Transportation Fuel taxes in the U.S., Canada, Australia, etc
By: +David Herron; Date: Sun Jan 03 2021 15:53:30 GMT-0800 (Pacific Standard Time)
Tags: EV Taxes
Various governments around the world use different methods to fund their highway systems.
Fuel taxes are an excise tax imposed on the sale of fuel. Primarily it's imposed on fuels which are intended for transportation. In the U.S. this tax is dedicated to (or hypothecated to) transportation projects (building or maintaining roads) and is considered by many a user fee.
In the short run the tax will be an effective source of revenue. Why? The phrase is "the relatively inelastic nature of the demand for gasoline". Converting that into English, we can say that we are trapped in a world of gasoline driven vehicles and for better or worse there is little choice but to drive a gasoline vehicle. Hence, so long as individuals driving their own cars continues to be the primary mode of transportation, and so long as there is little movement towards electrifying the car fleet, gasoline use will remain in its pattern of continual growth.
Indeed the long term prospect for gasoline may be more elastic, that is more subject to change. Rising fuel prices is leading to changes in transportation use, different cars, more public transit, more bicycles, etc.
In some regions neighboring countries may have radically different fuel tax policies leading to "cross-border purchasing of fuel".
Fuel taxes in some places are seen as a way to encourage adoption of other kinds of vehicles. That is, raising gasoline taxes makes the consumer think twice about fueling up and they look for alternatives. It may tip the balance in favor of electric cars.
In the UK, while they have the Vehicle Excise Duty (a tax for just owning a vehicle), they also have a fuel tax, the "Hydrocarbon oil duty".
In Canada there are three levels of taxation, their federal government, provincial governments, and local governments. The federal taxes collected go into the general fund while provincial gasoline taxes generally go into the road fund. The situation in Australia is very similar.
The first federal gasoline tax in the United States wasn't enacted until June 1932 with the enactment of the Revenue Act of 1932. In 2007 then-Secretary of Transportation Mary Peters said about 60% of federal gas taxes are used for highway and bridge construction. The federal tax is not indexed to inflation and hasn't been raised since 1993. Hence it's lost purchasing power over the years since its last increase.
The "Highway Trust Fund" is a federal level fund, the bulk of which is for federal highways. The HTF also includes two smaller accounts, Mass Transit Account and Leaking Underground Storage Tank Trust Fund. It was established in 1956 to ensure a reliable source of funds. Tax revenues directed to the HTF are derived from excise taxes on highway motor fuel and truck related taxes on truck tires, sales of trucks and trailers, and heavy vehicle use.
The Gas Guzzler Tax imposes tax penalties on car manufacturers who fail to meet the minimum fuel economy level of 22.5 mpg, in the U.S. However it included a loophole big enough to drive an SUV through: it does not include minivans, sport utility vehicles or pick-up trucks. It's intended to discourage the production and purchase of fuel inefficient vehicles.