The Federal Excise Tax on Gasoline and the
Highway Trust Fund: A Short History
James M. Bickley
Specialist in Public Finance
September 7, 2012
Congressional Research Service
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www.crs.gov
RL30304
CRS Report for 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 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.
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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
Congressional Research Service
The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History
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
A 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 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. 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.
2 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.
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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 two-
cent 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.
11 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.
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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 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 1978.20
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.
17 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.
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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 0.1-
cent-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.
22 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.
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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 Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991, P.L. 102-240, approved December 18, 1991.
28 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.
30 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.
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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.
39 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.
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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.
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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 col ected 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 col ected 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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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 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.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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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.
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