Electric vehicles, motor fuel taxes, and road funding in the Seventh District and beyond

Abstract

State and federal highways are currently funded by a combination of motor fuel taxes (MFTs), general fund transfers, fees, tolls, property taxes, and bond revenues. Of these, state fuel and vehicle taxes comprised 26% of revenues used for U.S. highways, and federal fuel and vehicle taxes made up 15% in 2021, according to data from the U.S. Department of Transportation. The MFT share of funding is declining due to increasing overall fuel economy trends, inflation (since many MFTs—including the federal MFT—are assessed in cents per gallon and not indexed), and recent vehicle miles traveled (VMT) trends—especially during the 2020–21 pandemic years, which saw lower passenger and freight travel. Electric vehicles (EVs) have the potential not only to accelerate the fuel efficiency of vehicles in use, but also to lead to a sizable population of individual road users who pay no fuel taxes. A recent study estimated that EVs reduce gas tax revenues by $250 million a year (Davis and Sallee, 2019).