Since 1919, motor fuel taxes have been the principal source of state highway funding, and since the 1956 legislation authorizing the federal Highway Trust Fund, revenue from federal gasoline and diesel taxes has been the principal source of federal highway funding as well. Yet, the transportation community has concluded that this fuel tax funding source is not sustainable in the long term.
One reason is ever-increasing vehicle fuel economy improvements. Today’s personal vehicles go more than twice as far on a gallon of gas as similar vehicles did when federal Corporate Average Fuel Economy (CAFE) standards began in 1975.
Real-world miles per gallon (mpg) was just above 12 miles per gallon in 1975 but had increased to 24.9 miles per gallon in 2023.
Another reason is the ongoing increase in electric propulsion, either full-time via batteries (and occasionally hydrogen) or part-time via hybrid propulsion.
In the early years of the 21st century, Congress asked the Transportation Research Board of the National Academies to conduct a study of the long-term viability of fuel taxes as a transportation funding source. The author of this policy brief was one of 14 members of the expert panel charged with this year-long study. That report concluded that the likelihood of fuel taxes having long-term sustainability was doubtful due to already-evident increases in vehicle fuel efficiency and the potential of non-petroleum propulsion sources.
The report recommended increased use of tolling in the near term and research into road use metering and per-mile charging. It favored retaining the users-pay/users-benefit principle and looking into alternative means of supporting urban transit.
Congress subsequently appointed a national commission to research the best means of eventually replacing per-gallon fuel taxes. After reviewing a wide array of alternatives, the commission concluded that charging vehicles per mile traveled (rather than gallons consumed) would be the fairest way to charge for roadway use.
Since then, the fuel tax replacement has been referred to as a mileage-based user fee (MBUF) in the eastern United States and as a road usage charge (RUC) in the western states.
Since the publication of those two major reports in the first decade of this century, the anticipated decline in fuel tax revenue has begun. Congress has continued to approve increased miles-per-gallon requirements for new motor vehicles (and, more recently, for trucks), and federal and state subsidies for hybrids and fully electric vehicles have spurred the sales of such vehicles.
In June 2024, the Congressional Budget Office released a 10-year forecast of federal gasoline tax receipts, projecting that they would decrease by between 1.3% and 1.5% per year going forward to Fisal Year 2034. From $25.3 billion in FY24, the total would decline to $16.2 billion in FY34.
Currently, diesel tax receipts do not show a corresponding decline since stringent miles-per-gallon regulations are only beginning to affect heavy trucks. Figure 1 and Table 1 in this policy brief show the projected decline in federal gas tax receipts.