The History of Fuel Taxes—and What It Means for Counties

By Matt Machado, PE, LS, NACE Secretary / Treasurer, Deputy CEO, Director of Community Development & Infrastructure, Santa Cruz County, CA

For counties maintaining local roads and bridges isn’t optional—it’s essential to public safety, economic vitality, and day-to-day mobility. Nationwide, counties maintain more than 40% of the U.S.’s roads and bridges, often while managing substantial deferred maintenance. 

Understanding the history of federal and state fuel taxes is critically important for county engineers and transportation leaders as the world faces a period of rapid fluctuations in oil prices. The fuel-tax model helped build the nations highway system—but its design also created predictable funding challenges over time, especially as inflation and vehicle efficiency changed what “per-gallon” revenue can cover. 

Federal fuel taxes: a system that hasn’t kept pace with inflation

The first federal gasoline tax was created on June 6, 1932 through the Revenue Act of 1932, and started as a 1 cent per gallon tax collected at the refinery and used to stabilize the federal budget during the Great Depression.  

Key federal milestones include: 

• 1932 – 1 cent (President Herbert Hoover): emergency budget balancing 
• 1956 – 3.1 cent increase (President Dwight Eisenhower): helped finance the Interstate era 
• 1983 – 5 cent increase (President Ronald Reagan): aimed at repairing national transportation assets 
• 1990 – 5 cent increase (President George H.W. Bush): included deficit reduction/infrastructure funding 
• 1993 – 4.3 cent increase (President Bill Clinton): dedicated infrastructure funding response 

The core issue is that the federal gas tax is not indexed to inflation. Since 1993, it has lost roughly 60% of its purchasing power, meaning the revenue counties rely on for system preservation buys far less today than it did decades ago. 

To match the purchasing power of 1993, the fuel tax would need to be over $0.50 per gallon rather than the current rate of $0.184 per gallon. 

State fuel taxes: growth, then “funding drift” with time.  

Fuel taxes spread quickly at the state level in the early 20th century. By the 1930s, states were already collecting meaningful per-gallon revenue to support highways. Currently, all 50 states and the District of Columbia impose a gas tax. However, as with the federal tax, many state fuel tax structures struggled to keep pace with: 

• rising construction and maintenance costs 
• changing vehicle fuel economy 
• shifting vehicle technology (including electrification) 

California as a case study: how counties feel the impacts 

California’s fuel-tax evolution illustrates what happens when revenue mechanisms lag behind real costs; and how targeted policy changes can help, but not solve everything. 

Key California milestones 

• 1923: first state gas tax at 2 cents per gallon 
• 1940s–1980s: incremental increases as the state highway system expanded (reaching 9 cents by 1983) 
• 1990s: hikes pushed the rate to 18 cents by 1994 for more than a decade 
• 2010 “Fuel Tax Swap”: reduced the sales tax portion on gasoline while shifting toward a variable excise structure 
• 2017 SB 1 (Road Repair and Accountability Act): added a 12-cent increase and introduced annual inflation adjustments 

California’s state excise tax is now 63.4 cents per gallon—the highest in the nation. This matters for county engineers because when state transportation revenue is stable, counties can better plan capital projects and lifecycle maintenance. When state funding is reduced, deferred maintenance grows—and that creates cascading costs for local jurisdictions. 

To adapt to emerging transportation trends, California’s roadway maintenance funding needs to transitioning from traditional, gas-tax-based revenues to user-based models and targeted state investments. Reliable transportation funding in the future will likely rely on inflation-adjusted fuel taxes, localized sales tax measures, expanded Zero-Emission Vehicle (ZEV) fees, and pilot programs aimed at replacing gas taxes with a permanent Road Charge.  Because electric vehicles do not pay gas taxes, the state currently imposes registration surcharges (up to $165 depending on the vehicle) on electric vehicles to ensure drivers contribute to infrastructure wear and tear.  California continues to work through  pilot phases toward evaluating a permanent statewide Road Charge system. This would tax drivers based on the miles of road they travel on, rather than fuel consumed. This transition could stabilized transportation revenue streams as consumers purchase more electric vehicles and vehicles become more fuel efficient. For counties, specially those that don’t impose a local tax dedicated to transportation, predictable transportation funding is directly tied to asset condition, staffing, and delivery capacity. 

A reliable funding system must match today’s realities. Whether the question is pavement preservation cycles, bridge deck rehabilitation, storm-related drainage improvements, or ADA and safety upgrades, counties face the same challenge: The per-gallon fuel tax model has historically lagged behind: 

• inflation and construction cost escalation 
• changes in fuel consumption (efficiency, market shifts) 
• evolving vehicle technology and future revenue risk 

Counties need to band together to support federal and state solutions that help counties: 

• maintain transportation assets in a state of good repair 
• plan multi-year capital programs confidently 
• protect public safety without forcing constant emergency repairs 

Updating the system is a county infrastructure issue. The history of federal and state fuel taxes shows why today’s funding can fall short, especially when revenue mechanisms aren’t structured to automatically respond to inflation and evolving travel patterns. To meet county infrastructure needs, the funding system must better align with the lifecycle realities of roads and bridges.