What is a Federal Gas Tax?

A federal gas tax is one of several taxes applied to the sale of gas and diesel fuel at the pump. The revenue generated from the tax is generally directed back to the federal or national government to fund interstate highway repairs and other expenses. States, counties, and other local entities may also levy a tax for gas consumption. It is important to note that the total price per gallon of gas includes, but is not limited to, the wholesale cost of crude oil, federal and state taxes, refining costs and profits, plus distribution and marketing. Therefore, the total retail price of a gallon of gas reflects the aggregation of all the underlying costs.

In the United States, the origin of the federal gas tax dates back to beginning of The Great Depression. Like many presidents, Herbert Hoover wanted to balance the federal budget, but in 1932 he was facing the aftermath of the market crash and the early agonies of a decade-long economic catastrophe. Seeking to boost federal revenue, the Congress passed, and President Hoover signed, the Revenue Act of 1932. Included in the legislation, among numerous other new taxes, was America’s first federal gas tax which was set at $0.01 US Dollar (USD) per gallon.

Originally legislated, the United States federal gas tax was to be temporary, but over the subsequent years it was extended until it was made permanent — and increased to $0.015 USD per gallon — by the Revenue Act of 1941. Since then, the federal gas tax has steadily increased through various legislative acts. The tax reached a rate of $0.184 USD per gallon in 1993 through the Omnibus Budget Reconciliation Act of 1993, signed by President Bill Clinton.

Revenue from the United States federal gas tax has been employed through various channels. It has often been used to reduce the deficit and, primarily, to increase the United States Highway Trust Fund. The trust fund is used to finance the repair and creation of new interstate highways and other roads, and it also used to fund, in part, mass transit.

Opinion has fluctuated over the federal gas tax. In 2009, in response to spiking crude oil prices, some countries like Brazil reduced the gas tax in order to maintain retail prices. By contrast, in the United States there were calls to increase the federal gas tax in order to restock the shrinking United States Highway Trust Fund.