Nearly a century ago today, Oregon implemented a novel policy idea that’s since become a national mainstay: It became the first state to implement a gas tax. But with the tax on its last legs, it may also be the state that figures out how to replace it.
The Oregon legislature instituted the tax in 1919. The roads used by cars needed a funding source, so why not tie it to the thing that makes the cars run? Within 10 years, every state had one — mostly at one or two cents a gallon. Within 15 years, the federal government had one, too. It quickly became a major source of revenue for states and the nation, funding infrastructure spending and more. But the guy who invented it — Loyal M. Graham — became disillusioned with his own idea, the Beaver County Times reported in 1962:
But not everyone hated the idea. Gas taxes “met with little public resistance and in fact became quite popular with the general public,” according to a 2007 history written by the Tax Foundation. About 20 years in, the Pittsburgh Press credited gas taxes for creating a world-class highway system, though it warned that they could be abused.
The taxes rose for years and years, but eventually failed to keep up with inflation and higher fuel efficiency. In a 2011 report, the Institute on Taxation and Economic Policy found that many states were near or at historic lows. Adjusted for construction cost growth, the average state gas tax had fallen by 20 percent in value. That year, highway user fees and user taxes — a category broader than just the gas tax — only paid for about half of local road expenses.
So, states have begun exploring alternative. In 2012, the National Conference of State Legislatures highlighted three innovative ideas in the report: tie the gas tax to inflation or some other variable that changes with fluctuating expenses as 12 states had done, come up with ways to tax alternative vehicles or fuels, or tax miles traveled.
That last idea has a champion in the very state that solved the problem 95 years ago. Oregon has for years experimented with a vehicle-miles-traveled fee, and last year passed a law allowing up to 5,000 residents to pay that in place of a gas tax. As National Journal’s Fawn Johnson reported last week, the idea has been kicked around for some time, but Oregon is taking a lead in experimenting with it:
[T]ransportation experts have long considered such fees the best option — really, the only option — for maintaining a decent revenue stream to finance the country’s road and transit system down the line. The question was how to get the public on board with a plan that involved tracking their travels.
If it works, Oregon could be at the forefront of another tax mainstay — one updated for the 21st century.