Republican presidential candidate Nikki Haley recently proposed eliminating the 18.4 cents per gallon federal gas tax. She reiterated her support for the idea at the second Republican debate in California.
Federal gas tax revenues go into the Highway Trust Fund and then are dished out to the states to use on highway and transit projects. However, since 98 percent of the nation’s streets and highways are owned by state and local governments, it would be simpler and more efficient if those governments were responsible for the funding. Having the federal government raise the funds and then return the funds to the states with regulations attached is unnecessarily bureaucratic.
States have the best information to determine their local infrastructure needs. States that want to improve their highways can increase their own state‐level gas taxes, sales taxes, or user charges. Or they can issue debt or pursue full or partial privatization. The states have all the necessary fiscal tools to tackle their own infrastructure challenges.
In contrast to presidential candidate Haley, many policymakers favor raising the federal gas tax rate. They note that the tax has not been raised since 1993 and that its real value has been eroded by inflation. That is true. But in the absence of federal tax increases, states have filled the void.
The chart shows Federal Highway Administration data for federal gas tax rates and average state gas tax rates. The average state rate rose from 19.3 cents per gallon in 2000 to 27.8 cents per gallon in 2021, a 44 percent increase. On top of the gas excise tax, states impose an additional 6 cents per gallon on gasoline in other taxes and fees. States know their own highway demands and can raise taxes or user charges anytime they need to.
A Fox News story makes Haley’s proposal to cut the federal gas tax sound like a policy reversal because she supported a state gas tax increase as South Carolina governor. But from our perspective, these proposals are entirely in sync. The states should have responsibility for highway funding, and we need to start reversing the increase in central control over infrastructure supported by many Republicans and Democrats.
By the way, Haley’s proposed swap of higher state gas taxes for lower state income tax rates when governor was sound economics.
Nikki Haley’s proposal to repeal the federal gas tax would be a positive step away from the continued consolidation of government power in Washington. We encourage all the presidential candidates to propose strategies for reviving the more efficient and democratic federal structure of the U.S. Constitution.