The federal gas tax is a fixed rate, not a percentage, and therefore is highly vulnerable to inflation. This chart shows how the gas tax has not kept pace with the inflating costs of construction materials and labor. The chart is from “A Federal Gas Tax for the Future,” a new report from the Institute for Taxation and Economic Policy (website). Read an executive summary (webpage), the complete report (pdf), or the press release (pdf).
ITEP explains this chart:
This chart shows that during the same period of time that fuel-efficiency gains took a 6 percent bite out of the purchasing power of the gas tax, construction cost inflation reduced the tax’s value by 3.5 times that amount, or 22 percent.6 Put another way, over three-quarters (78 percent) of the current gas tax shortfall can be traced back to growth in the cost of construction materials and labor. The remaining 22 percent of the shortfall is due to fuel-efficiency gains.*
Unlike most taxes that are levied on a percentage-basis (e.g., 5 percent of a product’s price or 25 percent of a taxpayer’s income), the gasoline tax is levied as a fixed amount per gallon—currently 18.4 cents. As lawmakers have long known, however, writing fixed dollar amounts into the tax law inevitably creates problems in the medium- and long-term as inflation erodes their “real” value. For this reason, many features of federal income tax law (e.g., tax exemptions, credits, and tax bracket cut-off points) are specifically designed to rise in lock-step with inflation each year. Unfortunately, this type of “inflation indexing” has not been implemented with respect to the federal gas tax.
*These figures do not include the diesel tax, but rather focus solely on the gasoline tax. The fuel-efficiency of diesel-powered vehicles has remained basically unchanged since 1997 according to FHWA data, so the decline of the diesel tax is rooted entirely in construction cost growth. In other words, the impact of fuel-efficiency on total motor fuel tax revenues (including both gasoline and diesel) is even smaller than 22 percent.