University of California Transportation Center

Inflation and increased fuel economy have reduced the buying power of the revenues collected from state and federal motor fuel taxes. Because fuel taxes are almost always collected on a per-gallon basis, m most states they must be raised by specific acts of the legislature and it is becoming increasingly difficult to find the political support necessary to raise them. A number of states have experimented with fuel taxes that adjust automatically by being indexed to the price of gasoline, to the consumer price index, or to some indicator of highway construction and maintenance costs.

This article reviews experience with indexed motor fuel taxes in the United States, and finds that in many cases indexed taxes have failed to produce the anticipated results because declines in fuel prices often cause declines in indexed fuel taxes. Indexing gas tax rates to the Consumer Price Index appears to be the best way of insuring that fuel tax revenues keep pace with inflation.