The Gas Tax: Unpopular At Any Rate
“Across America, the pandemic is in retreat. … and more people are traveling this Memorial Day,” heralded a White House statement at the outset of the holiday weekend. “[A]s Americans are hitting the road, they are paying less in real terms for gas than they have on average over the last 15 years.”
If those words sound defensive, it’s for good reason. At $3.04 a gallon, Americans traveling by car for Memorial Day were paying the highest average price for gas in seven years. (Incidentally, rental car prices also were significantly elevated, costing around $350 a day in Montana and $250 in New Hampshire, according to a column at RealClearMarkets.)
The White House statement concluded by admitting that “gas prices are a pain point for Americans.”
Of course, they also are frequently a pain point for politicians.
Which is why Democrats at both ends of Pennsylvania Avenue will spend a significant part of their summer staving off Republican attempts to raise gas taxes as part of infrastructure investment legislation.
A History of the Federal Gas Tax
According to the Federal Highway Administration (FHA), the idea for a federal gas tax originated in the cabinet of President Herbert Hoover.
As President Hoover and his cabinet outlined it, the Revenue Act of 1932 would cut spending and raise the estate, corporate, capital gains, and personal income taxes. President Hoover also wanted to institute sales taxes on things like candy and firearms.
According to FHA historians, President Hoover believed his revenue bill would help balance the federal budget at a time when the country, because of the Great Depression, was running a daily deficit of about $2.5 million, or $48.73 million in today’s dollars. (By contrast, the federal government’s FY 2020 deficit equates to about an $8.5 billion daily shortfall.) The commander in chief feared a national bankruptcy would lead to “hideous inflation” that required “wheelbarrows of dollars to pay for a loaf of bread” and “meals doubling in price as the diner ate.”
There was, however, no mention of a gas tax in the president’s original outline. That idea was added in Congress where partisan control was split. Republicans held the Senate by a narrow majority and Democrats controlled the House.
These slim margins made for high drama.
When the House passed its version of the Revenue Act of 1932 in March it included an amendment that created a one-cent tariff on imported gasoline and fuel oil.
Senators didn’t much like the measure. They were still debating it two months later when President Hoover made an appearance in the chamber. According to FHA historians, the president told Senate Republicans, members of his own party, that they needed to support the legislation because Americans “know from bitter experience that the course of unbalanced budgets is the road of ruin.”
The Senate not only approved the bill, it went even further than the House. The Senate-passed measure included a one-cent per gallon excise tax on all gasoline sales (not just on imported fuel) that was added without a recorded vote.
Why make this move?
Because Treasury Secretary Ogden Mills had suggested it. He thought it would raise about $150 million in revenue that could go toward deficit reduction.
When the final bill went to Congress for a vote in June, it was approved with only a “faint chorus of noes,” according to The New York Times. It did not take President Hoover long to act. He signed the bill 90 minutes later.
Less than six months after giving his approval to the first federal gas tax, President Franklin Delano Roosevelt defeated President Hoover in the 1932 race for the White House.
It’s unclear whether the levy contributed to the defeat, but what is clear is that the tax did not help the Hoover administration close the nation’s budget gap. The federal budget deficit in 1932? Well, it was $2.7 billion — a staggering sum for the time.
The Gas Tax Through the Next 80 Years
President Hoover’s gas tax was set to expire one year after it was signed into law, in June 1933. President Roosevelt not only extended it, he increased it to 1.5 cents per gallon.
Roosevelt was no stranger to this tax. As Tax Analysts’ Tax History Project explained in 2003, “Like most Democrats, [Roosevelt] distinguished between broad sales levies and narrow consumption taxes on specific commodities. He was a vocal champion, for instance, of the state gasoline tax, enacted during his first year as governor. Roosevelt defended it as a user fee, stressing that most of its revenue would be used for highway maintenance and repair.”
His support for the levy came even though “the tax was notably regressive.”
As president in 1934, Roosevelt took back the half-cent increase. The rest he kept in place and on September 20, 1941, he signed the Revenue Act of 1941, which made the one-cent levy a permanent fixture of the U.S. tax landscape.
The tax has been widely unpopular with the public since then. In 1947, “hundreds of national, State, and regional organizations of highway users signed a petition urging Congress” to repeal the tax,” FHA historians explained. The nation’s governors signed a resolution opposing the levy.
Washington did not listen and instead raised the tax to two cents in 1951. President Harry Truman signed that legislation into law.
Governors took up arms a year later, petitioning new President Dwight D. Eisenhower to support a commission that would look at getting rid of the gas tax. The commander in chief had other ideas, however. He was eying the gas tax as a way to pay for the nation’s interstate highway system.
No Longer Just for Deficit Reduction
President Eisenhower got his way. The tax not only remained on the books, Congress agreed to increase it to three cents per gallon in 1956. Lawmakers raised it again in 1959, this time to four cents. President John F. Kennedy signed legislation to extend the four-cent levy through September 30, 1972.
These increases largely were used to fund the nation’s roads and bridges, and that continued through most of the 1980s.
Federal policymakers didn’t touch the tax again until 1982. On January 6, 1983, President Ronald Reagan signed legislation raising the federal gas tax to nine cents per gallon. Eight cents went to highway spending and the rest went to mass transit.
His successor had a more retro idea. With deficits rising again, President George H.W. Bush went back to his Republican roots. In 1990, he signed legislation to raise the tax by five cents. Half of the revenues from the increase were to go to deficit reduction and the other half to infrastructure.
President Bill Clinton followed three years later, signing a 4.3 percent increase in the levy. Every dollar of the $500 billion expected to be raised was to go toward deficit reduction.
The 1993 debate was about as partisan as you can get: Vice President Al Gore cast the tie-breaking vote in the Senate for the tax increase. Sen. Robert Dole (R-Kansas) tried to make the gas tax a campaign issue in the 1996 presidential election. Candidate George W. Bush used Gore’s gas tax vote against him in the 2000 presidential election — and against Sen. John Kerry (D-Mass.) when he ran against him in the 2004 election. (Kerry voted for the measure as a senator in 1993.)
Republicans are still using the 1993 gas tax vote against Democrats. In the 2018 Florida Senate race, now-Sen. Rick Scott (R) noted former Sen. Bill Nelson’s (D) vote to keep the 1993 increase in place in an opposition research book.
And that’s where we are today.
Every time drivers in the United States add a gallon to their tank, they pay 18.4 cents to the federal government. And every time Democrats recall the 1996, 2000, 2004, and even more recent elections, they fear Republicans tying them to a regressive tax increase.
Never mind that it is the GOP who is proposing a gas tax hike for infrastructure spending this year. If a gas tax increase makes it into an infrastructure deal, it will be a Democratic majority that passes it and a Democratic president who signs it into law.
Democrats also know that, according to a recent Morning Consult survey, while 59 percent of Americans oppose a gas tax increase, 54 percent support raising the corporate income tax.
And that’s why President Joe Biden is likely to hold fast in his opposition to a gas tax increase — and it’s why his White House will be keeping a very close eye on summer gas prices.