The price of fuel varies according to supply and demand and market conditions, the same as any other commodity (absent government price controls).
The biggest driver of gas prices is the market cost of crude oil, which is subject to not only supply and demand, but also all sorts of complicated domestic and geopolitical issues.
But the SECOND largest driver of fuel prices is . . . TAXES.
The federal government slaps an 18.4 cent tax on every gallon of gasoline sold, and a 24.4 cent tax on every gallon of diesel. On top of that, every state adds a gas tax. The average state gas tax is 29.15 cents per gallon, with some states adding as much as 59 cents per gallon (Pennsylvania). That means in Pennsylvania there is a 77-cent tax on every gallon of gasoline. Diesel taxes are in almost every case higher than gasoline taxes.
The stated purpose of gas taxes is to help pay for transportation—road construction and repair, bridge maintenance and replacement, etc.
But there is an emerging problem on the gas tax horizon. Electric vehicles use roads, but they don’t use gasoline, so they don’t pay gas taxes. And electric delivery trucks don’t pay diesel taxes.
Today, government policy is pushing a transition to electric vehicles. They are subsidized through the tax code, by providing tax credits to purchasers and through government loans and grants to manufacturers. We’re not opposed to market-based innovation in electric vehicles, but we do oppose the subsidies.
Electric vehicles have advantages, most notably in simplicity of design and fewer maintenance requirements than combustion-engine vehicles. It may not happen at the pace demanded by government, but it seems likely that electric vehicles will gradually claim an increasing percentage of overall vehicular traffic.
Which means increased use of roads but reduced gas tax revenue.
It’s time to start talking about phasing out fuel taxes and phasing in usage taxes. It simply makes sense that those who put the most stress on our transportation infrastructure and who profit from the roads have a proportional share in paying for them.
This change need not be onerous or intrusive for the average driver. For one thing, it would be politically expedient to exempt personal vehicles and limit usage fees to commercial vehicles. And logical too, as commercial vehicles belong to businesses that profit directly from the roads.
Furthermore, businesses already keep track of miles driven by their commercial vehicles. So it wouldn’t require onerous new, invasive reporting requirements. Ironically, the reason businesses track mileage is because it is a tax-deductible expense.
In other words, we subsidize the use of the transportation infrastructure for commercial vehicles, instead of requiring them to pay for the infrastructure they use. And some legislators are proposing allowing trucks to carry even larger, heavier loads that would put even more stress on our roads.
Wouldn’t it make more sense to phase out the gas tax in favor of a user fee that is paid by the heaviest users of our roads?
February 2, 2023