Could Gas Prices Rise with a Hike to the Federal Gas Tax?

May 6, 2014 | By: TaxCure Staff

uncle sam to raise gas pricesWe all pay gas taxes when we fill up at the pump. There’s the federal gas tax and the state gas tax — plus other taxes that local governments might decide to levy. The federal gas tax hasn’t been raised in more than 20 years, and that is starting to cause a problem since inflation hasn’t stopped boosting the cost of things in that time. From materials to wages, it costs more to repair and build new highways and bridges than it did the last time the federal gas tax saw an increase.

Where Does Gas Tax Money Go?

The federal gas tax is meant to help fund infrastructure projects, like highways and bridges. The United States is often seen as the richest nation the world has ever seen, but its infrastructure has a D+ rating from the American Society of Civil Engineers.

In order to bring the condition and performance of our highways and bridges up to snuff, the government needs to spend money on projects. However, the Highway Trust Fund, which is supported mostly by the gas tax levied by the federal government, is set for a shortfall this year. When you consider that the gas tax has been at the same level for two decades, even as inflation continues its march forward, it’s not really surprising that the Highway Trust Fund hasn’t been able to keep up.

Estimates from the Congressional Budget Office indicate that, had the federal gas tax been adjusted for inflation over the last 20 years, it would be 29 cents per gallon, rather than the current 18.4 cents per gallon.

Could the Gas Tax Get a Boost?

Some lawmakers are considering raising the federal gas tax. This change could take place as early as this year, leading to higher gas prices, even though some politicians are a little reluctant, due to the upcoming mid-term elections. No one wants to raise taxes — no matter how hidden they are — in an election year.

Many plans on the table call for small, gradual increases in the gas tax until it reaches a point at which it can be tied to inflation.

Of course, if the gas tax is increased, there is a good chance that what you pay at the pump will increase as well. Gas stations aren’t likely to eat the cost of the gas tax. Instead, you could pay an extra couple of cents per gallon. However, it’s not as bad as it sounds. If you pay an extra two cents per gallon for a car with a 15-gallon tank, that means an extra 30 cents to fill up. Most people, as long as the federal gas tax is increased gradually, aren’t going to see a huge difference in the cost to fill up.

Such an increase is still a ways off, though. Lawmakers have to agree on a strategy to raise the federal gas tax. In the meantime, they will just have to figure out if there is some other way to divert money to help fix our crumbling infrastructure.