF. Specifically, this report analyzes tax collections from
gasoline and diesel motor fuels for highway use, since they have historically composed
approximately 90% of the source of funding for the HTF. This report also includes a discussion of
legislation in the 113th Congress that would fund the HTF, or modify the federal motor fuels
excise tax. The Appendix contains a legislative history of the tax dating back to its inception in
1932.
Issues related to Federal Highway Trust Fund spending programs and infrastructure financing
more broadly are beyond the scope of this report. Other CRS reports provide additional analysis
of transportation finance issues:
•
For more in-depth analysis of federal highway finance options (including the
HTF), see CRS Report R42877, Funding and Financing Highways and Public
Transportation, by Robert S. Kirk and William J. Mallett; and CRS Report
R41869, The Donor-Donee State Issue in Highway Finance, by Robert S. Kirk.
•
For an analysis of the economic effects of a change in the amount of the gasoline
tax, see CRS Report R40808, The Role of Federal Gasoline Excise Taxes in
Public Policy, by Robert Pirog.
•
For information on transportation spending programs and infrastructure
financing, see CRS Report R43582, Transportation, Housing and Urban
Development, and Related Agencies (THUD): FY2015 Appropriations, by Libby
Perl and David Randall Peterman; CRS Report R43420, Surface Transportation
Program Reauthorization Issues for Congress, by Robert S. Kirk et al.; CRS
Report R42966, Public Transportation Program and Funding Issues, by William
J. Mallett; and CRS Report R43308, Infrastructure Banks and Debt Finance to
Support Surface Transportation Investment, by William J. Mallett and Steven
Maguire.
(...continued)
18-19.
9
See testimony of Kim Cawley, Congressional Budget Office, in U.S. Congress, House Committee on Transportation
and Infrastructure, Subcommittee on Highways and Transit, Financial Status of the Highway Trust Fund, 113th Cong.,
1st sess., July 23, 2013, p. 3, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44434HighwayTrustFund_Testimony.pdf.
10
For an example of these discussions, see U.S. Congress, House Committee on Transportation and Infrastructure,
Subcommittee on Highways and Transit, Financial Status of the Highway Trust Fund, 113th Cong., 1st sess., July 23,
2013.
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Current and Historical Motor Fuel Excise Tax Rates
Federal Tax Rates
Federal tax rates on motor fuels used for transportation purposes are summarized in Table 1.
Under current law, the federal tax on gasoline is 18.3 cents per gallon and diesel is taxed at 24.3
cents per gallon. A 0.1 cents per gallon tax is levied on top of these rates for the LUST Trust
Fund. The rate of tax is 24.3 cents per gallon in the case of liquefied natural gas, any liquid fuel
(other than ethanol or methanol) derived from coal, and liquid hydrocarbons derived from
biomass. Other alternative motor fuels, such as compressed natural gas (CNG), are generally
taxed at a rate of 18.3 cents per gallon.11
The current tax rates on gasoline and diesel motor fuels are scheduled to decrease to the
permanent law rate of 4.3 cents per gallon (regardless of fuel type) after September 30, 2016. In
addition, the 0.1 cent LUST Fund Tax is scheduled to expire on that same date.12
Table 1. Federal Motor Fuel Excise Tax Rates Under Current Law
Current Tax Rate
(Cents Per Gallon)
Expiration Date of
Current Law Rate
Permanent Law
Tax Rate
(Cents Per Gallon)
Gasoline
18.3
September 30, 2016
4.3
Diesel
24.3
September 30, 2016
4.3
Leaking Underground Storage Tank
(LUST) Trust Fund tax
0.1
September 30, 2016
Expires
Category
Source: Internal Revenue Code Section 4081.
The role of the motor fuels excise tax has changed since its origination in 1932. Initially, the tax
was among several deficit reduction tools. Increases in the “gas tax” were used in combination
with other excise tax increases to finance emergency spending during wartime over the next two
decades. In 1956, federal gasoline tax receipts were transferred to the newly created Highway
Trust Fund. Federal gasoline excise tax rates were raised again in the early 1990s and directed
partially for HTF funding purposes but also for general deficit reduction. In 1997, the portion of
gas tax revenues directed to the general fund for deficit reduction in the early 1990s was
redirected back to the HTF. The Appendix provides a more detailed history of the motor fuels
excise tax and the HTF. Table 2 provides a complete summary of the gasoline tax rate changes
since its establishment in 1932.
11
For a complete list of motor fuels tax rates, see IRS Form 720 (Quarterly Federal Excise Tax Return), at
http://www.irs.gov/pub/irs-pdf/f720.pdf.
12
Internal Revenue Code Sections 4081(a)(2)(A)(i) and 4081(a)(2)(B).
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Table 2. Summary of Changes in the Statutory Rate of the
Federal Manufacturers’ Excise Tax on Gasoline
Rate of Tax (Cents per Gallon)
Period to Which Applicable
1
June 21, 1932, to June 16, 1933
1.5
June 17, 1933, to December 31, 1933
1
January 1, 1934, to June 30, 1940
1.5
July 1, 1940, to October 31, 1951
2
November 1, 1951, to June 30, 1956
3
July 1, 1956, to September 30, 1959
4
October 1, 1959, to March 31, 1983
9
April 1, 1983, to December 31, 1986
9.1
January 1, 1987, to August 31, 1990a
9
September 1, 1990, to November 30, 1990
14.1
December 1, 1990, to September 30, 1993a
18.4
October 1, 1993, to December 31, 1995a
18.3
January 1, 1996, to September 30, 1997
18.4
October 1, 1997, to September 30, 2016a
4.3
November 1, 2016, and thereafter
Source: Prepared by CRS based on various legislation. See Appendix for more information.
a.
Tax rate includes the 0.1 cent per gallon Leaking Underground Storage Tank (LUST) Trust Fund Tax.
State and Local Tax Rates
Although not a focus of the analysis in this report, many state and local governments also levy
their own motor fuel excise taxes. As such, changes to federal excise taxes will have an indirect
impact on state and local motor fuel excise tax revenues. According to the American Petroleum
Institute (API), a national trade association that represents the U.S. oil and natural gas industry,
the average state excise tax rates on gasoline and diesel were 20.6 cents and 19.0 cents per gallon,
respectively, as of January 2015.13 API also publishes variations of this analysis on a state-bystate basis.
Motor fuel excise tax administration also varies by state. Some states have different rules for the
point of taxation as some tax the product “at the rack,” which is upon removal from the bulk
terminal. In contrast, other states impose the tax at the distributor level where distributors hold
licenses and file regular (usually monthly) returns with the state and local tax authority.14 By
13
American Petroleum Institute (API), State Motor Fuel Taxes Summary, January 16, 2015, at http://www.api.org/oiland-natural-gas-overview/industry-economics/fuel-taxes. API also publishes a more detailed state-by-state analysis of
excise taxes and other fuel inspection taxes and fees in American Petroleum Institute (API), State Motor Fuels Taxes by
State, at http://www.api.org/oil-and-natural-gas-overview/industry-economics/fuel-taxes.
14
See U.S. Department of Transportation, “Motor Fuel Tax Compliance Outreach - FAQs,” at
http://www.fhwa.dot.gov/motorfuel/faqs.htm.
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comparison, the majority of federal excise taxes are collected by the Internal Revenue Service
(IRS) when the fuel is removed from the bulk storage terminals.
The cumulative effect of federal, state, and local taxes contributes to some of the variation in fuel
prices across the nation. The American Automobile Association (AAA) publishes daily average
fuel prices in a particular state (and some metropolitan areas).15
Recent History
Before 2008, the HTF was mostly self-sustaining, primarily through receipts generated by motor
fuels excise taxes. Since 2008, the HTF has faced potential shortfalls in revenue and has required
transfers in funding from the Treasury’s general fund to meet its obligations to the states (under
current law, the HTF cannot run negative balances).16
On July 6, 2012, President Obama signed H.R. 4348, Moving Ahead for Progress in the 21st
Century Act, or MAP-21 (P.L. 112-141). This law authorized federal surface transportation
programs through September 30, 2014, and tax collection authority, including gasoline and diesel
taxes, through September 30, 2016. The extended gasoline tax rate was 18.4 cents per gallon and
the extended diesel tax rate was 24.4 cents per gallon. These rates include a 0.1 cent per gallon
tax levied and deposited in the LUST Trust Fund.
Some Members of Congress have expressed concerns regarding the state of the HTF and its
ability to be self-financed given current trends in obligations and receipts.17 According to the
Congressional Budget Office (CBO), spending from the HTF is projected to be over $50 billion
per year after FY2014 and grows at the rate of anticipated inflation, while the receipts coming
into the fund are projected to be $40 billion in FY2014.18 Thus, CBO estimates that at some point
in FY2015, the Department of Transportation (DOT) will be unable to reimburse states for all of
the federal highway and mass transit expenses they have incurred.
Several approaches to this shortfall have been discussed, both in hearings and more generally as
part of the debate over funding for the HTF. For example, Congress has prevented potential
shortfalls to the HTF by transferring nearly $62 billion (after sequestration) from Treasury’s
general fund to the HTF.19 As shown in Table 3, general fund transfers to the HTF have been
scheduled six times by five authorizing laws since 2008.
15
See American Automobile Association (AAA), Daily Fuel Gage Report, at http://fuelgaugereport.opisnet.com/
index.asp.
16
See testimony of Kim Cawley, Congressional Budget Office, in U.S. Congress, House Committee on Transportation
and Infrastructure, Subcommittee on Highways and Transit, Financial Status of the Highway Trust Fund, 113th Cong.,
1st sess., July 23, 2013, p. 2, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44434HighwayTrustFund_Testimony.pdf.
17
For example, see U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee on
Highways and Transit, How the Financial Status of the Highway Trust Fund Impacts Surface Transportation
Programs, 113th Cong., 1st sess., July 23, 2013.
18
See testimony of Kim Cawley, Congressional Budget Office, in U.S. Congress, House Committee on Transportation
and Infrastructure, Subcommittee on Highways and Transit, Financial Status of the Highway Trust Fund, 113th Cong.,
1st sess., July 23, 2013, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44434HighwayTrustFund_Testimony.pdf.
19
Ibid.
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Table 3. General Fund Transfers to the Highway Trust Fund
Year of
Transfer
Amount
($ billions)a
Authorizing
Law
FY2008
$8.0
P.L. 110-318
To Amend the Internal Revenue Code of 1986 to Restore the
Highway Trust Fund Balance
FY2009
$7.0
P.L. 111-46
To restore sums to the Highway Trust Fund, and for other purposes
FY2010
$19.5
P.L. 111-147
Hiring Incentives to Restore Employment Act
FY2013
$6.2
P.L. 112-141
Moving Ahead for Progress in the 21st Century Actb
FY2014
$12.6
P.L. 112-141
Moving Ahead for Progress in the 21st Century Act
FY2014
$9.765
P.L. 113-159
Highway and Transportation Funding Act of 2014
Total
$63.065
Authorizing Law Title
($61.859 after sequestration)
Source: Various laws; CRS Report R42877, Funding and Financing Highways and Public Transportation, by Robert S.
Kirk and William J. Mallett; and Transportation Weekly, August 8, 2014.
Notes:
a.
The table does not include two transfers of the accrued balance of Leaking Underground Storage Tank
(LUST) Trust Fund in FY2012 and FY2014. These transfers were $2.4 billion (authorized by P.L. 112-141)
and $1.0 billion (authorized by P.L. 113-159), respectively. For more information on that transfer, see CRS
Report R42445, Surface Transportation Reauthorization Legislation in the 112th Congress: MAP-21, H.R. 7, and
H.R. 4348—Major Provisions, coordinated by Robert S. Kirk.
b.
After sequestration, the combined transfers authorized by MAP-21 were reduced from $18.8 billion to
$17.577 billion.
While ad hoc transfers in general funding would not enable the HTF to be self-sustaining, they
could ensure that HTF obligations to the states are met when potential shortfalls in the HTF arise.
As previously mentioned, the HTF cannot incur a negative balance under current law.
Members have also discussed options to raise the federal gas tax as a means to offset the effects
of inflation on the value of the tax rate and to compensate for other trends in motor transport (e.g.,
fewer passenger-car miles traveled and more fuel-efficient vehicles). Alternative tax regimes, or
complements to the status quo motor fuel excise tax, such as a “vehicle miles traveled” (VMT)
tax, have also been discussed as an option for addressing projected HTF shortfalls. If Congress
wishes to address potential shortfalls in the HTF solely by cutting spending, CBO estimates that
spending would need to be cut by about one-quarter compared with projections in the CBO’s
baseline.20
Activity in the 113th Congress
On August 8, 2014, President Obama signed the Highway and Transportation Funding Act of
2014 (P.L. 113-159). This short-term reauthorization of the HTF is funded by a $9.765 billion
transfer from the general fund and a $1 billion transfer from the LUST Trust Fund. The $10.765
20
See testimony of Kim Cawley, Congressional Budget Office, in U.S. Congress, House Committee on Transportation
and Infrastructure, Subcommittee on Highways and Transit, Financial Status of the Highway Trust Fund, 113th Cong.,
1st sess., July 23, 2013, p. 5, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44434HighwayTrustFund_Testimony.pdf.
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billion in funding is estimated to provide enough funding for surface transportation programs for
approximately nine months (around the end of May 2015).
Extension of Funding for the Highway Trust Fund
The House and the Senate initially approved different bills to respond to an anticipated funding
shortfall that was estimated to occur sometime around the beginning of August 2014. On July 10,
2014, the Committee on Way and Means reported the Highway and Transportation Funding Act
(H.R. 5021), a $10.8 billion extension of HTF expenditure authority that is estimated by the Joint
Committee on Taxation (JCT) to fund transportation programs through May 31, 2015.21 On that
same day, the Senate Committee on Finance reported the Preserving America’s Transit and
Highways (PATH) Act, a $10.8 billion extension of HTF authority. The House approved H.R.
5021 on July 15, 2014. The provisions within each of the bills are summarized in Table 4,
including their effects on general fund and various trust fund balances.22 Ultimately, the Senate
adopted the legislative language in the House bill on August 31, 2014—one day before the
Department of Transportation was to begin implementing emergency cash management
procedures for highway programs to the states.23
As previously mentioned, P.L. 113-159 is estimated to fund surface transportation programs for
approximately nine months (through the end of May 2015). This short-term funding comes from
a $9.765 billion transfer from the general fund and a $1 billion transfer from the LUST Trust
Fund. Revenue raised from a practice called “pension smoothing” and a reauthorization of certain
customs user fees offset most of the general fund transfer.
Pension smoothing involves modifying the method of determining the interest rates used for
calculating private pension plan liabilities. This “smoothing” has been proposed as a revenue
offset elsewhere.24 In short, pension smoothing allows companies to make lower contributions to
their private pension funds.25 Because pension contributions are a tax-deductible expense, lower
pension contributions in the short term increase the amount of income subject to tax. While this
may increase tax revenue in the short run, higher payment rates in the future will be needed to
21
See U.S. Congress, Joint Committee on Taxation, Description Of The Provisions Of H.R. 5021, The “Highway And
Transportation Funding Act of 2014” Within The Jurisdiction of The House Committee On Ways And Means, 113th
Cong., 2nd sess., July 8, 2014, JCX-79-14 (Washington: GPO, 2014), p. 3, at https://www.jct.gov/publications.html?
func=startdown&id=4644.
22
For a more detailed explanation of each provision, see the JCT’s descriptions of both bills: U.S. Congress, Joint
Committee on Taxation, Description Of The Provisions Of H.R. 5021, The “Highway And Transportation Funding Act
of 2014” Within The Jurisdiction of The House Committee On Ways And Means, 113th Cong., 2nd sess., July 8, 2014,
JCX-79-14 (Washington: GPO, 2014), at https://www.jct.gov/publications.html?func=startdown&id=4644; and U.S.
Congress, Joint Committee on Taxation, Description Of The Chairman’s Second Modification To The “Preserving
America’s Transit And Highways Act Of 2014”, 113th Cong., 2nd sess., July 10, 2014, JCX-83-14 (Washington: GPO,
2014), at https://www.jct.gov/publications.html?func=startdown&id=4648.
23
See Letter from Anthony R. Foxx, Secretary of Transportation, to State Transit Agencies, July 1, 2014, at
http://www.dot.gov/sites/dot.gov/files/docs/FTA_Colleague_Letter_July_1_2014.pdf.
24
For example, see Congressional Budget Office, “Preliminary Estimate of the Budgetary Effects of SA 2714Emergency Unemployment Compensation Extension Act of 2014,” February 7, 2014, at http://cbo.gov/sites/default/
files/cbofiles/attachments/sa2714.pdf.
25
For a more detailed explanation of the pension smoothing provision included in MAP-21, see CRS Report 95-118,
Pension Benefit Guaranty Corporation (PBGC): A Primer, by John J. Topoleski and CRS Report R43305,
Multiemployer Defined Benefit (DB) Pension Plans: A Primer and Analysis of Policy Options, by John J. Topoleski.
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meet the same amount of obligations. Thus, the long-term budgetary costs of pension smoothing
are mostly shifted out of the 10-year budget window and would not generate a net revenue gain.26
Even after a $1 billion transfer, the balance in the LUST Trust Fund would have been sufficient to
provide for grants to state governments at current appropriations level in the short term.27
However, a significant reduction in the LUST Trust balance would reduce the investment income
coming into the fund (investment income being the second largest source of revenue for LUST,
currently). In other words, because the 113th Congress chose this as a funding source for a shortterm extension of the HTF, then a transfer of a similar scale cannot be authorized again until
either (1) the LUST Trust Fund balance has regenerated or (2) spending cuts were enacted to
LUST Trust Fund-related appropriations.
All three of the previously mentioned funding provisions in P.L. 113-159 were included in both
the House and Senate bills. The Senate bill contained several other funding provisions that are not
included in the House bill.28 The additional Senate provision could have been broadly categorized
as tax compliance and modernization provisions, or technical changes to tax policy
administration. The Senate bill would have also lowered the statutory tax rate on liquefied
petroleum gas (LPG) from its permanent law rate of 18.3 cents per gallon to 13.4 cents per gallon,
based on its lower energy equivalency to gasoline.
26
This phenomenon is illustrated in the JCT score, as the provision raises revenue earlier in the budget window before
it begins to lose revenue in the latter years of the budget window. See Joint Committee on Taxation, Estimated Budget
Effects Of The Revenue Provisions Contained In H.R. 5021, The “Highway and Transportation Funding Act of 2014,”
Scheduled For Markup By The Committee On Ways And Means On July 10, 2014, 113th Cong., 2nd sess., July 8, 2014,
JCX-80-14 (Washington: GPO, 2014), at https://www.jct.gov/publications.html?func=startdown&id=4645.
27
See the June 2014 report for the LUST Trust Fund at http://www.treasurydirect.gov/govt/reports/tfmp/leaktank/
leaktank.htm.
28
The initial version of the Chairman’s Mark of the PATH Act (released June 24, 2014) contained several provisions
that were removed or modified from the version reported by the committee on July 10, 2014. These provisions included
one transportation-related revenue-raiser (an increase in the caps for the heavy vehicle use tax), several other provisions
intended to increase general taxpayer compliance and enforcement, and one provision related to pension
contributions.28 The most controversial provision of the initial version of the Chairman’s Mark would have doubled the
cap on the heavy vehicle use tax from $550 to $1,100 per year. This provision was removed before the version of the
bill that was reported by the committee on July 10, 2014. See Joint Committee on Taxation, Description Of The
Chairman’s Mark Of The “Preserving America’s Transit And Highways Act of 2014”, 113th Cong., 2nd sess., June 24,
2014, JCX-75-14 (Washington: GPO, 2014), at https://www.jct.gov/publications.html?func=startdown&id=4626.
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Table 4. House and Senate Transportation Bills, 113th Congress—Effects on Trust
Fund and General Fund Balances
10-Year Revenue Estimate
(millions of dollars)
Provision
House Billa
Senate Billb
Transfer to the Highway Trust Fund
-$9,765
-$9,824
Modifying Determination for Calculating Pension Liabilities (Pension Smoothing)
+$6,223
+$2,650
Extending Authority for Custom Duties and Merchandise Processing Fees
+$3,542
+$2,946
Mortgage Reporting
$0
+$2,143
Clarify Statute of Limitation on Basis Overstatement
$0
+$1,282
100% Continuous Levy Authority to Medicare Providers
$0
+$812
Penalty for Failing to Meet Due Diligence Requirements for Child Tax Credit
$0
+$43
Modify Treatment of Mutual Ditch/Irrigation Companies
$0
-$37
Liquefied Natural Gas Equalization
$0
+$12
Liquefied Petroleum Gas Equalization
$0
+$8
$0
+$35
+$164
+$41
-$1,000
-$1,000
Transfer from General Fund to Highway Account
+$7,765
+$7,824
Transfer from LUST Trust Fund to Highway Account
+$1,000
+$1,000
Liquefied Natural Gas Equalization
$0
-$46
Liquefied Petroleum Gas Equalization
$0
-$29
+$8,765
+$8,749
+$2,000
+$2,000
+$10,765
+$10,824
General Fund Provisions
Total, General Fund Effects
Old-Age & Survivors Insurance (Social Security) Trust Fund
Pension Smoothing
Leaking Underground Storage Tank (LUST) Trust Fund
Transfer to the Highway Trust Fund
Highway Trust Fund
Subtotal, Transfers to the Highway Account
Transfer from General Fund to Mass Transit Account
Total, Highway Trust Fund Effects
Source: Joint Committee on Taxation, Estimated General Fund And Trust Fund Effects Of The Revenue Provisions
Contained In H.R. 5021, The “Highway And Transportation Funding Act of 2014,” Scheduled For Markup By The
Committee On Ways And Means On July 10, 2014, 113th Cong., 2nd sess., July 8, 2014, JCX-80-14 (Washington:
GPO, 2014), at https://www.jct.gov/publications.html?func=startdown&id=4646; and Joint Committee on
Taxation, Estimated General Fund And Trust Fund Effects Of The Chairman’s Second Modification To The “Preserving
America’s Transit And Highways Act of 2014,” Scheduled For Markup By The Senate Committee On Finance On July 10,
2014, 113th Cong., 2nd sess., July 8, 2014, JCX-80-14 (Washington: GPO, 2014), at https://www.jct.gov/
publications.html?func=startdown&id=4650. Table format adapted from Transportation Weekly, “Ten-Year Trust
Fund and General Fund Effects of the House and Senate Highway Trust Fund Solvency Bills,” July 10, 2014.
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a.
Highway and Transportation Funding Act (H.R. 5021), as reported by the Committee on House Ways and
Means on July 10, 2014.
b.
The Preserving America’s Transit and Highways Act, as reported by the Senate Committee on Finance on
July 10, 2014.
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Modifications to Excise Taxes on Motor Fuels
In contrast to the short-term funding bills were reported in the House and Senate, others sought
longer-term changes to funding the HTF—including significant changes to current motor fuels
excise tax rates. Some Members have called for maintaining the current system of financing the
HTF, but with higher rates. Others have proposed more fundamental changes in highway
financing by reducing the federal government’s role and transferring more responsibilities to the
states.29
Excise Tax Reductions and Highway Trust Fund Reform
The Transportation Empowerment Act (H.R. 3486, S. 1702), sponsored by Representative Tom
Graves and Senator Mike Lee, would have phased in reductions in excise tax rates on motor fuels
over a three-year period beginning in 2015. Under the Transportation Empowerment Act, the
federal tax rate on gasoline would have been reduced from 18.3 cents per gallon in 2014 to 9.6
cents effective October 2015, and eventually to 3.7 cents by October 2018. Tax rates on diesel
and kerosene motor fuels would have been reduced from 24.3 cents per gallon in 2014 to 5.0
cents effective October 2018. Similar bills were introduced in the 112th Congress as H.R. 3264
and S. 1164. The Transportation Empowerment Act would also have transferred the
responsibilities over highway and transit programs to the states over five years. Over the five-year
transition period, states would have been provided with funding through block grants.
Proponents of the Transportation Empowerment Act argued that (1) the states are better situated
to understand their transportation priorities than the federal government, (2) efficiencies for
taxpayers could result from reducing the costs of managing surface transportation programs, (3) it
would reduce the need for some federal regulations to be applied to the states (e.g., National
Environmental Policy Act), and (4) the bill could avoid a federal motor fuels tax increase.30
Opponents of the bill argued that some states might not be able to provide adequate levels of
funding for surface transportation, and that federal assistance could help prevent deterioration of
transportation infrastructure in one state from impeding interstate commerce between other states.
The Surface Transportation and Taxation Equity Act (H.R. 1065), sponsored by Representative
Scott Garrett, would have allowed states to opt out of the federal transportation program and
would have reduced federal tax rates on motor fuels in proportion to any state tax rate increases
(but the tax rates cannot be decreased below 2 cents per gallon). According to press releases,
Representative Garrett’s proposal aimed to reduce state reliance on the federal HTF for
transportation funding and, like the Transportation Empowerment Act, sought to increase
efficiencies for the taxpayer by reducing federal management costs and avoiding federal excise
tax increases.31 A similar bill was introduced in the 112th Congress as H.R. 1737.
29
For more analysis on this issue, see CRS Report R40431, Federalism Issues in Surface Transportation Policy: A
Historical Perspective, by Robert Jay Dilger.
30
For example, see Emily Goff, Empowering the States by Turning over the Federal Highway Program, The Heritage
Foundation, November 15, 2013, at http://www.heritage.org/research/reports/2013/11/impact-of-turning-over-thefederal-highway-program-to-the-states, and Heritage Action, House Key Votes: Co-Sponsorship of the Transportation
Empowerment Act, November 14, 2013, at http://heritageaction.com/key-votes/co-sponsorship-transportationempowerment-act/.
31
Representative Scott Garrett, “Rep. Garrett Reintroduces STATE Act: A Taxpayer-Friendly Solution for
Infrastructure Funding,” press release, March 12, 2013, at http://garrett.house.gov/press-release/garrett-reintroduces(continued...)
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Excise Tax Increases
According to a May 2014 testimony by Joseph Kile, director of CBO’s Microeconomic Studies
Division,
According to JCT’s estimates, a one-cent increase in the taxes on motor fuels, effective
October 1, 2014, would raise about $1.5 billion annually for the Highway Trust Fund over
the next 10 years. If lawmakers chose to meet obligations projected for the trust fund solely
by raising revenues, they would have to increase the taxes on motor fuels by between 10
cents and 15 cents per gallon, starting in fiscal year 2015. (That increase would return fuel
taxes to roughly the level they were in 1993, after adjusting for the effects of inflation.)32
Representative Earl Blumenauer introduced the Update, Promote, and Develop America’s
Transportation Essentials (UPDATE) Act of 2013 (H.R. 3636), which would have increased
federal excise tax rates on gasoline, diesel, and kerosene fuels for the first time since October
1993. According to a press release from Representative Blumenauer’s office, the bill would have
raised around $170 billion over 10 years.33
Under H.R. 3636, current federal tax rates on gasoline would have increased by 15 cents (from
18.3 cents to 33.3 cents) between 2013 and 2016, and diesel and kerosene tax rates would also
have increased by 15 cents (from 24.3 cents to 39.3 cents). Under current law, these tax rates are
scheduled to decrease to the permanent law rate of 4.3 cents per gallon and the LUST tax is set to
expire after September 2016. In addition, H.R. 3636 would have indexed further tax rate increases
to changes in inflation in years 2016 to 2024. According to the bill’s text, the general theme of
these justifications is that an increase in the gas tax is needed to not only maintain HTF solvency
at current spending levels, but to also fund higher levels of spending.34 The bill cited the
American Society for Civil Engineers (ASCE), a trade association, which estimates that the
United States should “invest at least an additional $500 billion in our surface transportation
system by 2020 in order to meet U.S. economic and transportation needs.”35 Critics of ASCE’s
estimates argue that America’s transportation infrastructure is in a better state than the trade
association’s figures suggest, and that taxpayer money could be better allocated or reprioritized
between projects rather than increased across most or all transportation projects.36
(...continued)
state-act-taxpayer-friendly-solution-infrastructure-funding.
32
Joseph Kile, Assistant Director for Microeconomic Studies, The Status of the Highway Trust Fund and Options for
Financing Highway Spending, Congressional Budget Office, Testimony before the Senate Committee on Finance, May
6, 2014, p. 9, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/45315-TransportationTestimony.pdf.
33
See Representative Earl Blumenauer, “Blumenauer Joined by Leaders in Transportation, Commerce, Labor,
Construction to Introduce UPDATE Act to Fund Infrastructure,” press release, December 4, 2013, at
http://blumenauer.house.gov/press-releases/blumenauer-joined-by-leaders-in-transportation-commerce-laborconstruction-to-introduce-update-act-to-fund-infrastructure/. Official revenue estimates for legislation are conducted by
the Joint Committee on Taxation (JCT).
34
See Section 2 of H.R. 3636.
35
See ibid. and American Society of Civil Engineers, Failure to Act, at http://www.asce.org/failuretoact/. Previous
reports by ASCE reached similar conclusions that higher levels of spending were necessary to meet America’s
economic and transportation needs.
36
For example, see Evan Soltas, “The Myth of the Falling Bridge,” Bloomberg Online, April 8, 2013, at
http://www.bloomberg.com/news/2013-04-08/the-myth-of-the-falling-bridge.html; and Charles Marohn, ASCE and the
Infrastructure Cult, Strong Towns, December 12, 2011, http://www.strongtowns.org/journal/2011/12/12/best-of-blogasce-and-the-infrastructure-cult.html#.UuaFJbQo5zk.
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In June 2014, Senators Bob Corker and Chris Murphy called for a 12 cent increase in gasoline
and diesel tax rates, coupled with a permanent extension of some personal and business
temporary tax provisions known as “tax extenders.”37 Under the proposal, the tax increases would
be phased-in over two years at a rate of 6 cents per gallon annually. After the tax increases have
been phased-in, the tax rates on gasoline and diesel would be 33.3 and 39.3 cents per gallon,
respectively (not including the 0.1 cent per gallon LUST tax). The proposal has not been
introduced as legislation.
Ways and Means Chairman Camp’s Tax Reform Proposal
On February 26, 2014, House Ways and Means Chairman Camp released draft discussion
legislation for comprehensive tax reform that contained a revenue-raising provision for the HTF.
This discussion draft was introduced as the Tax Reform Act of 2014 (H.R. 1) on December 10,
2014. In short, Section 4003 of the bill would have provided foreign subsidiaries of U.S.
corporations with a special tax rate on previously untaxed earnings and profits (E&P)
accumulated overseas to the United States as part of the transition rules toward a more
“territorial” form of corporate taxation.38
The revenue raised from this one-time provision would have been deposited into the HTF.
Consistent with the current allocation of the motor fuel excise tax revenues, 80% of the revenue
raised from the provision would have been allocated to the highway account and 20% would have
been allocated to the mass transit account. The Joint Committee on Taxation (JCT) estimates that
this provision would have provided $126.5 billion in revenue for the Highway Trust Fund over 10
years.39 Funds designated by Section 4003 would have reduced, but not eliminated, projected
HTF shortfalls on an annual basis in the short term.40
Activity in the 114th Congress
Although left unaddressed by P.L. 113-159, federal motor fuels excise tax rates could be a major
subject of debate if Congress seeks to pass a long-term surface transportation bill in the future.
37
Senator Chris Murphy, “Murphy, Corker Unveil Bipartisan Plan to Shore Up Highway Trust Fund, Boost Economic
Growth,” press release, June 18, 2014, at http://www.murphy.senate.gov/newsroom/press-releases/murphy-corkerunveil-bipartisan-plan-to-shore-up-highway-trust-fund-boost-economic-growth. For more details on tax extenders, see
CRS Report R43124, Expired and Expiring Temporary Tax Provisions (“Tax Extenders”), by Molly F. Sherlock.
38
For more information, see Joint Committee on Taxation, Technical Explanation of the Tax Reform Act of 2014, A
Discussion Draft of the Chairman of the House Committee on Ways and Means to Reform the Internal Revenue Code:
Title IV Participation Exemption System, JCX-15-14, February 26, 2014, pp. 29-33, at https://www.jct.gov/
publications.html?func=startdown&id=4557. For more information on issues related to transitioning toward a more
territorial form of corporate taxation, see CRS Report R42624, Moving to a Territorial Income Tax: Options and
Challenges, by Jane G. Gravelle.
39
U.S. Congress, House Committee on Ways and Means, Tax Reform Act of 2014, Discussion Draft, Section-bySection Summary, 113th Cong., 2nd sess., February 26, 2014, pp. 143-144, at http://waysandmeans.house.gov/
uploadedfiles/ways_and_means_section_by_section_summary_final_022614.pdf.
40
See “cumulative shortfall” in Congressional Budget Office, Projections of Highway Trust Fund Accounts Under
CBO’s February 2014 Baseline, February 2014, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/438842014-02-Highway_Trust_Fund.pdf; and footnote 24 in U.S. Congress, Joint Committee on Taxation, Estimated
Revenue Effects of the “Tax Reform Act of 2014,” 113th Cong., 2nd sess., February 26, 2014, JCX-20-14 (Washington:
GPO, 2014), p. 18, at https://www.jct.gov/publications.html?func=startdown&id=4562.
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One major factor in the motor fuels excise tax debate that has changed is the price of gas. In the
six months after the President signed P.L. 113-159 on August 8, 2014, the price of West Texas
Intermediate (WTI) crude oil declined from $97.61 per barrel to $48.80 per barrel on January 8,
2015 (a 50% decline).41 The decline in crude oil prices has put downward pressure on gas prices,
as national average gas prices at the pump in mid-February 2015 have declined by more than one
dollar per gallon from the national average of $3.50 per gallon on August 4, 2014.42
Alternatively, other proposals have been introduced that intend to transfer revenue raised from the
general fund to the HTF using provisions offset from other international and business tax
provisions.
UPDATE Act of 2015 (Blumenauer et al. Proposal)
Representative Earl Blumenauer and a group of cosponsors reintroduced a version of the Update,
Promote, and Develop America’s Transportation Essentials (UPDATE) Act from the 113th
Congress. Similar to the UPDATE Act of 2013, The UPDATE Act of 2015 (H.R. 680) would
phase-in an increase in the motor fuels excise tax over three years and index the tax rate for
inflation over a 10-year period. H.R. 680’s tax rate changes are summarized in Table 5.
Table 5. Proposed Federal Motor Fuels Excise Tax Rates Under H.R. 680
(tax rates are in cents per gallon)
Proposed Rates Under H.R. 680
Current Law
Category
Through
9/30/16a
After
9/30/2016b
2015
2016
2017
2017 to
2028c
Gasoline
18.3
4.3
18.3
26.3
30.3
33.3
Diesel
24.3
4.3
24.3
32.3
36.3
39.3
Source: Update, Promote, and Develop America’s Transportation Essentials Act of 2015 (H.R. 680).
Notes:
a.
Current law tax rate does not include the 0.1 cent per gallon LUST Trust Fund Tax.
b.
The 4.3 cents per gallon tax rate is set in permanent law.
c.
Proposed tax rates under H.R. 680, as listed above, do not include the bill’s proposed automatic adjustment
for inflation for 2017 to 2028 on top of the base rate of 33.3 or 39.3 cents per gallon.
President’s FY2016 Budget Proposal for Business Tax Reform
The President’s FY2016 budget proposes renaming the HTF as the “Transportation Trust Fund,”
and authorizing $478 billion in spending over six years for surface transportation projects related
to roads, bridges, transit systems, and railways.43 This spending would be offset by a number of
41
CRS analysis of U.S. Energy Information Administration (EIA) data, Spot Prices – Petroleum & Other Liquids,
accessed February 18, 2015, at http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm.
42
For August 2014 data, see: AAA, “National Average Gas Prices at Four-Year Low for Early August,” August 4,
2014, at http://fuelgaugereport.aaa.com/national-average-gas-prices-at-four-year-low-for-early-august/. February 2015
prices were accessed on February 18, 2015, at http://fuelgaugereport.aaa.com/.
43
U.S. Department of Transportation, FY2016 Budget Fact Sheet, February 2, 2015, at http://www.dot.gov/mission/
(continued...)
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revenue raisers, with the largest being two provisions related to the Administration’s proposal for
business tax reform: (1) a 14% one-time tax on previously untaxed foreign income (estimated by
Treasury to raise $268.1 billion over 10 years), and (2) an ongoing, 19% minimum tax on foreign
income earned in the future (estimated by Treasury to raise $206.0 billion over 10 years).44 These
international tax reform provisions would effectively end deferral of foreign-earned income, and
are part of the President’s larger business tax reform proposal that would lower the top corporate
income tax rate from 35% to 28%, among other provisions.
Invest in Transportation Act of 2015 (Boxer-Paul Proposal)
On January 29, 2015, Senators Barbara Boxer and Rand Paul released a white paper outlining the
“Invest in Transportation Act” to fund the HTF using a voluntary repatriation tax holiday for U.S.
multinational corporations (MNCs) as the primary “offset” to fund new transportation spending.45
The white paper does not provide an estimate of how much funding the proposal would raise for
the HTF. The proposal has not been introduced as legislation, as of the publication date of this
CRS report.
According to the January 29, 2015, white paper, the proposal would include the following
provisions:
•
A voluntary repatriation holiday for foreign-source earnings would be taxed at a
rate of 6.5%. The rate is only for repatriations that exceed each company’s
average repatriations in recent years, and funds must have been earned in 2015 or
earlier. Companies have up to five years to complete the transfer.
•
All tax revenues from the repatriation program will be transferred into the
Highway Trust Fund;
•
Provisions that would require a portion of repatriated funds to be used for
increased hiring, wages, and pensions; research and development; environmental
improvements; public-private partnerships; capital improvements; and
acquisitions. The proposal indicates that funds may not be spent on increases in
executive compensation or on increases in shareholder dividends or stock
buybacks for three years after the program ends.
•
Companies that invert within 10 years of participating in this program must
“repay the tax incentive with interest.”46
Voluntary repatriation holidays have been discussed as potential offsets for a variety of
infrastructure spending programs, such as the HTF. The last voluntary repatriation holiday was
(...continued)
budget/fy-2016-budget-fact-sheet.
44
For more information, see U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal
Year 2016 Revenue Proposals, February 2015, pp. 19-23, at http://www.treasury.gov/resource-center/tax-policy/
Documents/General-Explanations-FY2016.pdf; and CRS Report IN10228, International Tax Reform Proposals in the
President’s FY2016 Budget Proposal, by Donald J. Marples.
45
For more analysis on the economic effects of voluntary repatriation holidays, see CRS Report R40178, Tax Cuts on
Repatriation Earnings as Economic Stimulus: An Economic Analysis, by Donald J. Marples and Jane G. Gravelle.
46
Office of Senator Barbara Boxer (CA), Boxer-Paul “Invest in Transportation Act,” January 29, 2015, at
http://www.boxer.senate.gov/press/related/BoxerPaulWhitePaper012915.pdf.
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enacted by Congress in the American Jobs Creation Act of 2004 (AJCA; P.L. 108-357). Although
voluntary repatriation holidays may increase revenue in the first year or two after implementation,
the Joint Committee on Taxation has scored these types of policies as leading to a net revenue
loss over the 10-year budget window.47 Repatriated dividends under the voluntary holiday would
be taxed at a lower rate than they would otherwise be later on in the budget window.
A significant difference between the Boxer-Paul proposal and the last voluntary repatriation
holiday in the AJCA is that the Boxer-Paul proposal makes the option available for firms to
repatriate over five years instead of one. It is uncertain how the five-year repatriation window
could change any revenue score associated with the proposal. The proposal could encourage some
firms to repatriate earnings earlier than they would have, and revenue from repatriated earnings
could be at a level high enough to address potential shortfalls in the HTF. On the other hand,
some firms could choose to repatriate at the end of the five-year window (e.g., simply to delay
paying the 6.5% repatriation tax) and the proposal might result in little short-term increase in
revenue. In the latter case, revenue raised by the proposal might not be sufficient to address
potential shortfalls in the HTF. In either case, it is likely that any revenue estimate will begin to
show revenue losses closer towards the end of the 10-year budget window. Even if the provision
is scored as raising revenue within the 10-year budget window, it is presumed that this
repatriation holiday will result in net-revenue losses outside of the budget window.
The provision in the Boxer-Paul proposal to require portions of the repatriations to go towards
spending and investments is intended to address a critique of the 2004 repatriation holiday.48
Several empirical studies indicate that the purported stimulus benefits of the 2004 repatriation
holiday, as firms bring money back to the United States for increased investment and
employment, were not evident. A Senate report found that several major beneficiaries of the 2004
holiday actually reduced their U.S. employment in the years after the holiday.49 Economic studies
found that much of the money repatriated was distributed to shareholders (in the form of
dividends) or was used to repurchase shares. In 2004, firms that elected to repatriate under the
AJCA were still able to bypass the statutory provisions intended to prohibit the use of repatriated
funds for executive compensation, stock repurchases, and shareholder dividends.50 The strength
of any revised prohibitions would depend on the text of the legislation. Since money is fungible,
however, it is difficult to devise an effective rule.
The repayment provision of the Boxer-Paul proposal could reduce the tax-related benefits for
some companies considering an inversion. It is uncertain how much of an additional deterrent this
provision would provide, since many of the tax-related benefits for inversions have been
eliminated by the Department of the Treasury’s actions to reduce such actions beginning in
47
Revenue is gained the first two years because companies have different dates for the start of their fiscal years, and
would elect to take advantage of the proposal in accordance with their financial calendars. In subsequent years, though,
the proposal loses money within the budget window. For example, see Letter from Thomas Barthold, Chief of Staff of
the Joint Committee on Taxation, to the Honorable Orrin Hatch, United States Senate, June 6, 2014, at
http://www.hatch.senate.gov/public/_cache/files/1b24c4cf-6005-4a4e-bab7-3d9e3820c509/JCT 6-6-14.pdf.
48
See CRS Report R40178, Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis, by
Donald J. Marples and Jane G. Gravelle.
49
U.S. Senate, Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental
Affairs, Repatriating Offshore funds: 2004 Tax Windfall for Select Multinationals, Majority Staff Report, October 11,
2011, at http://hsgac.senate.gov/public/index.cfm?FuseAction=Press.MajorityNews&ContentRecord_id=f30633085056-8059-76ad-ff573eb2df8c.
50
See ibid., p. 7; and 26 U.S.C. § 965(b)(4)(B).
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September 2014.51 On the other hand, this provision could unintentionally affect inversion deals
that are motivated primarily for non-tax reasons.
The voluntary repatriation holiday in the Boxer-Paul proposal differs substantially from the Camp
tax reform proposal, in that the latter was a mandatory transition tax as part of larger reform to a
territorial corporate tax system. The Boxer-Paul proposed repatriation holiday also differs from
the President’s FY2016 proposal to impose a 14%, one-time tax on previously untaxed foreign
income, in that the latter is a mandatory transition tax as part of a larger reform to an international
tax system without deferral of taxes on foreign earnings.
Alternative Policy Approaches
As indicated by hearings on highway financing, some Members of Congress have indicated that
they think that the federal motor fuels excise tax base might need to be broadened to meet the
evolution of transportation in the 21st century.52 CRS Report R42877, Funding and Financing
Highways and Public Transportation, by Robert S. Kirk and William J. Mallett, discusses several
of these options and other approaches that could be used in various combinations to reform HTF
funding, such as the following:
•
Indexing existing fuel taxes to some measure of inflation. For example, the tax
could be adjusted to return it to the level of purchasing power it had in 1993 and
indexed for inflation in the following years.53 To return the tax rates back to the
purchasing power when they were last increased in 1993, the tax rates on
gasoline and diesel would be about 30 cents per gallon and 40 cents per gallon,
respectively.54
•
A tax based on the percentage of the sales price (i.e., an ad valorem tax rate)
instead of the current regime that levies a tax rate per gallon. An ad valorem tax
rate could adjust for inflation in fuel costs over time, but it could also lead to
increased tax collection volatility or decreases during times of lower prices.
•
A distance-based user charge based on vehicle miles traveled (VMT) on
highways could better reflect actual use of highways, but there are also privacy,
cost, and administrative hurdles that would need to be addressed to implement
such a system.
51
For more information, see CRS Report WSLG1067, Treasury’s Actions on Corporate Inversions, by Erika K. Lunder
and Carol A. Pettit; and CRS Report R43568, Corporate Expatriation, Inversions, and Mergers: Tax Issues, by Donald
J. Marples and Jane G. Gravelle.
52
See U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee on Highways and Transit,
Financial Status of the Highway Trust Fund, 113th Cong., 1st sess., July 23, 2013.
53
Various indexes could be used to adjust for inflation. The most commonly used index is the U.S. Bureau of Labor
Statistics’ consumer price index (CPI), which, for example, is used to adjust certain aviation user fees. Using the CPI,
the inflation-adjusted tax rate on gasoline would increase from 18.3 cents per gallon to approximately 29-30 cents per
gallon, and the tax rate on diesel would increase from 24.4 cents per gallon to 39 cents per gallon. CRS analysis of tax
rates in the Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, adjusted for inflation using Consumer Price
Index for All Urban Consumers (CPI-U) for all items at http://www.bls.gov/cpi/data.htm.
54
See Joseph Kile, Assistant Director for Microeconomic Studies, The Status of the Highway Trust Fund and Options
for Financing Highway Spending, Congressional Budget Office, Testimony before the Senate Committee on Finance,
May 6, 2014, p. 9, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/45315-TransportationTestimony.pdf.
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Freight-related transportation taxes and fees could be used to increase HTF
collections from narrower tax bases than the motor fuels tax or a VMT charge.
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Appendix. History of the Federal Motors Fuels
Excise Tax and the Highway Trust Fund
Gasoline Excise Tax for Deficit Reduction—1932
Although excise taxes have long been a source of federal tax revenue, the federal manufacturers
excise tax on gasoline was first incorporated into the federal tax structure by the Revenue Act of
1932, which became law on June 6, 1932.
Prior to the 1932 act, there had been reluctance on the part of federal officials and Congress to
impose this tax at the federal level. Instead, they preferred to relinquish this revenue source to the
states to help them finance their revenue needs. Oregon was the first state to levy a gasoline tax in
1919. As of January 1932, all of the states and the District of Columbia had enacted legislation
imposing a tax on gasoline with rates that ranged from two to seven cents per gallon.
However, during the severe depression of the 1930s, federal revenues were sharply reduced and
higher expenditures were made for relief and public works programs. As a result, the Secretary of
the Treasury, in his annual report for FY1931, reported that the federal government had incurred a
budgetary deficit of some $903 million that year. This marked the first year in more than a decade
when federal receipts failed to exceed federal expenditures and produce a budgetary surplus.
Moreover, the Secretary of the Treasury estimated then that even higher deficits were anticipated
in the years immediately following: $2.1 billion in FY1932, and $1.4 billion in FY1933.
To correct this budgetary imbalance, the Secretary of the Treasury submitted comprehensive taxraising and expenditure-reduction proposals for congressional action. Among the tax
recommendations were those for legislation increasing individual and corporation income, estate
and gift, excise, and other taxes. Included in the excise tax proposals was the request for a new
federal manufacturer’s excise tax on gasoline, to be levied at the rate of one cent per gallon and
scheduled to end in 1934. It was estimated that adoption of such a tax would yield the U.S.
Treasury approximately $165 million in revenues during FY1933.
The House of Representatives, in its consideration of and action on these revenue-raising
proposals, initially refused to impose a new federal tax on gasoline. The Senate amended the
House-passed bill, however, authorizing a gasoline tax at the rate of one cent per gallon. Congress
retained the tax in the final version of the bill approved by the House and Senate conference
committee and signed into law.
As approved, Section 617(a) of the Revenue Act of 193255 imposed a federal tax on gasoline sold
by a producer or importer at the rate of one cent per gallon. Under Section 617(c) of this
legislation, the term “producer” included a “refiner, compounder, or blender, and a dealer selling
gasoline exclusively to producers of gasoline, as well as a producer.” Gasoline was defined to
include gasoline, benzyl, and any other liquids used primarily as a fuel to propel motor vehicles,
motor boats, or airplanes. Section 629 of this act made this tax effective on June 21, 1932, for a
temporary period, with provision for its end just over a year later on June 30, 1933. The Annual
Report of the Commissioner of Internal Revenue for FY1933 reported that the federal government
55
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derived $124.9 million from the excise tax on gasoline. Thus, the gasoline tax represented 7.7%
of the total Internal Revenue collection of $1.62 billion derived from all sources during FY1933.
Shortly before the tax was scheduled to expire, Congress approved two bills that extended this tax
for an additional year and increased its rate. Under P.L. 73, approved by the 73rd Congress,56
Congress extended this tax until June 30, 1934. The National Industrial Recovery Act,57 signed
into law on the same day, included provisions governing the rate of this tax. Section 211(a) of this
act authorized the increase in federal gasoline tax from one cent to 1.5 cents per gallon, effective
June 17, 1933. Section 217(b) provided for this tax to be reduced to one cent per gallon on the
first day of the calendar year following the date proclaimed by the President when either of the
following occurred: (1) the close of the first fiscal year ending after 1933 when total federal
receipts exceeded total federal expenditures, or (2) the repeal of the 18th amendment to the
Constitution, establishing national prohibition (repeal would bring in additional revenues to the
U.S. Treasury from alcohol taxes).
Subsequently, President Franklin D. Roosevelt proclaimed repeal of the 18th amendment to the
Constitution on December 5, 1933. Therefore, under authority of Section 217(b) of the National
Industrial Recovery Act, the federal gasoline tax reverted to its former rate of one cent per gallon
on January 1, 1934.
Section 603 of the Revenue Act of 1934,58 approved in the spring of 1934, continued this tax at
the rate of one cent per gallon beyond its scheduled expiration date of June 30, 1934.
National Defense Requirements—1940s and 1950s
The one-cent rate was maintained until just before the United States entered World War II, when,
as a result of increased national defense requirements, Congress again took action increasing this
tax. Section 210 of the Revenue Act of 194059 authorized an increase to 1.5 cents per gallon for
the five-year period beginning on July 1, 1940, and continuing through June 30, 1945, as part of a
defense tax.
The following year, under Section 521(a)(20) of the Revenue Act of 1941,60 this rate was made
permanent by elimination of the June 30, 1945, expiration date that had been specified in the
Revenue Act of 1940.
The 1.5-cent per gallon rate continued for more than a decade until the outbreak of the Korean
War, when Congress increased the rate to two cents per gallon under authority of Section 489 of
the Revenue Act of 1951.61 This rate became effective on November 1, 1951, and Congress
authorized it to continue until March 31, 1954. After this date, Congress scheduled the rate to be
reduced to its former rate of 1.5 cents per gallon.
56
Act to Extend the Gasoline Tax for One Year, to Modify Postage Rates on Mail Matter and for other Purposes, P.L.
73, 73rd Congress, approved June 16, 1933.
57
National Industrial Recovery Act, P.L. 67, 73rd Congress, approved June 16, 1933.
58
Revenue Act of 1934, P.L. 216, 73rd Congress, approved May 10, 1934.
59
Revenue Act of 1940, P.L. 656, 76th Congress, approved June 25, 1940.
60
Revenue Act of 1941, P.L. 250, 77th Congress, approved September 20, 1941.
61
Revenue Act of 1951, P.L. 183, 82nd Congress, approved October 20, 1951.
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Before this reduction took place, Congress passed the Excise Tax Reduction Act of 1954,62 and
under Section 601(a)(6) of this legislation, the two-cent per gallon rate was extended for an
additional year—until March 31, 1955.
During the next two years Congress passed legislation granting one-year extensions of the twocent per gallon tax on gasoline by approval of the Tax Rate Extension Act of 195563 (Section
3(a)(3)) and the Tax Rate Extension Act of 195664 (Section 3(a)(3)), which continued the rate first
to March 31, 1956, and then to March 31, 1957.
P.L. 466, approved by the 84th Congress,65 provided that the Treasury Department refund those
taxes paid on gasoline used on farms for farming purposes purchased after December 31, 1955.
Creation of the Highway Trust Fund—1956
The Federal Aid Highway Act of 195666 provided for a significant expansion in the federal-aid
highway program and authorized federal funding over a longer period to permit long-range
planning. It was considered necessary to authorize the entire interstate highway program to assure
orderly planning and completion of this network of highways throughout the United States as
efficiently and as economically as possible. Consequently, this act authorized appropriations for
the 13-year period from FY1957 through FY1969 for this highway system. To make the federal
aid highway program self-sustaining, the Highway Revenue Act of 195667 was incorporated as
Title II of this legislation and imposed new taxes and increased others levied on highway users
who directly benefitted from this program.
Section 205 of this Highway Revenue Act authorized an increase in the federal gasoline tax from
two to three cents per gallon for the 16-year period from July 1, 1956, through June 30, 1972.
After that, the Congress scheduled the tax to be reduced to 1.5 cents per gallon.
Section 209 of this act authorized the creation of the Highway Trust Fund (HTF), to which there
was to be appropriated from Treasury’s general fund certain percentages of receipts derived from
highway-user taxes: gasoline, diesel and special motor fuel, tread rubber, tires and inner tubes,
trucks, buses, etc. One hundred percent of the federal gasoline tax receipts were transferred to the
Highway Trust Fund.
It was argued that transferring such taxes to the HTF was necessary to cover anticipated
expenditures to be made under the federal aid highway program for the 16-year period from
FY1957 through FY1972. H.Rept. 2022 (84th Congress), issued on this legislation, estimated that
highway-user taxes would yield some $38.5 billion in revenues for this trust fund during this 16year period—enough to cover anticipated expenditures of approximately $37.3 billion (during
this same period) for the federal aid highway program.
62
Excise Tax Reduction Act of 1954, P.L. 324, 83rd Congress, approved March 31, 1954.
Tax Rate Extension Act of 1955, P.L. 18, 84th Congress, approved March 30, 1955.
64
Tax Rate Extension Act of 1956, P.L. 458, 84th Congress, approved March 29, 1956.
65
Act to Amend the Internal Revenue Code of 1954 to Relieve Farmers from Excise Taxes in the Case of Gasoline and
Special Fuels Used on Farms for Farming Purposes, P.L. 266, 84th Congress, approved April l 2, 1956.
66
Federal-Aid Highway and Highway Revenue Act of 1956, P.L. 627, 84th Congress, approved June 29, 1956.
67
Ibid.
63
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This legislation also arranged for refunding a certain portion of federal gasoline taxes paid that
were used for non-highway purposes or by local transit systems.
Since enactment of this legislation, Congress has continued to pass laws extending the life of the
Highway Trust Fund and extending and increasing the rates imposed on gasoline.
Under Section 201(a) of the Federal Aid Highway Act of 1959,68 the federal gasoline tax was
increased from three to four cents per gallon, a change that was to be in effect from October 1,
1959, through June 30, 1961.
Under Section 201(b) of the Federal Aid Highway Act of 1961,69 this four-cent rate was extended
beyond June 30, 1961. The scheduled reduction to 1.5 cents per gallon, which the Highway
Revenue Act of 1956 had authorized to take place on July 1, 1972, was deferred until October 1,
1972.
Following the 1961 act, the next law affecting the federal gasoline tax was the Federal-Aid
Highway Act of 1970.70 Under Section 303(a)(6) of this act, the scheduled reduction in the rate of
this tax to 1.5 cents per gallon was deferred from September 30, 1972, to September 30, 1977.
Again in 1976, extension of excise tax rates without the scheduled rate reductions allocated to the
HTF was provided in Title III of the Federal Aid Highway Act of 1976.71 The rate reductions
were not implemented because the Interstate Highway System was obviously not going to meet
the projected completion date by 1977 (it was estimated in 1976 that it might be completed in
1988). Lack of time to study and report to Congress on modifications to the HTF led to the twoyear extension. Congress was concerned that without this legislation funding would be
interrupted. Thus, Congress delayed decision-making until it could gather additional information.
Two years later, Congress had not yet decided on modifications to the HTF and its related taxes.
The Ways and Means Committee accepted the recommendation of the Public Works Committee
and approved an extension of the trust fund and the taxes payable to the fund. This five-year
extension through September 30, 1984, became part of the Surface Transportation Assistance Act
of 1978.72
Congress gathered extensive information on highway finance and related taxes in 1982. Two
major studies were submitted to Congress. The first was a cost allocation study done by the
Department of Transportation in May 1982. The second was a study of the excise tax structure
that the Department of the Treasury provided to Congress in December 1982. Further, Congress
held more than a dozen hearings before the passage of the Surface Transportation Assistance Act
of 1982.73
The act contains what was commonly called the 4R Program: interstate reconstruction,
resurfacing, restoration, and rehabilitation. The completion and selective expansion of the
68
Federal-Aid Highway Act of 1959, P.L. 86-342, approved September 21, 1959.
Federal-Aid Highway Act of 1961, P.L. 87-61, approved June 29, 1961.
70
Federal-Aid Highway Act of 1970, P.L. 91-605, approved December 31, 1970.
71
Federal-Aid Highway Act of 1976, P.L. 94-280, approved May 5, 1976.
72
Surface Transportation Assistance Act of 1978, P.L. 95-599, approved November 6, 1978.
73
Surface Transportation Assistance Act of 1982, P.L. 97-424, approved January 6, 1983.
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Interstate Highway System remained the primary goals under the bill. Congress raised the
gasoline excise tax from its previous level of four cents per gallon to nine cents per gallon. With
this increase, Congress eliminated some highway user charges while increasing others. The act
also provided that one cent of the five-cent increase in the motor fuel taxes was to be allocated for
mass transit purposes. The bill set up a special mass transit account for expenditures made under
the Urban Mass Transportation Act of 1964.
In 1986, in response to concerns about the cost for cleanup of leaking underground storage tanks
containing petroleum products, Congress established the Leaking Underground Storage Tank
(LUST) Trust Fund.74 This fund received revenues of 0.1 cent per gallon on the sale or use of
gasoline (first effective January 1, 1987). Congress scheduled the tax to expire on the earlier of
December 31, 1991, or the last day of the month in which the Secretary of the Treasury estimated
that net revenues in the fund were at least $500 million. This additional tax ended after August
31, 1990, because the LUST Trust Fund had reached its net revenue target for cancellation.75
The Surface Transportation and Uniform Relocation Assistance Act of 198776 extended the
highway-related excise taxes (including the tax on gasoline) through September 30, 1993.
Gasoline Excise Tax for Deficit Reduction—1990s
Under provisions of the Omnibus Budget Reconciliation Act of 1990 (OBRA90),77 the tax rate on
highway and motorboat fuels was increased by five cents per gallon. Thus, the tax increased from
9 to 14 cents per gallon of gasoline. Half of the increase in revenues from the gasoline tax
imposed on highway use vehicles was dedicated as additional funding for the HTF. The
remaining half of revenues was deposited in Treasury’s general fund and dedicated for federal
deficit reduction. Of the 2.5-cent increase dedicated to the HTF, 0.5 cents were dedicated to the
Mass Transit Account in that trust fund. Thus, Congress increased mass transit account funding
from one cent to 1.5 cents. OBRA90 also reinstated the LUST Trust Fund. The LUST tax
recommenced at the same 0.1-cent-per-gallon tax rate.78 The 14-cent tax rate was scheduled to
expire on September 30, 1995, while the LUST tax was scheduled to terminate three months later
on December 31, 1995.
The conventional view that had held since the establishment of the HTF, which was that the
gasoline tax was a user tax, was challenged. With the passage of OBRA90, the gasoline tax
returned to the role it served prior to 1957: a general fund revenue source, at least in part.
The following year Congress passed the Intermodal Surface Transportation Efficiency Act
(ISTEA) of 1991.79 The revenue title is the Surface Transportation Revenue Act of 1991. This act
extended the highway-related excise taxes (including the tax on gasoline in Section 8002(a)(3))
for four years. Hence, this law extended the tax on gasoline (without an increase in tax rate)
74
Superfund Revenue Act of 1986, P.L. 99-499, approved October 17, 1986.
Internal Revenue Service Announcement 90-82, released June 27, 1990.
76
Surface Transportation and Uniform Relocation Assistance Act of 1987, P.L. 100-17, approved April 2, 1987.
77
Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, approved November 5, 1990.
78
This act also instituted a new 2.5-cent per gallon tax on fuels used in rail transportation effective on December 1,
1990. Rail transportation generally uses diesel fuel. All revenues from this new tax go to general fund revenues with
the tax scheduled to expire on October 1, 1995.
79
Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991, P.L. 102-240, approved December 18, 1991.
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through September 30, 1999. In addition, under provisions of the act, states were permitted to
spend their HTF grants on a broader range of alternative transportation modes and related
infrastructure needs. This was done in response to the argument that highway users benefit from
expenditures on mass transit and other transportation modes because the availability of these
travel alternatives alleviates congestion on existing highways, which in turn reduces the need to
build additional roadways.
Also included in provisions of ISTEA was the establishment of a new trust fund known as the
National Recreational Trails Trust Fund. This fund receives tax transfers from the HTF that
represent tax receipts (imposed on gasoline, diesel, and special motor fuels) collected from nonhighway recreational fuel use. Examples of recreational fuels are those used in vehicles on
recreational trails or back-country terrain, and non-business fuel used in outdoor recreational
equipment, such as camp stoves.
Once again, the gasoline excise tax was changed under provisions of the Omnibus Budget
Reconciliation Act of 1993 (OBRA93, Section 13241(a)).80 Under provisions of OBRA93, the
additional 2.5-cent gasoline tax dedicated for deficit reduction was transferred to the Highway
Trust Fund beginning October 1, 1995. This additional 2.5-cent tax rate was extended from
October 1, 1995, to September 30, 1999. The highway portion of the fund received two cents,
while the mass transit account was credited with 0.5 cent of the increased funding. In addition,
OBRA93 provided for a permanent, additional 4.3 cents per gallon tax on gasoline starting on
October 1, 1993. Thus, the combination of the 2.5-cents OBRA90 gasoline tax rate and the
permanent 4.3-cent OBRA93 gasoline tax rate resulted in a total of 6.8 cents per gallon dedicated
to deficit reduction purposes between October 1, 1993, and October 1, 1995. Revenues collected
from this 6.8-cent portion of the tax were placed in Treasury’s general fund.
As previously mentioned, provisions of OBRA90 terminated the LUST tax rate of 0.1 cent on
December 31, 1995. Thus, the 18.3-cent federal gasoline excise tax rate was in effect from
January 1, 1996, to October 1, 1997, before increasing to 18.4 cents with the reintroduction of the
LUST tax. This 18.3-cent rate includes the permanent 4.3 cents initially dedicated to federal
deficit reduction but which now goes to the HTF.
Reversion from Deficit Reduction to User Tax Status
During the early months of 1996, the price of gasoline at the pump was rising and a renewed
interest developed in federal gasoline excise taxes. Three principal views developed. The first
view was that the 4.3 cents increase in federal excise taxes imposed under OBRA93 should be
repealed. Proponents of repeal argued that the 4.3 cents repeal could lead to a similar reduction in
gasoline pump prices. Two camps developed which supported retaining the tax. Some supporters
of the tax expressed the view that while the 4.3-cent tax should be retained, the tax revenues
should be returned to the HTF for long-term capital improvements. They argued for increased
funding of the nation’s highway infrastructure. Others expressed the view that the monies should
continue to be collected and used for deficit reduction. This camp of supporters argued that the
gasoline price increase was temporary and that over the long term prices would trend lower.
Partially in response to this debate, the chairman of the House Ways and Means Committee,
Representative Bill Archer, appointed a bi-partisan group to examine the tax treatment of each of
80
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the transportation modes with a goal of rationalizing the current myriad tax rules applying to the
transportation sector.
Included in the Taxpayer Relief Act of 199781 was a provision that returned the general fund
portion of the tax back to the HTF. This provision, first added by a Senate amendment (and
modified in conference), provides that the 4.3-cent tax is divided between the highway account
(3.45 cents) and the mass transit account (0.85 cent). The provision was effective on October 1,
1997. Thus, of the total 18.3 cents dedicated to the HTF, 15.44 cents goes to the highway account
and 2.86 cents to the mass transit account.82 As a consequence, the disposition of revenues was
altered by the act so that all revenues now accrue to the HTF and none are applied to deficit
reduction. Consumers experienced no price change due to enactment of this provision since the
federal tax rate on gasoline remained the same.
In addition, the Taxpayer Relief Act of 1997 reinstated the LUST Trust Fund excise tax, which
had expired January 1, 1996.83 The tax was reinstated at its prior tax rate of 0.1 cent per gallon on
all types of motor fuels. The tax rate change was effective from October 1, 1997, through March
31, 2005.84 The LUST excise tax was then extended for an additional seven months (through
September 30, 2005).85 Under a provision contained in the Energy Policy Act of 2005 the LUST
tax was extended through September 30, 2011. The imposition of the gasoline tax is codified
under IRC Section 4081.
Although the component of the federal gasoline tax formerly (but no longer) applied to deficit
reduction continues without an expiration date, the 14 cents that was scheduled to expire on
September 30, 1999, was extended. Congress not only extended the gasoline excise tax but also
the other highway-related excise taxes. The House had proposed to extend the heavy truck tire tax
until October 1, 2000, whereupon it would expire. However, in conference with the Senate, all the
highway-related excise taxes were extended through September 30, 2005. The legislative vehicle
for this extension was the Transportation Equity Act for the 21st Century86 generally known as
TEA-21. The revenue portion of this act (Title IX) was titled the Surface Transportation Revenue
Act of 1998.
This act also provided that the HTF no longer earns interest on unspent balances (effective
September 30, 1998). The balance of funds that exceed $8 billion in the Highway Account was
canceled on October 1, 1998. In addition, TEA-21 provided that the National Recreational Trails
Trust Fund established under ISTEA be repealed. In the absence of an appropriation of funds, no
revenues had been available for expenditure. The conference agreement noted that similar
expenditure purposes were provided by authorized amounts from the HTF.
Beginning in the 108th Congress, a series of laws were passed extending the funding for the HTF.
81
Taxpayer Relief Act of 1997, P.L. 105-34, approved August 5, 1997.
A technical correction contained in the Transportation Equity Act for the 21st Century (discussed later in this report)
provides that deposits are to be equal to 2.86 cents per gallon rather than the 2.85 cents provided in the 1997 Act.
83
Ibid.
84
For additional information and a discussion of the LUST Trust Fund, see CRS Report RS21201, Leaking
Underground Storage Tanks (USTs): Prevention and Cleanup, by Mary Tiemann.
85
Extension of the Leaking Underground Storage Tank Trust Fund Financing Rate, P.L. 109-6, approved March 31,
2005.
86
Transportation Equity Act for the 21st Century, P.L. 105-178, approved June 9, 1998.
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Extensions in the 108th Congress
Six short-term extensions of TEA-21 were enacted in the 108th Congress.87
The Surface Transportation Extension Act of 2004, Part V became P.L. 108-310 and provided
extensions through May 31, 2005, for those programs authorized by the Transportation Equity
Act for the 21st Century (TEA-21). This last extension provided $31.8 billion in contract
authority, of which $2.7 billion was for FY2004 and $29.1 billion was available for the eightmonth period from October 1, 2004, through May 31, 2005. Under provisions of TEA-21,
expenditures from the trust fund would have ceased if Congress had failed to approve these shortterm extensions.88
At the time, the revenue sources for the HTF included six different excise taxes, which are taxes
on the highway motor fuels, gasoline, diesel fuel, and kerosene; a retail sales tax on heavy
highway vehicles; a manufacturers’ excise tax on heavy vehicle tires;89 and an annual use tax on
heavy vehicles. These excises were not affected by the temporary extensions, since under the law
at that time the excise taxes were not scheduled for expiration until September 30, 2005.
Extensions in the 109th Congress
Again in the 109th Congress, six short-term extensions of TEA-21 were enacted so that the HTF
could continue operations until enactment of a longer-term re-authorizing measure.90 Accordingly,
these extensions were known as the Surface Transportation Extension Acts of 2005.
The 109th Congress initially had until Memorial Day to complete work on the new highway bill.
That extension included language that provided for the 2.5 cents per gallon tax on ethanol to be
deposited into the HTF for one year. Those monies had previously been deposited into the general
fund. That change was estimated to generate $940 million in new revenue for the HTF. Also
included was a one-year extension of the budgetary fire walls that tie gas tax revenue to highway
and transit programs, while at the same time waiving for one year the Byrd self-solvency test for
the trust fund and releasing the $716 million the Federal Highway Administration was holding
onto as a result of the trust funds failure of that test.91 Further, the extension “also included a new
87
In summary, these laws passed in the 108th Congress (and the length of their extension of funding) were: P.L. 108263 (five months), P.L. 108-202 (two months), P.L. 108-224 (two months), P.L. 108-263 (1 month), P.L. 108-280 (two
months), and P.L. 108-310 (eight months).
88
For an additional historical perspective on extension legislation, see CRS Report RS21621, Surface Transportation
and Aviation Extension Legislation: A Historical Perspective, by John W. Fischer and Robert S. Kirk.
89
The American Jobs Creation Act of 2004 (P.L. 108-357) replaced the tax on tires from one based on tire weight to a
tax based on tire load capacity. This legislation also added definitions of “taxable tires,” “bias ply tires,” and “super
single tires.” Additional clarification of the definition for “super single tires” was provided with passage of the Energy
Policy Act of 2005.
90
In summary, these laws passed in the 109th Congress (and the length of their extension of funding) were: P.L. 109-14
(one month), P.L. 109-20 (three weeks), P.L. 109-35 (2 days), P.L. 109-37 (six days), P.L. 109-40 (three days), and
P.L. 109-42 (two weeks).
91
A characteristic of the HTF is that it was set up as a pay-as-you-go fund. When the creation of the HTF was under
consideration, there were concerns that the proceeds of the taxes dedicated to the HTF might prove insufficient to make
reimbursements when claims were made. The bill under consideration was amended to require a comparison of current
and future resources with existing and projected unpaid authorizations and to adjust the amounts apportioned for
highways if the two are out of balance. This comparison is referred to as the Byrd Amendment or the Byrd Test. The
exact requirements of the Byrd Test have changed several times since it was established in 1956. See Federal Highway
(continued...)
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‘supplemental minimum guarantee’ program that was designed to ensure that all states continue
to receive their 90.5% minimum guaranteed rate of return on fuel taxes sent to the HTF.”92
Just prior to the summer recess in August 2005, Congress sent legislation (H.R. 3) to the
President which extended trust fund expenditures through FY2009 and continued the highway
related taxes through FY2011. The legislation also included provisions aimed at stopping fuel
fraud, provided tax-exempt financing authority to finance highway projects and rail-truck transfer
facilities, and modified a number of excise taxes (both highway and non-highway related).
President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A
Legacy for Users (SAFETEA-LU) (the “Highway Act”) into law on August 10, 2005. The act
extended for six years the HTF excise taxes due to expire in 2005 until 2011. All of the excise
taxes, including the federal excise tax on gasoline, were continued at the prior tax rates. The act
established the Motor Fuel Tax Enforcement Advisory Commission, which was scheduled to
terminate on September 30, 2009. In other legislation, the Energy Policy Act of 2005 extended
the Leaking Underground Storage Tank (LUST) Trust Fund financing rate for the same six-year
period that the highway excise taxes were extended.
Extensions in the 110th Congress
At the time of passage of SAFETEA-LU, tax changes, the unexpended balance in the trust fund,
and economic growth were expected to provide sufficient financing for the Highway Trust Fund.
But projected shortfalls developed which required general fund contributions.93 On September 15,
2008, P.L. 110-318, To Amend the Internal Revenue Code of 1986 to Restore the Highway Trust
Fund Balance, was passed. This law transferred $8.017 billion from Treasury’s general fund to
the HTF, which provided financing through the end of FY2008.
Extensions in the 111th Congress
Six short-term extensions of SAFETEA-LU were passed in the 111th Congress.94 As shown in
Table 3, general fund transfers were twice in the 111th Congress to keep the HTF’s balance
positive under short-term funding measures.
On December 22, 2010, the Continuing Appropriations and Surface Transportation Extension Act,
2011 (H.R. 3082) became P.L. 111-322. This law extended SAFETEA-LU authorization of
appropriations out of the HTF through March 4, 2011.
(...continued)
Administration, “Legislative Affairs and Policy Communications,” at http://www.fhwa.dot.gov/policy/olsp/
financingfederalaid/fund.cfm#d.
92
Heather M. Rothman, “Highway Funding Extension Bill Cleared, With Provisions for AMT Relief, Expensing,”
Daily Tax Report, October 1, 2004, No. 190, p. G-11.
93
CRS Report R42877, Funding and Financing Highways and Public Transportation, by Robert S. Kirk and William
J. Mallett.
94
In summary, these laws passed in the 111th Congress (and the length of their extension of funding) were: P.L. 111-68
(one month), P.L. 111-88 (one and a half months), P.L. 111-88 (two and a half months), P.L. 111-144 (two weeks),
P.L. 111-147 (nine and a half months), and P.L. 111-322 (three months).
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Extensions in the 112th Congress
In the 112th Congress, a series of four short-term extensions of the surface transportation
legislation were enacted.95 These extensions reauthorized the federal government’s highway, mass
transit, and surface transportation safety programs and levied user taxes. Extended taxes on
gasoline and diesel fuels provided approximately 90% of the funding for the HTF and 80% of the
funding for mass transit programs.96 Other extended taxes were levied on heavy trucks, truck
tires, gasohol, and fuel from natural or petroleum gas.
On July 6, 2012, President Obama signed H.R. 4348, the Moving Ahead for Progress in the 21st
Century Act or MAP-21 (P.L. 112-141). This law authorized appropriations for the federal surface
transportation programs through October 1, 2014, expenditure authority for the HTF, and the
authorization of existing highway taxes, including gasoline and diesel taxes, through September
30, 2016. The extended gasoline tax rate was 18.4 cents per gallon and the extended diesel tax
rate was 24.4 cents per gallon. These rates include a 0.1 cent per gallon tax levied and deposited
in the LUST Trust Fund.
Author Contact Information
Sean Lowry
Analyst in Public Finance
slowry@crs.loc.gov, 7-9154
Acknowledgments
Previous versions of this report were authored by James M. Bickley, now retired, and Pamela J. Jackson,
specialists in Public Finance.
95
In summary, these laws passed in the 112th Congress (and the length of their extension of funding) were: P.L. 112-5
(seven months), P.L. 112-30 (six months), P.L. 112-102 (three months), and P.L. 112-140 (one week).
96
Detailed information about some of this legislation is available in CRS Report R42445, Surface Transportation
Reauthorization Legislation in the 112th Congress: MAP-21, H.R. 7, and H.R. 4348—Major Provisions, coordinated by
Robert S. Kirk.
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