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Currently, the rules of fuel taxation in the U.S., like the U.S. tax code more generally, is complex and riddled with inconsistencies. The tax rate applied to carbon-based fuels varies widely depending on the type of fuel, purpose of consumption, and identity of the user. These inconsistencies only invite tax evasion and result in fuel tax revenues that fall short of even covering the costs associated with fuel consumption. Not simply for the sake of environmental policy, but as a matter of deficit reduction, the tax reform concept of base broadening can and should be applied to fuel taxation. Taxing carbon-based fuels more consistently will lead to increased revenues without raising the tax rate. The resultant gain in tax revenue could be as high as $28 billion per year at current levels of fuel consumption.
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carbon tax, fuel tax, fuel consumption, tax revenue
Marion, Justin, "Should We Broaden the Fuel Tax Base?" (2013). Penn Wharton Public Policy Initiative. 19.