High gas prices have elected leaders looking for ways to cut fuel taxes. The Highway Trust Fund (HTF) has the opposite problem: It needs more revenue. Fuel taxes are a primary source of revenue for the HTF, which helps support the nation’s highways and public transportation. The fund also relies on other transportation-related taxes and transfers from the General Fund to fill its coffers. But Congress hasn’t increased the per-gallon federal fuel tax rates since 1993, even to adjust for inflation. Without additional funding, the HTF faces a projected $318 billion shortfall by 2036.

Congress is negotiating a reauthorization of funding for, and distribution of money from, federal surface transportation programs. But it is simultaneously facing pressure to improve affordability and address environmental concerns. Congress therefore has to determine not only how much to collect, but also who should bear the cost, how different approaches could affect travel and vehicle choices, and whether the policies would advance or work against other transportation, social, and environmental goals.

Gas use provides funding for transportation—but also contributes to greenhouse gas emissions, particulates, and noise pollution. Some estimates put the cost of damage when burning a gallon of gasoline at $2 or more, far higher than the current gas tax. Making a transition to electric vehicles could improve environmental outcomes but would reduce revenues. And the transition will be slow; electric cars account for less than 2 percent of US light-duty vehicles, and the US is one of the few countries where electric cars are not becoming more common, despite their environmental benefits.

There is no silver bullet, but there are several options available to increase federal transportation revenues, and each has different requirements to close the funding gap. Each also comes with its own tradeoffs.

The Highway Trust Fund faces a major shortfall

The HTF links transportation-related revenues to transportation spending, with most funding going to highways. This dedicated funding and multi-year approach to appropriating it helps states, localities and transportation agencies plan projects that take years to complete.

But revenues and spending have been out of balance for decades. Congress has increased authorized spending without increasing fuel tax rates, repeatedly transferring General Fund revenues to keep the HTF solvent, bailing it out since 2008.

The Congressional Budget Office (CBO) estimates that the transit account will exhaust its reserves in 2027 and the highway account will empty out in 2028. By 2036, their cumulative shortfalls would reach almost $100 billion and $221 billion, respectively.

The gap would grow with more investment in public transportation, which would be necessary if policymakers seek to improve people’s access to transportation options. We estimate a total shortfall of $337 billion if transit spending grew at the highway rate. If it grew 5 percent annually to improve the nation’s public transportation systems, that shortfall would climb to $370 billion.

Options to close the funding gap

Congress could combine the following options. Our estimates generally use CBO’s spending baseline and illustrate the scale of the changes required. If policymakers hope to increase investment in public transportation, they will have to increase revenue to the HTF accordingly.

1. Decreasing spending to meet current revenues. In 2027, surface transportation spending is expected to exceed revenues by $35 billion. Once reserves run out, maintaining spending within available revenues would require a large and sustained cut. Our estimates indicate spending roughly 42 percent (twice the federal government’s total annual spending on transit) below projected levels beginning in 2029. Eliminating transit spending alone would not come close to closing the gap. States and localities would be left to decide among deferring maintenance, delaying investment, and raising their own revenues through taxes or tolls.
2. Increasing motor fuel taxes. Although raising gas taxes is likely not politically feasible in the short term, this option would be the most direct way to boost revenue into the HTF. We estimate that raising existing federal gasoline and diesel taxes by roughly 80 percent would help close the gap by roughly balancing transportation revenues and expenditures, assuming recent revenue distribution. Current rates are 18.4 cents per gallon and 24.4 cents per gallon, respectively. An 80 percent increase would raise them to about 33 cents and 44 cents, respectively. Rates would need to keep rising to offset inflation and improving fuel efficiency. Higher taxes could reduce driving and pollution, but also reduce fuel purchases and revenue. This could also shift some travel to transit and walking. From that perspective, increasing fuel taxes could have large environmental and other benefits.
3. Implementing a fee on all registered motor vehicles. Assuming about 300 million vehicles and full compliance, we estimate that a $96 annual fee per registered vehicle, indexed to inflation, would keep the HTF afloat through 2036. States could collect it through their existing registration systems. For owners of multiple vehicles, the annual cost would be $96 times the number of vehicles they register. But administration would require federal-state coordination, and noncompliance would reduce receipts. A flat fee could charge low-mileage and high-mileage vehicles equally; Congress could also vary the charge by vehicle weight or other characteristics to account for the negative impacts of weight on road damage. A recent House proposal would implement a $130 fee on electric cars. But we estimate from revenue projectionsthat this would only reduce the HTF shortfall by about 4 percent by 2036. An electric car-specific fee, moreover, would undercut electric car adoption.
4. Implementing a vehicle-miles-traveled fee. Charging drivers by the mile would link payments more directly to road use, including for vehicles that use little or no gasoline. We estimate that a per-mile fee assessed at 0.65 cents per mile for passenger cars and 3 cents per mile for trucks and other heavy-duty-vehicles would provide enough revenues for the federal government to make up the gap in the HTF, assuming current driving levels grow 2 percent annually. That equals about $90 per year for the typical driver traveling 14,000 miles. But a flat fee of this sort could take a larger share of lower-income drivers’ incomes than those of higher-income earners. And the federal government would need a new collection mechanism, which could cost a lot of money to implement. Finally, privacy concerns could complicate implementation.
5. Using General Fund revenues. Congress could again transfer money from the General Fund to the HTF. We estimate that a one-time transfer of almost $290 billion in 2017 could keep the HTF solvent through 2036. This would have to reach about $330 billion if transit spending grew 5 percent annually. That is about 0.3 percent of the federal government’s expected expenditures over 10 years. General revenues, drawn largely from income taxes, spread costs beyond road users and are considerably more progressive than fuel taxes. But financing continued spending after the one-time transfer would require taxes, reductions elsewhere, or additional borrowing.

None of these options would be simple to implement. They also differ in who would pay, how closely payments would correspond to use of the transportation system, and how they might affect driving, vehicle purchases, and other transportation choices.

An effective, high-performing transportation system supports the nation’s economy. As Congress considers how to replenish the HTF, the question is not only how to raise enough revenue, but which combination of policies can do so while balancing economic, transportation, and environmental considerations.