Raise the Federal Gas Tax?

HighwaysJosh Voorhees from Slate just wrote a must-read article on the poor condition of our country’s road infrastructure (18th in the World Economic Forum, behind Saudi Arabia and Luxemburg), and the failure of our leaders on both sides of the aisle to be willing to address a long-term solution: The Solution That Shall Not Be Named.

In particular, Voorhees points out that it is almost universally understood among lawmakers that the current federal gas tax rate of 18.4 cents per gallon of gasoline (24.4 cents per gallon of diesel) is not nearly enough even to keep the federal highway trust fund from going broke, much less actually funding our infrastructure at a level at which repairs and replacements keep up with wear and tear. However, at the same time, almost every legislator (and representative of the executive branch) refuses to exhibit the political will to even publicly consider a desperately needed increase.

Read the article — and then defend the current political cowardice that has led to a nation of crumbling roads and bridges.

Just for a quick recap of the history of our federal gas tax:

  • 1.5 cents, June 1933 (National Industrial Recovery Act, President Hoover)
  • 1 cent, January 1934 (Revenue Act of 1934)
  • 1.5 cents, July 1940
  • 2 cents, November 1951 (Revenue Act of 1951)
  • 3 cents, July 1956 (Highway Revenue Act of 1956)
  • 4 cents, October 1959 (Federal-Aid Highway Act of 1959)
  • 9 cents, April 1983 (Surface Transportation Assistance Act of 1982, President Reagan)
  • 9.1 cents, January 1987 (Superfund Amendments and Reauthorization Act of 1986)
  • 9 cents, September 1990 (Superfund leaking underground storage tanks trust fund achieved its revenue goals)
  • 14.1 cents, December 1990 (Omnibus Budget Reconciliation Act of 1990, President H.W. Bush)
  • 18.4 cents, October 1993 (Omnibus Budget Reconciliation Act of 1993, President Clinton)
  • 18.3 cents, January 1996 (Taxpayer Relief Act of 1997, President Clinton)
  • 18.4 cents, October 1997 (Leaking Underground Storage Tank Trust Fund reinstatement)

Also, to put the federal gas tax in context of the total cost of gasoline, in Indiana, for each gallon purchased, a motorist pays:

  • The retail price of the fuel
  • 7% Indiana gross retail sales tax on the retail price of the fuel
  • 18.4 cents Federal gas tax
  • 18 cents Indiana gas tax

For a little more context on the various taxes on fuel, see my previous blog posts Gas Taxes in Indiana and Gas Taxes in Indiana Part 2.

Gas Taxes in Indiana, Part 2

Yesterday, I posted about how gas taxes in Indiana were calculated (Gas Taxes in Indiana). As promised, today I wanted to share some data about how Indiana’s fuel taxes (both gasoline) compare to those of other states.

Note that comparing gas taxes between states isn’t as straightforward as you might think. States use a combination of specific taxes (taxes that are based the number of units of the item or service taxed) and ad valorem taxes (taxes that are based on the value or price of the item or service taxed). To the point here, while the Indiana excise tax for gasoline is 18c per gallon (a specific tax), the non-tax part of the retail price of gasoline also is subject to the general gross retail sales tax of 7% (the same sales tax you pay for any other items purchased). So the actual taxes paid by motorists at the pump per gallon depend on the price of gasoline at the time. In analyzing the tax on fuel between states, therefore, one must use some sort of average fuel price across the state as a basis for comparison.

So how does Indiana stack up?

First, consider only the excises tax on gasoline. The following table shows the excise tax by state (based on 2012 information from the American Petroleum Institute).

State Excise Tax
Fla. 4.0
Ga. 7.5
Alaska 8.0
N.Y. 8.1
N.J. 10.5
Pa. 12.0
Wyo. 13.0
S.C. 16.0
Okla. 16.0
Ala. 16.0
Mo. 17.0
N.M. 17.0
Hawaii 17.0
Va. 17.5
Miss. 18.0
Ariz. 18.0
N.H. 18.0
Ind. 18.0
Vt. 19.0
Ill. 19.0
Mich. 19.0
La. 20.0
Tex. 20.0
Tenn. 20.0
W.Va. 20.5
Iowa 21.0
Mass. 21.0
Ark. 21.5
Colo. 22.0
S.D. 22.0
Del. 23.0
N.D. 23.0
Nev. 23.0
Md. 23.5
D.C. 23.5
Kans. 24.0
Utah 24.5
Idaho 25.0
Conn. 25.0
Ky. 26.4
Nebr. 26.7
Mont. 27.0
Ohio 28.0
Minn. 28.0
Ore. 30.0
Maine 30.0
Wis. 30.9
R.I. 32.0
Calif. 35.7
Wash. 37.5
N.C. 38.9

Indiana shares the 10th lowest rank for gasoline taxes by state.

However, when you throw in the sales tax and other taxes, the ranking changes quite a bit:

State Excise Tax Other State Taxes and Fees Total
Alaska 8.0 0.0 8.0
Wyo. 13.0 1.0 14.0
N.J. 10.5 4.0 14.5
S.C. 16.0 0.8 16.8
Okla. 16.0 1.0 17.0
Mo. 17.0 0.3 17.3
Miss. 18.0 0.8 18.8
N.M. 17.0 1.9 18.9
Ariz. 18.0 1.0 19.0
N.H. 18.0 1.6 19.6
Va. 17.5 2.3 19.8
La. 20.0 0.0 20.0
Tex. 20.0 0.0 20.0
Ala. 16.0 4.9 20.9
Tenn. 20.0 1.4 21.4
Ark. 21.5 0.3 21.8
Iowa 21.0 1.0 22.0
Colo. 22.0 0.0 22.0
Del. 23.0 0.0 23.0
N.D. 23.0 0.0 23.0
Mass. 21.0 2.5 23.5
Md. 23.5 0.0 23.5
D.C. 23.5 0.0 23.5
S.D. 22.0 2.0 24.0
Utah 24.5 0.0 24.5
Kans. 24.0 1.0 25.0
Idaho 25.0 0.0 25.0
Vt. 19.0 7.1 26.1
Nebr. 26.7 0.9 27.6
Ky. 26.4 1.4 27.8
Mont. 27.0 0.8 27.8
Ohio 28.0 0.0 28.0
Minn. 28.0 0.1 28.1
Ga. 7.5 21.9 29.4
Ore. 30.0 1.0 31.0
Maine 30.0 1.5 31.5
Pa. 12.0 20.3 32.3
Wis. 30.9 2.0 32.9
R.I. 32.0 1.0 33.0
Nev. 23.0 10.1 33.1
W.Va. 20.5 12.9 33.4
Fla. 4.0 31.0 35.0
Wash. 37.5 0.0 37.5
Ind. 18.0 20.9 38.9
Ill. 19.0 19.9 38.9
N.C. 38.9 0.3 39.2
Mich. 19.0 20.4 39.4
Hawaii 17.0 30.1 47.1
Conn. 25.0 23.6 48.6
Calif. 35.7 12.9 48.6
N.Y. 8.1 40.9 49.0

Now, Indiana ranks at the 7th highest overall gas tax. So when you compare state by state, it is critical to take into account all of the applicable taxes, not just the so-called Gasoline Tax.

The American Petroleum Institute (API), an oil and gas industry trade group and certainly not an unbiased source, nonetheless puts out some useful graphics that illustrate the magnitude of gasoline taxes by state.

The following chart  illustrates the overall tax on gasoline by state (click to enlarge).


The API numbers illustrated on the chart include all combined federal, state, and local taxes on gasoline. Note that these numbers won’t necessarily absolutely match any other set of statistics on fuel taxes, since the numbers for the states with ad valorem taxes (like Indiana’s sale tax) will depend on the prices used in the analysis, which vary by day.

Now, for diesel: the following chart illustrates the overall tax on diesel by state (click to enlarge).


This chart shows that Indiana actually has the second-highest tax for diesel fuel (used by motor carriers), after Connecticut. Remember that in addition to the 16c per gallon excise tax on diesel fuel, Indiana also assesses a motor carrier surcharge tax of 11c per gallon, which is paid quarterly by the carrier.

Of course, depending the pricing at the time, New York and California may challenge Indiana for motor carrier fuel tax supremacy!

In addition, a number of states (including California, Iowa, Michigan, Washington, Ohio, and Florida), struggling with declining infrastructure and reduced overall revenues from gas taxes (from more fuel-efficient vehicles and behavioral changes from drivers) have seen recent conversations in their respective statehouses considering raises on fuel tax, as well as more radical fee structures for road funding including Vehicle Miles Traveled (VMT) taxes. So this map may look quite a bit different in the foreseeable future!

Gas Taxes in Indiana

AGas Prices week ago I wrote about some potential changes in legislation to the way in which gas taxes are allocated to local governments for road construction and maintenance (Counties Agitate for Increased Road Funding). Since then I have received several questions about what exactly comprises the taxes paid on gasoline (and diesel) in Indiana, so I thought I’d explain how gas taxes work in Indiana.

Calculating the Gasoline Tax

In Indiana, the price that you pay at the pump for a gallon of gasoline consists of 4 elements:

  • The retail price of the fuel
  • 7% Indiana retail sales tax on the retail price of the fuel
  • 18.4c per gallon Federal gas excise tax
  • 18c per gallon Indiana gas excise tax

Just as an example, consider the gas that I paid $3.85/gallon for this morning. That price at the pump consisted of:

Retail Price  $3.260
Federal Tax  $0.184
Indiana Gas Tax  $0.180
Sales Tax (7%)  $0.228
Total  $3.85

At this particular price, taxes comprise 15.4% of the  total price paid at the pump. Since the federal and state excise taxes on gasoline are charged per gallon (rather than ad valorem, or based on the price of the gasoline), taxes comprise a smaller percentage of the overall price paid per gallon the higher the price of the gasoline.

The 18c per gallon Indiana gasoline excise tax has been the same since 2003. The 18.4c per gallon Federal gasoline excise tax has remained the same since 1993!

Calculating the Diesel Tax (for Motor Carriers)

The taxes on diesel fuel, primarily used by motor carriers (trucks), differ in rate in Indiana, but also include an additional charge: a Motor Carrier Surcharge Tax. The total price paid consists of the following components:

  • The retail price of the fuel
  • 7% Indiana retail sales tax on the retail price of the fuel
  • 24.4c per gallon Federal diesel excise tax
  • 16c per gallon Indiana excise tax (as opposed to 18c for Indiana)
  • 11c per gallon Motor Carrier Surcharge Tax (paid quarterly by the carrier)

Here is a pricing example for diesel:

Retail Price  $3.260
Federal Tax  $0.244
Indiana Gas Tax  $0.160
Surcharge  $0.110
Sales Tax (7%)  $0.228
Total  $4.00

The diesel excise tax and the motor carrier surcharge tax has been the same since 1998. Note that the 11c per gallon Motor Carrier Surcharge Tax is paid to the state quarterly by the carrier.

With this particular example, using the same retail price as with gasoline, the taxes on diesel make up 18.5% of the total price paid at the pump — making diesel in Indiana more heavily taxed than gasoline. This is true in most jurisdictions, primarily because diesel is primarily paid by motor carriers rather than individuals, and thus is less unpopular politically.

Tomorrow, I’ll put out some data comparing Indiana gas taxes to those in other statues. Hint: our gas taxes are among the highest in the nation!