For decades, the taxes on motor vehicle fuel have served as a primary funding source for road maintenance and construction. According to the U.S. Energy Information Administration, the federal taxes and fees on diesel fuel are 24.4 cents per gallon, while the average state tax is 34.76 cents per gallon. Other federal funding sources come from the Federal Excise Tax on trucks, trailers, and truck tires. These fuel and equipment taxes result in billions of federal and state revenue.
The federal and state governments split road construction and maintenance costs. The Tax Policy Center estimates that the Highway Trust Fund—the federal funding mechanism and recipient of FET revenue— accounts for approximately 25% of the public spending on roads and highways; state and local governments finance the rest. The Highway Trust Fund model financed U.S. transportation needs for years, but since 2008, Congress has had to transfer general revenues to the fund on multiple occasions, most recently to meet spending obligations through 2027.
The Tax Foundation looked at how the decline in gasoline consumption would erode gas tax revenue; the picture is grim. Federal gas tax rates have not increased since 1993, so the lack of adjustments for inflation has caused real revenues to fall. With a Presidential election this year and several key Senate races on ballots this fall, neither side of the aisle will touch the federal gas tax. Washington will predictably kick the can down the road as it has for the past 31 years and leave it up to local governments to deal with the problems.
See also: Rohlwing: Green-paved road of potential
Since the states bear the brunt of road maintenance and construction costs, they have the unenviable task of figuring out how to pay for infrastructure. According to the Tax Foundation, only three states (Maryland, Montana, and Tennessee) were able to raise enough transportation funding to spend on highways in fiscal year 2021. While New Jersey and South Carolina were close at 99%, California was at 72%, and Texas was only at 57%. The reasons for the shortfall are too numerous to list. Still, the increase in electric vehicle usage is a major contributor because, for the first time in our history, there is a growing number of vehicles using roads tax-free because they don’t pay gas taxes.
A seemingly simple solution is implementing a vehicle miles traveled tax to increase revenues while capturing the EV and alternative fuel markets. The Tax Foundation reported that five states (Connecticut, Kentucky, New Mexico, New York, and Oregon) currently have a VMT that targets commercial vehicles. Connecticut covers everything over 26,000 lb. GVWR with taxes that range from 2.5 cents per mile to 17.5 cents per mile. Kentucky has a standard rate for a combined license weight greater than 59,999 lb., while the New Mexico VMT applies to everything over 26,000 lb. GVWR. New York gives options on how to calculate VMT, but Oregon has no options since the VMT applies to everything, including passenger and light trucks.
As of 2024, only nine states don't have VMT plans or research underway: Arkansas, Iowa, Illinois, Indiana, Louisiana, Missouri, Mississippi, Wisconsin, and West Virginia. The rest of the country is trying to figure out how they can use VMT to increase funding for highways, roads, and bridges. Without a coordinated federal system, it will become a patchwork of licenses, registrations, GPS, regional coalitions, and possibly plate readers. Interstate trucking is about to become even more complicated.
The good news is that given the impending shortfall in the Highway Trust Fund, which the Congressional Budget Office projects will result in a cumulative $181 billion for highways by 2033, any increases to the current FET on truck tires are unlikely to move the needle. Fuel taxes accounted for 83% of the $43 billion collected in fiscal year 2023, with the FET on truck tires at around 2%. Rumors of including retreads are just that—there is no indication that it’s even on the table. There’s no real money to generate by increasing the FET on truck tires. The real money is spelled “V-M-T.” Fleets need to be prepared for a new age of taxation.
