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Ask the Rambler
When did the Federal Government begin collecting the gas tax?
The Unlucky President
Herbert Hoover is one of the unluckiest Presidents in history. As a result of his relief efforts in Europe and the Soviet Union during and after World War I, he had become one of the most popular people in the world. During the terms of Presidents Warren G. Harding and Calvin Coolidge, Hoover was an aggressive, successful Secretary of Commerce. During this period, from 1921-1929, the United States enjoyed one of its greatest periods of prosperity, so much so that history has dubbed the era "The Roaring 20s," although historians give the two Presidents little credit for the boom.
President Coolidge was a "small government" man who saw the Constitution as imposing limits on the Federal Government that made his primary task reducing expenditures and balancing the budget, not dealing with problems in the agricultural sector or reining in a stock market that, in hindsight, we know was in great need of reining in.
President Hoover, having defeated Governor Alfred E. Smith of New York, took office on March 4, 1929, with every expectation of a happy continuation of prosperity. His Inaugural Address reflected the Nation's optimism:
The conventional wisdom of the day was that more credit went to Secretary of the Treasury Andrew W. Mellon than to the former President. Mellon, in his 70s, was Secretary from the start of the Harding Administration (1921 to 1923) through the Coolidge years (1923, following President Harding's death, to March 4, 1929) and would continue as Secretary under Hoover. He was often referred to as the Greatest Secretary of the Treasury since the First Secretary, Alexander Hamilton.
On October 29, 1929, the stock market collapsed, taking businesses, banks, and individual fortunes down with it. (The Rambler, who is lucky if he can balance his checkbook, will leave out the complex details of the gradual slide into the Depression following the collapse.) The United States had experienced downturns, often called "panics," before, but the stock market collapse unleashed an economic maelstrom that pulled the country into what has become known as the Depression. Since the rest of world joined in the Depression, fighting out of it was not going to be an easy task.
As the Depression worsened, Secretary Mellon's reputation suffered. He was now referred to as "the Greatest Secretary of the Treasury since the Last One." Gradually losing confidence in his Secretary, the President increasingly relied on Under Secretary of the Treasury Ogden L. Mills to carry on the Department's business. The President and the Under Secretary met every day, often more than once as Mellon faded into the background. Finally, on February 3, the President announced that Mellon would become Ambassador to the Court of St. James, and that Mills would become Secretary.
The Rambler does not blame President Hoover. He couldn't have prevented the Depression, and while it is possible to second-guess his attempts to counteract it, his single, 4-year term probably wasn't long enough for anyone to revive the economy in the midst of a worldwide slump.
Still, he's the President who signed the first Federal gas tax into law, so that's where the story begins.
The Revenue Act of 1932
Historically, Presidents wanted to balance the country's budget, and it usually wasn't too hard except in wartime. Hoover saw a balanced budget as one of his primary responsibilities, but he knew that some years, it was easier to accomplish than others. Financial historian John Steele Gordon, in An Empire of Wealth: The Epic History of American Economic Power (HarperCollins Publishers, 2004), described Hoover as "perhaps the most economically sophisticated man ever to be president." Hoover understood that it was not possible to balance the budget during the early years of the Depression. In his first couple of years as President, Hoover supported increased Federal expenditures for public works such as road projects and other activities to boost the economy, even though the budget would not be in balance. "Unfortunately," as Gordon put it, "Hoover changed his mind in late 1931."
Biographer Gene Smith described the situation in The Shattered Dream (William Morrow and Company, 1970):
In Congress, the President's proposal faced a House of Representatives that had been controlled by the Democrats, 220 to 214, since the off-year (non-presidential) election of 1930. The Republicans retained control, just barely, in the Senate. Nevertheless, the House passed a version of the Revenue Act on April 1, 1932. An oil tariff (1 cent per gallon of imported gasoline and fuel oil) had been included by amendment on March 27.
The Senate struggled with the revenue bill, in part because the upcoming presidential election in November made cooperation between Democrats and Republicans difficult. To break the impasse, the President made a surprise appearance before the Senate at noon on May 31 to discuss the urgent need for the bill. He told the Senators that people "know from bitter experience that the course of unbalanced budgets is the road of ruin." He understood the complexities facing the Senators, but was convinced that they had three major duties in completing their work on the bill, namely drastic reduction of expenditures and passage of revenue legislation and relief legislation to aid in employment. He concluded:
Shortly after midnight, the Senate completed work on its bill, which included $1.115 billion in new tax revenue. The bill included a 1-cent per gallon excise tax on gasoline sales, not just on imported fuel. This provision had emerged in the hours before the President's speech when Secretary Mills was working with the Senate Finance Committee to adjust the Senate bill to meet Administration revenue targets. At a 10 am meeting, the committee approved a proposal to restore 1922 income tax rates and went on the Senate floor to secure a vote on the change. After the Senate approved the amendment, the Secretary asked the committee to adopt a general manufacturers' sales tax. Learning that the committee had previously rejected the idea, he suggested a 1-cent per gallon gasoline tax, to be paid at the refinery, and adjustment of the amusement tax.
The committee adjourned to hear the President's speech, then defeated the amusement tax but adopted the gasoline tax, which was expected to raise $150 million. The Senate adopted the gasoline tax without a recorded vote. Senator J. W. Elmer Thomas, a Democrat from the oil State of Oklahoma, offered an alternative to the gasoline tax. He proposal that the Reconstruction Finance Corporation sell $150 million in debentures and repay the cash into the general treasury. His amendment was defeated 80 to 8.
Conferees meeting to resolve differences between the House and Senate bills reached agreement on June 2. The House approved the Revenue Act on Saturday, June 4, in what The New York Times characterized as a "stormy session." Despite objections to elements of the bill, including the gas tax, the bill was adopted by voice vote. Only a "faint chorus of noes" could be heard, according to The New York Times.
The Senate approved the bill on June 6 by a vote of 46 to 35. The new tax on electricity was the primary focus of debate (3 percent of the amount paid on or after the 15th day after enactment of the law for electrical energy for domestic or commercial use consumed after that date until July 1, 1934). The Senate version had provided for tax collection from the power company, but conferees agreed that consumers should pay the tax. Progressives, who considered the shift a favor to the "power trust," used every parliamentary trick available to try to return the bill to conference, but were overruled by Vice President Charles Curtis in his role as President of the Senate.
As the vote was completed, Speaker of the House John Nance Garner (D-Tx.) signed the officially engrossed copy of the bill that had been placed on his desk. He sent it to Vice President Curtis, who signed it in the presence of the Senate and gave the bill to a messenger for delivery to the President.
President Hoover signed the bill, without ceremony an hour and a half after the Senate approved it. He issued a brief statement:
The Revenue Act of 1932 enacted dozens of taxes, including those mentioned and taxes on such consumer products as admissions to any place by ticket or subscription; auto bodies, tires and inner tubes; cameras, candy, chewing gum, furs, soft drinks, and sporting goods; firearms, shells, and cartridges; coal, coke, and copper ore; telegraph, telephone, cable, and radio dispatches; and checks, jewelry, matches, refrigerators, stamps, and toiletries.
Secretary of the Treasury Ogden L. Mills
The man who proposed the Federal gas tax was the 50th Secretary of the Treasury, serving from February 12, 1932, to March 4, 1933, the day President Hoover left office. President Coolidge had appointed Mills to be Under Secretary of the Treasury in 1927 and he retained the post under President Hoover.
The Department of the Treasury's website summarized Mills's early life:
According to Smith, Mills was considered "the third richest man in Washington, Mellon of course being the first, and Senator James Couzens of Michigan, Henry Ford's old partner, the second." Smith continued:
Mills was "smart, capable, arrogant." In 1926, Representative Mills ran for Governor of New York, but lost to Governor Smith. Having given up his House seat to run for governor, Mills accepted President Coolidge's appointment to the Treasury Department.
During the period the Revenue Act was under consideration, Secretary Mills was involved with several bills to accomplish the President's goals of reduced expenditures, increased receipts, and a balanced budget. His work prompted The New York Times to say, in headline language:
Washington impression grows that the Treasury Chief
The accompanying article, datelined June 2, 1932, by Arthur Krock, the Times' Washington Bureau Chief, said that Mills dealt with Congress "more successfully" than any President or Cabinet member "for many years." Krock, who would become the only person to receive three Pulitzer Prizes, continued:
By the time of the Revenue Act of 1932, President Hoover had turned on public works as a means of unemployment relief. He responded to a proposal by the American Society of Civil Engineers by saying:
Mills shared the President's doubts about public works because each job benefited only a limited number of workers. In an appearance before the Senate Banking and Currency Committee, he said, "The real way" to effect relief was "to start the private economic machine turning." When Senator Robert F. Wagner (D-NY.), the chief author of the Senate relief bill under consideration, said, "I'm trying to put men to work and you won't cooperate," Mills replied:
No Good Deed Goes Unpunished
Despite Hoover's efforts, the public blamed him for their economic plight. He was defeated for reelection in 1932 by another Governor of New York, Franklin Delano Roosevelt. Roosevelt's Vice President was Speaker of the House Garner.
The new President would take office on March 4, 1933, the last time such a long interregnum would occur between the election and Inauguration Day. Beginning with Inauguration Day, 1937, Presidents would take the oath of office on January 20. In this case, during the nearly 5 months delay, the economy continued to deteriorate. The worldwide Depression was too deep for these initial efforts to revive the economy. Gordon summarized the situation:
During the campaign, President Roosevelt had promised to balance the budget better than Hoover. After taking office, the new President abandoned the goal in order to stimulate the economy through public works, through restoration of confidence in banks and other financial institutions, and through relief efforts to help the unemployed.
Strolling Through Gas Tax History
Since the Rambler is very busy, he is lucky that someone else has chronicled the ups-and-downs of the gasoline tax:
This short history packs a lot of information into 23 pages. Using Mr. Sweet's booklet and other sources, the Rambler offers a summary of how the Federal excise tax on gasoline reached its current level.
The 1-cent gas tax was set to expire at the end of June 1933 (the last day of fiscal year 1933). The American Petroleum Institute and the American Automobile Association were among those who supported expiration of the tax. However, the National Industrial Recovery Act of 1933, which the President approved on June 6, 1933, extended the tax and increased it to 1.5 cents. The Revenue Act of 1934 (May 10, 1934) rescinded the half-cent increase.
Opposition from the highway lobby and State officials continued, but so did the tax, although each extension was "temporary" until the Revenue Act of 1941 (September 20, 1941) made the gas tax permanent and increased it to 1.5 cents a gallon to help pay for the country's defense buildup.
After World War II, opposition to the Federal gas tax continued from auto, oil and travel interests and the States, which maintained that the gas tax should be their sole province. In 1947, for example, hundreds of national, State, and regional organizations of highway users signed a petition urging Congress to repeal the automotive taxes, including the excise taxes on motor vehicles and trailers, lubricating oil, tires and tubes, automotive parts and accessories. The petition, submitted on July 15, 1947, summarized the history of the gas and other taxes, then stated:
The National Highway Users Conference (NHUC), consisting of leaders of the trucking, manufacturing, and oil companies as well as automobile and farm groups, served as a clearinghouse for the petition. A transmittal letter from NHUC Director Arthur C. Butler, Executive Vice-President of General Motors, explained:
The Governors' Conference, predecessor to the National Governors Association, adopted resolutions opposing the Federal gas tax. They suggested that if the Federal Government would yield the taxes, the States would increase their taxes by a like amount, thus providing more funding for State road programs.
The Revenue Act of 1951 (October 21, 1951) increased the gas tax to 2 cents as a revenue source during the Korean War that began in June 1951, with the increase to be repealed on April 1, 1954.
Opposition to the gas tax continued into the early years of President Dwight D. Eisenhower, who took office on January 20, 1953. The Governors Conference passed resolutions, while the auto, highway, and oil interests worked Capitol Hill to bring an end to the tax. In fact, on the second day of his presidency, Eisenhower received a visit from Governors Walter J. Kohler, Jr. (R-Wi.) and Dan Thornton (R-Co.), who asked him to support a commission to study Federal-State relations, citing the gas tax as an example of a Federal activity that should be abandoned in favor of the States. Although President Eisenhower agreed to the commission, he did not agree about the gas tax. With the President planning a road initiative, he supported the Excise Tax Reduction Act of 1954 (March 31, 1954), which extended the tax to April 1, 1955, and the Tax Rate Extension Act of 1955 (March 30, 1955), which extended it to April 1, 1956.
By the time Congress took up proposals for financing the Interstate System, most parties had accepted the practical reality that the Federal gas tax wasn't going away. On May 4, 1955, during a hearing on the National Highway Program before the House Committee on Public Works, Representative Fred Schwengel (R-Ia.) asked Governor Kohler about the change in the Governors' Conference position, pointing out that for the past 10 years, the Governors had asked the Federal Government to yield the gasoline tax to the States. He continued:
Governor Kohler responded:
In 1956, the outside interests agreed with congressional leaders on a compromise for funding the Interstate System. The gas tax would be increased to 3 cents, but highway user tax revenue from excise taxes on gasoline, tire rubber, tube rubber, and the sales tax on new trucks, buses, and trailers would be credited to a new Highway Trust Fund and reserved for use on the Interstate System and other highway projects. (The Highway Trust Fund is modeled after the Social Security Trust Fund-that is, the revenue goes into the general treasury, but is credited to the Fund.) The Federal-Aid Highway Act of 1956, which President Eisenhower signed on June 29, 1956, adopted this compromise.
A funding shortage in the late 1950's led President Eisenhower to request a temporary increase of the gas tax to 4.5 cents a gallon. Despite opposition to an increase from the usual opponents, Congress increased the tax, but only to 4 cents on a temporary basis, in the Federal-Aid Highway Act of 1959 (September 21, 1959). The Federal-Aid Highway Act of 1961, which President John F. Kennedy approved on June 29, 1961, the 5th anniversary of the 1956 Act, retained the 4-cent tax and extended it through September 30, 1972.
The tax remained 4 cents a gallon until the Surface Transportation Assistance Act of 1982, which President Ronald Reagan approved on January 6, 1983. The Act increased the tax to 9 cents, but the legislation created two separate accounts in the Highway Trust Fund. The Highway Account would receive 8 cents of the revenue while the new Mass Transit Account would receive 1 cent of the gas tax.
The Superfund Amendments and Reauthorization Act of 1986 (October 17, 1986) added 0.1 cent tax on gasoline for the Leaking Underground Storage Tank Trust Fund.
On November 5, 1990, President George H. W. Bush approved the Omnibus Budget Reconciliation Act of 1990. It embodied a compromise the Republican President had reached with the Democratic-controlled Congress to reduce the Federal budget deficit. The Act increased the Federal gas tax by 5 cents, with half the increase going to the Highway Trust Fund, the other half to deficit reduction.
The Omnibus Budget Reconciliation Act of 1993, signed by President Bill Clinton on August 10, 1993, increased the gas tax by 4.3 cents, bringing the total tax to 18.4 cents per gallon. The increase was entirely for deficit reduction, with none credited to the Highway Trust Fund. However, the Taxpayer Relief Act of 1997, which President Clinton approved on August 5, 1997, redirected the 4.3-cents general fund gas tax increase to the Highway Trust Fund.
That is where the gas tax remains today.
The gas tax is only one of several revenue sources for the Highway Trust Fund. The following table, from the Federal Highway Administration's Financing Federal-Aid Highways, lists the sources:
The Highway Trust Fund has an additional source of revenue. Since October 30, 1984, the proceeds from fines and penalties imposed for violation of motor carrier safety requirements are deposited in the Highway Account of the Highway Trust Fund.
Up and Down
From the start, the Federal gas tax has been under attack, initially from the highway lobby. The opponents remained opposed to the excise tax on gasoline and other automotive products through the early 1950s, but the allure of the Interstate System quieted the critics. In recent years, the Federal gas tax has been attacked by Governors and Members of Congress who wanted to "devolve" the tax, along with the Federal-aid highway program, to the States. Increases in the Federal tax have been proposed regularly in recent years as well, sometimes by organizations within the highway lobby, sometimes by Members of Congress who see it as a source of revenue for general government needs.
The Rambler feels safe in saying that advocates, whether for up or down, will continue to debate the gas tax. For now, as this is written in June 2005, it remains 18.4 cents a gallon.
This page last modified on 04/07/11