The history and future of fuel taxes

On February 25th 1919, Oregon became the first US state to levy a tax on gasoline. It was 1¢ per American gallon (four fifths of a UK imperial gallon). From there the only way was up, and the current highest state taxes on fuel are Pennsylvania at 58.7¢ per gallon, and California at 55.22¢. The lowest are Alaska at 14.6¢ per gallon, and Missouri at 17.35¢. These figures include excise taxes, environmental fees, storage tank taxes, other fees or taxes, general sales tax. They do not include the federal tax of 18.4¢ per gallon on gasoline, or 24.4¢ on diesel.

When I lived in the US in the mid-70s, my gold Cadillac Sedan de Ville did about 16 miles per gallon, and even less in city driving, but is scarcely mattered since petrol then cost about 70¢ per gallon. Today it's about four times that for premium. The US government has mandated better gas mileages for fleets, but Americans never really liked the compacts that were produced to meet those fleet targets, and turned to SUVs to circumvent the limits.

Fuel taxes are higher in the UK. They started in 1909 with a petrol tax of 3p per gallon "to help pay for roads." The most recent UK figure was of 57.95p per litre, plus a 20% VAT levied on both the actual price of the fuel and on the fuel duty – a tax on a tax. The current cost to motorists is 65.25p per litre for petrol, and 61.55p on diesel. The fuel duty escalator from 1993 adds 3% above the rate of inflation, but it is not applied in every year.

Obviously these fuel taxes are major sources of revenues for the US and UK governments, as they are for most other countries. Given the surge in sales of electric vehicles, encouraged by government subsidies, this revenue will decline as fossil fuels are phased out. Before very long governments will have to cut their spending, or find other ways of making up the shortfall in fuel duties. One option will be to raise the cost of electricity, a policy unlikely to appeal to domestic users of it. Another way might be to load the tax cost onto the vehicles themselves instead of the fuels they use.

I have paid the government nothing in fuel tax for the four years since I started driving a Tesla. On the highway Elon Musk lets me charge up for free at his power points. If many people move in this direction, as is highly likely, it will be good for the environment, of course, but bad for Treasury coffers. No doubt insatiable personnel there are already greedily examining what other taxes they might introduce to replace those on fuels.