Increase the Federal Gasoline Tax

The federal gas tax and diesel tax have been set at 18.4 cents per gallon and 24.4 cents per gallon since 1993, without any inflation adjustments, reducing the real, inflation-adjusted value of the relevant tax rates. In theory, revenues from road transportation taxes should cover highway costs, aligning with the user-fee model of excise taxes, but highway outlays have exceeded road transportation tax revenue for several years.

This option would raise the gas tax from 18.4 cents per gallon to 28 cents per gallon and the diesel tax from 24.4 cents per gallon to 40 cents per gallon in 2027, adjusting them for inflation moving forward. This option would close the gap between highway spending and road transportation revenue. Like other excise taxes, increasing the gas and diesel tax would reduce real, after-tax wages, hours worked, and economic output.

On a conventional basis, this option would decrease the primary deficit by $210.5 billion over the budget window. Long-run GDP and GNP would fall by less than 0.05 percent. On a dynamic basis, the primary deficit would decrease by $176.9 billion from 2027 through 2036, $33.6 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 174.5 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of 0.1 percent. The top quintile of taxpayers would experience a 0.1 percent decrease, as would bottom quintile. On a long-run dynamic basis, taxpayers would see a 0.1 percent decrease on average.