The First Gasoline Tax: Less Than Romantic (Oregon: 1919)

“I was asked to draw a state highway map that would win the votes of a majority of the members by placing roads [so] they could take them home with them as pork wrested from Portland…. This map ran in front of the farm homes of enough legislators that . . . 37 representatives joined in introduction of the bill…. It took all day . . . to get the map changed so a majority of the Senate would vote for the bill…. My poor map was almost unrecognizable, but it served its purpose.”

– C. C. Chapman, “father of the gasoline tax,” on Oregon’s passage of motor-vehicle fee in 1917, which became a gasoline levy two years later.

History informs the public policy debate. Generally, messy politics contradicts the textbook ‘romantic’ view of government as being a high-brow exercise of selfless leaders weighing the common good to help the rest of us.

Specifically, in this instance, history demonstrates that in the area of taxation, small, wedge beginnings can dangerously grow and take on a life of their own. This should be kept in mind when the anti-fossil-fuel lobby argues for a “modest” carbon tax.

Consider a very interesting example of political capitalism in the history of the U.S. oil and gas industry: the first state motor fuel tax, passed in Oregon in 1919.

Oregon’s rate? You guessed it, $0.01 per gallon. That wheat ear would be worth more than a dime today, but compare it to the average U.S. gasoline tax of nearly $0.50 per gallon (about a 25 percent tax rate).

Was Oregon’s tax the work of a far-sighted reformer with the special interests keeping a safe distance in the interests of fair and balanced government? Or was it the result of a confluence of private and public interests creating a supply of and a demand for special government favor?

Unlike the textbook view, it was the latter. And “Big Oil” was involved in Oregon’s historic public-finance moment. The major oil companies calculated that the total revenue from gasoline sales would rise more with tax-financed road construction than if gasoline was cheaper by the amount of the tax and fewer (public) roads were constructed.

Oregon’s beginning led to road taxes in all 48 states within a decade to fund road construction. But, gas-tax revenue started to be diverted to other uses to the chagrin of the oil majors, now organized as the American Petroleum Institute (API). “Phantom roads” became an issue.

Government intervention giveth and taketh away. Expect the same for any ‘starter’ carbon tax.

Here is the story of the first motor fuel tax reproduced verbatim from Oil, Gas, and Government (Cato Institute: 1989), pp. 1374–1376.

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With the post‑World War I boom in road construction, almost entirely a governmental function, the vital question became finance.  Federal aid would not start before 1918 and was modest until the 1920s. [1] 

Property taxes and related bond financing were resorted to by the states beginning in 1912, but after so many increases, farmers, railroads, and public utilities, the major taxpaying bodies, began to resist; by 1916, property taxes had doubled from a decade before from road finance alone. [2] Automobile license fees were at high levels. With taxes and bond issues at their political ceiling, a new revenue source was needed to continue the good-roads movement.

Events in Oregon were the genesis of the motor-fuel tax revolution. The state legislature, desperate to secure new funding for public roads, proposed in 1917 to increase motor vehicle fees. The rationale was that any increase would be saved in automobile repairs once improved roads were in service.

Leading the fight with the author of the plan, C. C. Chapman, was I. N. Day, a former state senator turned paving contractor. After a long fight, the legislature approved the tax bill thanks to Chapman’s oft-revised roadmap. As he explained:

The political problem involved was chiefly that of map making…. I was asked to draw a state highway map that would win the votes of a majority of the members by placing roads [so] they could take them home with them as pork wrested from Portland…. This map ran in front of the farm homes of enough legislators that . . . 37 representatives joined in introduction of the bill…. It took all day . . . to get the map changed so a majority of the Senate would vote for the bill…. My poor map was almost unrecognizable, but it served its purpose. [3]

With the motor-vehicle tax, the motor-fuel levy was only a step away. Earlier, a gas tax had been proposed in conjunction with the state gasoline inspection law, and with more revenue needed, Chapman, now editor of a leading newspaper, editorialized for a gas tax, which was seized upon by road interests and legislators. A bill was drafted by the highway committee, and a 1 cent per gallon levy became law on February 25, 1919, with the help of regular editorials by Chapman. Years later, Chapman expressed his thanks before the American Petroleum Institute (API):

In passing, may I pay a deserved tribute of credit to the big oil companies. They cooperated with us every session in the application of the gasoline tax idea. We had reports that they were opposing it in some other states, but in Oregon at no time did they attempt to obstruct it. Their counsel aided in perfecting details of the legislation. [4]

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    [1] Federal matching funds were first authorized in the Federal Aid Act of 1916 [39 Stat. 355].  For a history of prior federal efforts, see Frederic Paxson, “The Highway Movement, 1916‑1935,” American Histori­cal Review, January 1946, pp.  236‑43.  Federal administration began with the Office of Road Inquiry in 1893 within the Agriculture Department. Name changes were made to the Office of Public Roads (1905), the Office of Public Roads and Rural Engineering (1915), the Bureau of Public Roads (1918), and the Public Roads Administration (1939).

    [2] C. C. Chapman, “Gasoline‑Tax Diversion,” Fifteen Annual Proceedings (New York: American Petroleum Institute, 1934), pp. 21‑22.  At the turn of the century, property taxes, poll taxes, and in‑kind labor were revenue sources for bridges and roads. Convict labor also was utilized in some states.  See Burnham, “The Gasoline Tax and the Automobile Revolution,” p. 436.

    [3] Chapman, the “father of the motor fuel tax,” espoused vehicle tax financing after learning about a similar proposal in New Jersey. Actually, New York in 1901 and Missouri in 1903 introduced vehicle levies earmarked for road uses. The so‑called Chapman Plan was “the idea which later resulted in the gasoline tax.”  Chapman, “Gasoline Tax Diversion,” p. 22.

    [4] Ibid., pp. 21‑23.  Chapman humorously wrote (p. 23) about one veteran legislator, “smack in front of whose home I had drawn a heavy line for a paved highway on my road map,” whose support was crucial for victory.