When we look at what we don’t know it can be very scary. Most of the U.S. driving public knows little about European fuel prices. But at a recent NAFA International Fleet Conference I became curious and learned that taxation in Europe on fuel consumption is darn-right nasty.
Case in point: In the U.K., the equivalent price of a gallon of regular unleaded gasoline is $7.77, compared to $3.27 here in the States. That’s a drastic $4.50 more per gallon. The difference amounts to about $7,000 more per vehicle per year, and $77 billion more for the 11 million cars and light trucks in U.S. fleets. Could the U.S. be headed in that direction? Don’t be too quick to dismiss the notion.
The difference in gasoline prices is almost entirely due to taxation. In the U.S. we pay an average of about 48 cents a gallon in state and federal taxes. Just 18.4 cents of that goes to Uncle Sam, and all of that goes into the Federal Highway Trust Fund, which pays for the country’s transportation programs, like highway maintenance and construction.
UK Fuel Price Breakdown
By contrast, the U.K.’s national Value Added Tax and Fuel Duty account for almost every bit of the $4.50 more they pay for “petrol” at the pump. And, as is typical of the rest of Europe, all of the revenue goes to prop up total government spending. This is like 10 times more in tax revenues paid at the pump than we pay in the U.S.
So one question is, as social program spending takes up an increasingly larger portion of U.S. federal and state budgets, could legislatures begin to look to higher fuel tax rates to pay for it? Or, even without that possibility, it looks like higher taxes for driving are likely because the Federal Highway Trust Fund’s is facing a financial crisis. With vehicles becoming more fuel efficient and Americans driving fewer miles, federal fuel tax revenues have been declining for years, and will continue so even more dramatically. At the same time, our roads and bridges are crumbling while construction costs have been rising.
U.S. Federal Highway Trust Revenues, Outlays and Budget Shortfall
Another buck or two per gallon wouldn’t even take us halfway to what U.K. fleets are paying, but would increase fuel costs for a 2,000-vehicle fleet by as much as $5-6 million a year. With Europe as a leading although nasty example, can we trust that our governments won’t follow their taxing practices? I’d say we’re stuck in a possible “short-squeeze” of budgeting troubles.