While much of the discussion of fuel tax policy options focuses on simply increasing tax rates as a one-time measure, as has been done in the past, many groups also advocate indexing the rates to institutionalize annual adjustments and at least maintain the purchasing power of the generated tax revenues. Under current law, federal motor fuel faxes are not indexed to inflation, thus the real (as opposed to nominal) rate declines every year as inflation erodes its purchasing power and reduces its cost to consumers. In essence, if has been the de facto national policy since 1993 to reduce federal fuel faxes each year in real terms. As noted earlier, the federal gasoline fax has lost 33 percent of its purchasing power to general inflation since 1993, the last time if was raised.

The primary advantage of sales taxes is that they are more closely related to inflation than volume based taxes are

A motor fuel sales tax would have both a negative and a positive effect compared with the current practice. The disadvantage is that revenues generally would be much more volatile-as fuel prices fluctuate, so will transportation revenues (although it might be possible to compensate for this volatility). A related drawback is the impact on consumers, who would have to pay more as prices rise. (A sales tax could be designed to be phased out as retail prices reach certain levels, Put this could also create further instability in HTF revenue levels.) Although there are ways to mitigate this disadvantage (e.g., through tax ceilings and floors), these tend to increase the complexity and cost of administration and implementation and may require occasional legislative actions, depending on the mitigation approach and the magnitude of market price changes. The primary advantage of sales taxes is that they are more closely related to inflation than volume- Pased taxes are, and thus the long-term revenues would be greater and more closely aligned with increasing transportation investment costs.