Order Code RL30304
CRS Report for Congress
Received through the CRS Web
The Federal Excise Tax on Gasoline and the
Highway Trust Fund: A Short History
Updated November 18, 2004
Louis Alan Talley
Specialist in Taxation
Government and Finance Division
Pamela J. Jackson
Analyst in Public Sector Economics
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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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 any increase in the gasoline
tax is generally passed forward to the retailer, translating into a higher retail gas sales
price. Thus, the burden for much of the tax ultimately falls on the consumer.
The Highway Revenue Act of 1956 established the federal Highway Trust Fund
for the direct purpose of funding the construction of an interstate highway system,
and aiding in the finance of primary, secondary, and urban routes. This act increased
the tax on gasoline from two to three cents per gallon. Each time Congress has
extended the Highway Trust Fund it has also extended the federal excise tax on
gasoline.
As recently as 1990 and 1993, Congress passed legislation dedicating a portion
of gasoline tax revenue for deficit reduction. However, none of the current 18.4-cent
per gallon tax imposed on gasoline is dedicated to the General Fund. One tenth of
one cent per gallon is dedicated to the Leaking Underground Storage Tank Trust
Fund; 2.86 cents per gallon is allocated for mass transit purposes and earmarked to
the Mass Transit Account within the Highway Trust Fund; and the balance, 15.44
cents per gallon, is earmarked to the Highway Account, also within the Highway
Trust Fund.
A chief issue that has been left for the 109th Congress is successor legislation
to the Transportation Equity Act for the 21st Century (TEA21). While TEA21
continues to provide the general budgetary framework and policy direction for many
transportation issues, it has been necessary to use short-term extender legislation for
Highway Trust Fund expenditures. Extensions include P.L. 108-88 in September
2003, P.L. 108-202 in February 2004, P.L. 108-263 in June 2004, P.L. 108-280 in
July 2004, and P.L. 108-310 in September 2004. This latest extension provides
funding through May 31, 2005. As such, congressional discussions continue in
consideration of the reauthorization of federal highway, highway safety, and transit
programs. This report will be updated in the event of future legislative developments
that bear on the gasoline excise tax.

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Contents
Gasoline Excise Tax for Deficit Reduction — 1932 . . . . . . . . . . . . . . . . . . . . . . . 1
National Defense Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Highway Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Gasoline Excise Tax for Deficit Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reversion from Deficit Reduction to User Tax Status . . . . . . . . . . . . . . . . . . . . . 8
Temporary Extension in the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Figures
Figure 1. Collection and Distribution of Federal Gasoline Taxes, FY2001 . . . . . 9
List of Tables
Table 1. Summary of Changes in the Rate of the Federal Manufacturers’
Excise Tax on Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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The Federal Excise Tax on Gasoline and
the Highway Trust Fund: A Short History
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, that became law on June 6, 1932. 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.
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 the
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 tax — raising 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.
However, the Senate amended the House-passed bill, authorizing a gasoline tax at the

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CRS-2
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 19321 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, benzol,
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 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,2 Congress extended this tax until June 30, 1934. The
National Industrial Recovery Act,3 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 that this tax is 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 18th
amendment to the Constitution, establishing national prohibition, was repealed
(which would bring in additional revenues to the federal 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 1934,4 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.
1 Revenue Act of 1932, P.L. 154, 72nd Congress, approved June 6, 1932.
2 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.
3 National Industrial Recovery Act, P.L. 67, 73rd Congress, approved June 16, 1933.
4 Revenue Act of 1934, P.L. 216, 73rd Congress, approved May 10, 1934.

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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 19405
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 1941,6 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 the Congress increased the rate to two cents per gallon
under authority of Section 489 of the Revenue Act of 1951.7 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.
Before this reduction took place, Congress passed the Excise Tax Reduction Act
of 1954,8 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 two-cent per gallon tax on gasoline by approval of the Tax Rate
Extension Act of 19559 [Section 3(a)(3)] and the Tax Rate Extension Act of 195610
[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,11 provided that the Treasury
Department refund those taxes paid on gasoline used on farms for farming purposes
purchased after December 31, 1955.
5 Revenue Act of 1940, P.L. 656, 76th Congress, approved June 25, 1940.
6 Revenue Act of 1941, P.L. 250, 77th Congress, approved Sept. 20, 1941.
7 Revenue Act of 1951, P.L. 183, 82d Congress, approved Oct. 20, 1951.
8 The Excise Tax Reduction Act of 1954, P.L. 324, 83rd Congress, approved Mar. 31, 1954.
9 Tax Rate Extension Act of 1955, P.L. 18, 84th Congress, approved Mar. 30, 1955.
10 Tax Rate Extension Act of 1956, P.L. 458, 84th Congress, approved Mar. 29, 1956.
11 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 Apr. l 2, 1956.

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Highway Trust Fund
The Federal Aid Highway Act of 195612 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 the13-year period from
FY1957 through 1969 for this highway system. To make the federal aid highway
program self-financing, the Highway Revenue Act of 195613 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 the16-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 was 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 1972. House Report 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 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 1959,14 the federal
gasoline tax was increased from three to four cents per gallon which was to be in
effect from October 1, 1959, through June 30, 1961.
12 Federal-Aid Highway and Highway Revenue Act of 1956, P.L. 627, 84th Congress,
approved June 29, 1956.
13 Ibid.
14 Federal-Aid Highway Act of 1959, P.L. 86-342, approved Sept. 21, 1959.

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CRS-5
Under Section 201(b) of the Federal Aid Highway Act of 1961,15 this four-cent
rate was extended beyond June 30, 1961. The scheduled reduction to1.5 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 1970.16 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 1976.17 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 merely
delayed decision-making 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
1978.18
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 1982.19
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
15 Federal-Aid Highway Act of 1961, P.L. 87-61, approved June 29, 1961.
16 Federal-Aid Highway Act of 1970, P.L. 91-605, approved Dec. 31, 1970.
17 Federal-Aid Highway Act of 1976, P.L. 94-280, approved May 5, 1976.
18 Surface Transportation Assistance Act of 1978, P.L. 95-599, approved Nov. 6, 1978.
19 Surface Transportation Assistance Act of 1982, P.L. 97-424, approved Jan. 6, 1983.

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CRS-6
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 for the cost of the cleanup of leaking
underground storage tanks containing petroleum products, Congress established the
Leaking Underground Storage Tank Trust Fund.20 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 Trust Fund had reached its net
revenue target for cancellation.21
The Surface Transportation and Uniform Relocation Assistance Act of 198722
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)23 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 cent
was 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 0.1-cent per gallon tax rate.24 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 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.
20 Superfund Revenue Act of 1986, P.L. 99-499, approved Oct. 17, 1986.
21 Internal Revenue Service Announcement 90-82, released June 27, 1990.
22 Surface Transportation and Uniform Relocation Assistance Act of 1987, P.L. 100-17,
approved Apr. 2, 1987.
23 Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, approved Nov. 5, 1990.
24 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 Oct. 1,
1995.

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CRS-7
The following year Congress passed the Intermodal Surface Transportation
Efficiency Act (ISTEA) of 1991.25 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)).26 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-cents 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 United States Treasury.
As previously related, provisions of OBRA90 terminated the LUST tax rate of
0.1 cent on December 31, 1995. Thus, the 18.3 cents 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.
25 Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991, P.L. 102-240,
approved Dec. 18, 1991.
26 Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, approved Aug. 10, 1993.

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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 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 199727 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.28 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,
1996.29 The tax was reinstated at its prior tax rate of 0.1 cent per gallon on all types
of motor fuels. While this portion of the law increased the tax rate which may have
been passed forward to consumers, the small size of the increase (0.1 cent) was not
likely noticed by consumers. The tax rate change is effective from October 1, 1997,
through March 31, 2005.30 The imposition of the gasoline tax is codified under IRC
27 Taxpayer Relief Act of 1997, P.L. 105-34, approved Aug. 5, 1997.
28 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.
29 Ibid.
30 For additional information and a discussion of the LUST tax, see CRS Report RS21201,
(continued...)

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section 4081. Figure 1 illustrates the current distribution of the 18.4 cents per gallon
tax on gasoline, along with the respective amounts collected and distributed during
fiscal year (FY) 2001.
Figure 1. Collection and Distribution of Federal Gasoline Taxes, FY2001
Total federal gasoline tax rate:
18.4 cents/gallon ($20.6 billion)
Leaking Underground Storage
Highway Trust Fund: 18.3 cents/gallon ($20.5 billion)
Tank Trust Fund Account: 0.1
cent/gallon ($0.1 billion)
Highway Account: 15.44
Mass Transit Account: 2.86
cents/gallon ($17.3 billion)
cents/gallon ($3.2 billion)
Source: U.S. Department of the Treasury, Internal Revenue Service, compilation of trust fund
certifications dated June 18, 2001, Sept. 18, 2001, Dec. 28, 2001, and March 19, 2002.
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
Century31 generally known as TEA21. 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,
TEA21 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.
30 (...continued)
Leaking Underground Storage Tanks: Program Status and Issues, by Mary Tiemann.
31 Transportation Equity Act for the 21st Century, P.L. 105-178, approved June 9, 1998.

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Temporary Extension 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, introduced as H.R. 3087, 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 extends through May 31,
2005, the programs authorized by the Transportation Equity Act for the 21st Century
(TEA-21). This last extension provides $31.8 billion in contract authority, of which
$2.7 billion is for FY2004 and $29.1 billion is available for the eight-month 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.32
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; and an annual use tax on heavy vehicles. These excises were
not affected by these temporary extensions, since under current law these excise taxes
are not scheduled to expire until September 30, 2005.
Recent Developments
It has been reported that while some staff would continue to work on the six-
year highway and transit reauthorization bill, it appears that the lame-duck session
will end without reaching a final compromise on the legislation. The 109th Congress
will have until Memorial Day to complete work on the new highway bill. The last
extension included language that provides 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. It is expected that this change will
generate $940 million in new revenue for the Highway Trust Fund. Also included
in that legislation is an extension “for one year 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 fund failing
the test. The legislation also includes a new ‘supplemental minimum guarantee’
32 For an additional historical perspective on extension legislation, see CRS Report
RS21621, Surface Transportation and Aviation Extension Legislation: A Historical
Perspective by John Fischer and Robert Kirk.

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CRS-11
program that is designed to ensure that all states continue to receive their 90.5%
minimum guaranteed rate of return on fuel taxes sent to the Highway Trust Fund.”33
Congress continues to consider highway reauthorization proposals. The current
extension continues FY2004 funding levels for the highway programs until
September 24, 2004. Also extended by the legislation were federal transit, highway
safety, and motor carrier safety programs through the end of this fiscal year
(September 30, 2004). It has been reported that staff from both chambers are
continuing discussions during the congressional summer recess. House and Senate
negotiators have been unable to agree among themselves and with the Administration
on an acceptable funding level.34 It has been reported that the most recent attempt at
a compromise was for a six-year, $284 billion funding authorization level. The
House bill, the Transportation Equity Bill: A Legacy for Users (H.R. 3550), provides
a $275 billion funding level, while the Senate-passed legislation, the Safe,
Accountable, Flexible, and Efficient Transportation Equity Bill of 2004 (S. 1072),
approved a much higher funding level of $318 billion.
Issues
It is beyond the scope of this paper to discuss the details of the funding debate
surrounding the surface transportation reauthorization legislation.35 However,
measures identified by the House Transportation and Infrastructure Committee
leadership to address the identified funding needs include the following:
! using the existing balance of the Highway Trust Fund,
! re-directing interest earnings of the trust fund from the General Fund
to the Highway Trust Fund,
! increasing the gasoline excise tax,
! enhancing efforts to eliminate gasoline excise tax evasion,
! directing all revenues from the current excise tax on gasohol to the
trust fund, and
! reimbursing the trust fund for foregone revenues deriving from the
subsidy for gasohol.
A spokesman for the Bush Administration indicated President Bush is not
interested in increasing the gasoline excise tax as part of the reauthorization of the
Transportation Equity Act for the 21st Century. The Administration has not
supported proposals to provide direct aid to states for infrastructure improvements
33 Heather M. Rothman, “Eight-Month Highway Funding Extension Bill Cleared for
President’s Signature,” Daily Tax Report, Oct. 1, 2004, No. 190, p. G-11.
34 The conferees are trying to agree on a level of spending that provides growth in the
funding for all states, increases the rate of return for donor states; reduces funding amounts
to donee states while making certain that necessary federal funds remain, provides
significant funding to build new emerging trade traffic corridors, help states with massive
but critical projects, and which will also meet the Administration’s funding goals.
35 For discussion of the issues surrounding reauthorization legislation, see CRS Report
RL32226, Highway and Transit Program Reauthorization Legislation in the 2nd Session,
108th Congress with John W. Fischer as Coordinator.

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CRS-12
as part of an economic growth plan. Although not directly related to highway and
transit funding, the Bush Administration did note that current federal budget deficits
preclude all but modest growth in spending for nondefense programs.36
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.37 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.
As indicated in Figure 1, gasoline excise tax revenues for FY2001 were $20.6
billion. Therefore, if gasoline consumption rates remain unchanged, each additional
one-cent tax increase would result in an additional $1.1 billion in revenue per year.
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.
On the following page appears Table 1, a complete summary of the gasoline tax
rate changes.
36 Nancy Ognanovich, “President Will Not Back Gas Tax Hike To Pay for TEA-21, Daniels
Says,” Daily Tax Report, No. 11, Jan. 16, 2003, p. G-10.
37 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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CRS-13
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, 1990 (a)
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, 1995 (b)
18.3
January 1, 1996 (c), to September 30, 1997
18.4
October 1, 1997 (d), to March 31, 2005
18.3
April 1, 2005, to September 30, 2005
4.3
October 1, 2005 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. Additionally, the
LUST tax which had terminated on December 31, 1996 was re-authorized for the period
October 1, 1997, through March 31, 2005.

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