Blaming a dwindling federal gas tax for road maintenance woes is easy, as is promising to freeze it to placate constituents suffering at the pump. Real solutions, however, require a better understanding of the tax, its fund and the meaning of maintenance. I’ve witnessed some confusion – in news reports and among some SmartBrief readers – regarding these topics, so here are some things to keep in mind.
- The gas tax and the Highway Trust Fund are often used interchangeably, but they aren’t the same. The fund matters more than the tax.
- The tax’s goals have changed a lot over the years. It could change again to meet contemporary needs.
- Some discussions will soon be moot, as spending outpaces funding.
- The vast majority of US roads are owned and maintained locally, but maintenance funding often remains federal.
Gas tax origin
The gas tax (as it’s come to be called) was launched in 1932 as a temporary means to help cover a Great Depression-driven budget deficit and to fund the military. (Here’s the May 2, 1932, New York Times article on Hoover’s national defense ideas.) But a costly New Deal, followed by World War II, meant keeping the tax in place.
Highway Trust Fund origin
Today, the gas tax is allocated to the Highway Trust Fund, making the terms almost synonymous. The fund was established in 1956 to pay for the interstate highway system. In 2022, 83% of the fund still came from fuel taxes.
A changing mission
Since the 1950s, the fund’s mission has shifted more towards maintenance, defined broadly so as to support federal surface transportation systems holistically. It includes repairing bridges, funding public transportation (to reduce highway traffic), and renovating (and expanding) existing systems. The Highway Trust Fund isn’t the only funding source for federal transport programs, but it remains the largest. For fiscal year 2025, it provided $58.2 billion for the fund’s Highway Account and $16.2 billion for the fund’s Mass Transit Account, for total outlays of $74.4 billion.
The challenge trifecta
For three reasons, the Highway Trust Fund is forecast to be insolvent in 2028. One, vehicle fuel efficiency has improved, so less tax is being collected. Two, inflation has deteriorated the revenue’s value, since the gas tax hasn’t been raised since 1993. Add to that rising costs. For more than 20 years, the government has spent more annually than the fund makes.
Recent discussions have been more about freezing gas taxes than supplementing them, though. Politicians are eager to give constituents a reprieve from gas prices that have soared since the war with Iran began. Georgia’s governor suspended the state’s gas tax for two weeks until June 3. President Trump has suggested freezing the federal tax for an unspecified period.
It wouldn’t be much of a reprieve. While Georgia collects its 33 cents per gallon tax at the pump, the federal tax is collected before it reaches retailers, which might not pass on the savings. Regardless, a federal gas tax freeze wouldn’t shave much off, especially based on current jacked-up prices.
Potential answers
Many transportation officials say alternative user fees are part of the solution, for either all drivers or drivers of electric (or hybrid) vehicles. The bipartisan BUILD America 250 Act is moving through Congress. The aim is to gain Trump’s signature in the fall. It would charge an annual EV registration fee of $130. Hybrids would pay $35.
To refill the fund’s coffers, the Committee for a Responsible Federal Budget has several recommendations. One is raising federal gas and diesel tax rates 15 cents. Alternatively, a $20 per ton tax on carbon could be issued or $5 could be charged per barrel. A Vehicle Miles Traveled (VMT) fee could subject all vehicles to 1 cent per mile, while commercial vehicles would pay an additional 5 cents. Similar recommendations come from the Economic Policy Innovation Center, which also suggests removing regulations that come from accepting Highway Trust Fund grants. These include limits on using non-union labor and installing tolls.
It’s also possible that we’ve asked too much of the Highway Trust Fund. If we narrowed its scope, would it more successfully meet its mission? Maybe. But that would leave secondary goals lacking. Where would funding come from for those priorities? On September 30, US surface transportation programs expire. All potential solutions require sacrifice, which helps explain why the fund may run out of money before hard choices are made.
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