Increase Excise Taxes on Motor Fuels and Index for Inflation

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
Change in Revenues  
  Increase the tax rates by 15 cents 9.6 21.9 23.0 23.9 24.8 25.2 25.8 26.8 27.7 28.6 103.2 237.3
  Increase the tax rates by 35 cents 22.2 50.0 51.6 52.9 54.1 54.2 54.9 56.2 57.5 58.7 230.8 512.3

Data source: Staff of the Joint Committee on Taxation.
This option would take effect in January 2021.
An offset to reflect reduced income and payroll taxes has been applied to the estimates in this table.

Since 1993, federal excise tax rates on traditional motor fuels have been set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel. The revenues from those taxes are credited to the Highway Trust Fund to pay for highway construction and maintenance as well as for investment in mass transit. (A portion of the fuel tax—0.1 cent per gallon—is credited to the Leaking Underground Storage Tank Trust Fund.) Those tax rates are not adjusted for inflation.

This option consists of two alternative increases in the excise tax rates on motor fuels. Under the first alternative, federal excise tax rates on gasoline and diesel fuel would increase by 15 cents per gallon. Under the second alternative, those tax rates would increase by 35 cents per gallon. Under each alternative, the tax would be indexed for inflation each year using the chained consumer price index.