March 6, 2011

History of Federal Gasoline Tax Rate

Every time you buy gasoline at the pump you are paying taxes to the federal government.  You don't see this  tax as a separate item like sales tax and tax cost is included in the price per gallon.   The current federal gas tax is 18.4¢ per gallon.    The gas tax was first introduced at the federal level back in 1932 when it started at 1¢ per gallon.    The tax is not a % of the purchase price but is instead a fixed amount.   So if gasoline is $2 a gallon you pay 18.4¢ in federal tax, or if gasoline goes up to $4 or down to $1 you still pay the same 18.4¢.

Note : Today I'm only looking at the federal gasoline tax.   States and local governments have additional taxes that vary from state to state.   The exact taxes you pay depends on where you live.   But everyone in the U.S. pays the same amount for federal gas taxes.  The taxes on diesel are also different.

The Tax Foundation website has the data on the federal gasoline excise tax rates from 1932 to 2008.
I took the numbers from the Tax Foundation and plotted the chart below to show the federal gas tax rates over history.

Federal gasoline tax rates from 1932 to 2008

You can see from the picture that the tax remained unchanged for several years at a time.
Tax changes occurred in following years

1933 = raised to 1.5¢ briefly
1934 =  dropped back to 1¢
1940 = raise to 1.5¢
1951 = up to 2¢
1956 = 3¢
1959 = 4¢
1983 = 9¢
1987 = 9.1¢
1990 = 14.1¢
1993 = 18.4¢

Of course 1¢ back in 1932 would buy you a lot more than 1¢ will buy you today.    If you look at how the values look after adjusting to inflation the tax rate would look like the below graph:

I simplified it by just looking at the prices in January of each year and normalizing to the CPI inflation index
If you look at just the recent period from 1994 to 2008 the gas tax in inflation adjusted figures has gone down.   Thats cause the tax has remained the same while inflation has eroded the purchasing power of a dollar.

The original 1¢ tax from 1932 would be like paying 16¢ in todays dollars.    The peak for the tax was in 1960 when the 4¢ tax would have been equivalent to paying 29¢ in 2008 dollars.       The low was in 1982 when the tax of 4¢ was worth about 9¢ in 2008 money.

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