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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Who Will Pay for the Roads?
• The future of funding for America’s highways has been the topic of much
political discussion for decades. While many states have increased motor fuel
tax rates over the last decade, the federal government has not updated the
gas tax since 1993.
• The motor fuel tax is a relatively well-designed tax which acts as a user fee by
raising revenue to fund the highway system. The tax also aims to counter the
negative side effects caused by driving petroleum-burning motor vehicles and
their contribution to congestion.
• Tax revenues per vehicle mile traveled (VMT) are decreasing in real terms
while expenditures are increasing in real terms. In 1994, a passenger car
averaged 20.7 miles per gallon (MPG) and drivers paid 3.2 cents in state and
federal tax per VMT. In 2018, a passenger car averaged 24.4 MPG and drivers
only paid 2.1 cents per VMT.
• Discrepancies between tax revenues and highway expenditures will get
worse as fuel economy improves if tax rates are not indexed to inflation, or if
share of electric vehicles (EVs) grows.
• One solution is to fund highways by taxing vehicle miles traveled. Rather than
using taxes on cars or motor fuel as a proxy for transportation, a tax levied
directly on miles gets closer to capturing the externalities and approximating
the road maintenance cost of each vehicle.
• A federal VMT tax rate must average 1.7 cents per mile to cover the highway
fund’s expenditures. The actual rate per vehicle should be differentiated
based on weight per axle.