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Gas Price Furor Shines Spotlight on Excise Taxes

November 1, 2000
By Bill Ahern

Convoys of protesting truckers, fast-rising gasoline prices, and the Presidential contest have focused attention on a type of tax that taxpayers are rarely aware of: excise taxes. Selected Excise Tax Rates on Fuel (per gallon) Gasoline 18.

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Convoys of protesting truckers, fast-rising gasoline prices, and the Presidential contest have focused attention on a type of tax that taxpayers are rarely aware of: excise taxes.

Selected Excise Tax Rates on Fuel
(per gallon)
Gasoline18.4
Gasohol12.4¢ to 19.0¢*
Diesel Fuel (non-farm)24.4¢
Diesel Fuel (train use)4.3¢
Diesel Fuel (other)18.4¢ to 21.11¢
Inland Waterway Fuels24.4¢
Aviation Fuels (noncommercial)7.9¢ to 21.9¢*
* Depends on composition: percentage of ethanol, alcohol, or other mixtures.

Much less visible than income or sales taxes, excises are taxes that federal and state governments put on specific products. Some of these products are things we buy every day without knowing a tax is part of the price. Others are items only businesses use: They pay the tax, then pass the extra cost on to individual taxpayers.

One such excise tax--the inland waterway fuel tax--is environmentally as well as economically destructive.

The country's inland waterway system is composed of 25,000 miles of lakes, rivers, and canals as well as the infrastructure needed for ships to traverse them. This vast enterprise reaches from the ocean into 35 states, to points as far inland as Oklahoma.

In 1978, Congress passed a tax of 4 cents per gallon on fuel used on the waterway system. The rate has risen steadily and now stands at 24.4 cents per gallon. In FY 1997, the tax generated $108 million, which the federal government earmarked for the Inland Waterways Trust Fund.

The fuel excise tax, like any tax, discourages production--in this case, water-borne cargo. For a nominal increase of one cent in the tax rate, there is a 15,000-ton drop in cargo volumes.

The imposition of the inland waterway tax reduces interstate trade and commerce, and in some cases moves that trade to trucks and railroads. Any diversion of traffic from the waterway represents a net negative for safety and the environment: According to the Army Corps of Engineers, barges are safer and more energy-efficient than rail or trucks, creating less air pollution per ton-mile carried and reducing highway accidents and hazardous cargo spills.

Is the fuel excise tax actually a "user fee?" Not at all. A user fee on the waterway would be justified only if the payers of the tax were the only beneficiaries of the waterway, or if the waterway caused some economic harm that was redressed by the tax revenue. Neither of these justifications apply. Indeed, the side effects of the waterway are positive. Many related businesses and recreational boaters benefit greatly from the waterway and use it without paying the tax.

The fuel levy, then, has all the negative consequences of a tax, without the benefits of a user fee. It's time waterway shippers be put out of its misery.


Bill Ahern is communications director for the Tax Foundation.


For more information ...

Stealth Taxes. Just how many federal excise taxes are there? This provides a long list. (American Institute for Economic Research, July 2000, 3pp.)

Request PolicyBot document #8021129.

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Taxes Government Spending