• An increase in the fuels tax of $0.15 per gallon with staggered implementation:

• January 1, 2026: +10¢/gallon
• January 1, 2028: +5¢/gallon
• January 1, 2029: Rate of inflation, with a floor so that the tax rate never decreases and a ceiling so that the tax rate never increases more than 3% each year.

•  An net increase in the motor vehicle registration fees of (after making the base-fee and MPG surcharge adjustments):

• For passenger vehicles, from $43 to $113 ($70)
• For mopeds and motorcycles, from $44 to $110 ($66)
• Low speed vehicles, from $63 to $129 ($66)
• Medium-speed electric vehicles, from $63 to $129 ($66).

•  An increase in the title fee of:

• For new titles, from $77 to $182 ($105).
• For salvage vehicles, from $27 to $44 ($17).

• A change in the Weight-Mile fee.
• A 1% use fee (appears to be similar to a sales tax) on the price of a used vehicle and 2% on a new vehicle.
• An increase in the payroll tax from 0.1% to 0.18% on January 1, 2026 (for transit operations and development). The proposal includes further payroll tax increases to 0.25% on January 1, 2028 and a third increase to 0.30% on January 1, 2030.
• An increase in the Vehicle Privilege Tax from 0.5% to 1.0%.
• Adjustments to the Road Usage Charge.
• Increases in several DMC and CCDE fees as cost recovery fee increases.

From 2026 through 2040, the current proposal increases tax revenue by approximately $3.2 billion by the 2033-35 biennium ($2.1 billion in the 2027-29 biennium).

Regressivity and Equity

Both fuel taxes and RUCs are often critisized as regressive - meaning that they take up a larger share of income from low-income households than from high-income ones. This happens because the tax amount is the same per gallon or per mile, regardless of income level. Whether you earn $20,000 or $200,000 a year, you still pay the same extra cents at the pump. For example, a Massachusetts analysis found that a 10¢ gas tax hike would take a noticeably larger percentage of income from low-income drivers than from wealthier ones.[i] Even though wealthier households may buy more fuel overall, it represents a much smaller portion of their total budget. Flat-per-mile RUCs work similarly — the rate doesn’t vary with income, so lower-income drivers end up paying a larger share of their income. The regressivity and equity consideration is also present when considering the rural and urban divides in the state.

That said, the degree of regressivity can vary depending on context. Interestingly, higher-income households often drive newer, more fuel-efficient vehicles — hybrids or electric cars — which means they pay less per mileunder the current gas tax structure. In contrast, lower-income households are more likely to drive older, less efficient vehicles and therefore pay more per mile in taxes. A flat RUC, which charges the same amount per mile regardless of fuel type, could equalize this imbalance.

In fact, a recent Oregon analysis compared a 1.5¢-per-mile RUC to the current gas tax and found that while both were still regressive overall, the RUC was slightly less skewed in some areas. For example, in the North Willamette Valley — home to many high-income, high-MPG commuters — the switch to RUC resulted in those drivers contributing more to the system, making the cost distribution a bit more equitable.[vii]

Policy design matters. There are ways to soften the burden on low-income drivers. Some ideas include exempting the first few thousand miles per year (to cover essential trips), offering low-income rebates, or expanding programs like the Earned Income Tax Credit to offset the impact. While not all of these tools are implemented in practice, they offer clear ways to reduce regressivity.

As Oregon moves forward with TRIP, policymakers may want to consider these offsets or adjustments to ensure that the tax system is fair — that “everyone pays,” but not at the expense of those least able to afford it.

Consumer Response to Indexed vs. One-Time Changes

How a fuel tax is implemented — all at once or gradually over time — plays a big role in how consumers respond (see Appendix A on revenue forecasting and elasticity for a discussion). Research consistently shows that consumers react more strongly to tax-induced price increases than to equivalent changes in gas prices from the market.

One study by Li, Linn, and Muehlegger (2014) finds that a 5-cent tax hike reduced gasoline consumption by around 0.86%, while a 5-cent price increase from oil market shifts reduced consumption by only ~0.3%.[viii] The difference is due to two key factors: persistence and salience. Tax hikes are often seen as permanent, and they receive more media and political attention than market price swings. This makes them more noticeable to drivers — and more likely to change behavior.

That said, Oregon’s proposed gas tax increase under TRIP 2025 isn’t a sudden hike. It’s phased-in in two steps — 10 cents in 2026, followed by 15 cents in 2028, and indexed to inflation thereafter, rising slightly each year based on the Consumer Price Index (CPI).

This gradual implementation changes the behavioral response. Smaller increases spread over time are likely to be less salient to drivers. Each adjustment may fly under the radar, especially after the CPI-based indexing becomes routine. That means drivers may not immediately alter habits — but the persistence of the policy could still influence long-run decisions, like buying more fuel-efficient cars or adjusting commute patterns.

In sum, gradual tax increases like those in TRIP 2025 may not trigger sharp short-term behavioral changes. But over time, as drivers internalize the steady upward trend in fuel prices, their behavior will likely shift — and that has important implications for both gasoline consumption and tax revenue in the long run.

Spending Side

Higher prices generally harm economic activity unless there is some form of measurable boost to productivity. Acknowledging that, the spending (some of which may turn into productivity-enhancing economic benefits) generates at least short-term benefits to the economy in terms of employment and business revenue. The spending side includes (based on the current version of HB2025): 

• A 21,583 increase in jobs by 2030.
• A $3.6 billion increase in GDP.
• A $2.4 billion increase in Personal Income (mostly workers’ income).
• A $6.1 billion increase in business sales (Output).

Overall Economic Impact

Two sides of the economic impact have been presented. Rather than considering the two in silos, here we combined the two. When combining the two, the net impact is (Figure 5): 

• A 5,094 increase in jobs by 2030 (all figures in this list are 2030).
• A $1.1 billion increase in GDP.
• A $635 million increase in Personal Income (mostly workers’ income), including a $214 million increase in Disposable Personal Income.
• A $1.8 billion increase in business sales (Output).
• Prices rise marginally, by 0.36% in 2030.

Important Points to Consider

Two important assumptions are relevant to the results. 

First, the results assume that the road, transit, and other expansions have no crowding out effect on the private sector. Essentially, on net, the results suggest that the construction, development, and maintenance will be complementary to existing private sector activities.

Second, the results assume that the construction and development activity will have an amenity impact, meaning the newly built projects will appear more desirable to current/future residents.

Should these two assumptions change, the results would change.

Parts of the Proposal Come Out as Losers

On net, as it currently stands, the proposal shows an increase in jobs and business sales, at least in the short run. Components of the proposal fail to generate a positive return.

Using Payroll Tax to Pay for Current and Expanded Transit

It’s readily transparent that there’s a mismatch between the payroll tax and using it to pay for transit. The incentive is for employers to shift employment outside of areas where the payroll tax is present. Additionally, optimal tax policy suggests transparency in tax collection at the time of the transaction. A payroll tax for transit violates this optimal tax policy. If you want more employment, it’s not optimal to increase the tax on it.

Overall, in 2030, using the payroll tax to pay for current/expanded transit services reduces employment by 457 jobs, business sales by $29 million, and disposable personal income by $352 million.

Transportation-related Income Tax May Provide a Faster Growing and Functioning Revenue Source

A road usage charge, raising the gas tax, increasing registration fees, expanding the payroll tax, and other proposed revenue changes are options to raise revenue. 

Instead of opting for large tax increases, the state may want to consider another option: Shift the growth in personal income tax related to roads and transit towards covering some of the funding structure for the expanded infrastructure projects.

For instance, the current General Fund revenue biennium revenue forecast made in March 2025 suggests total revenue collected of $28.0 billion.[xi] A 6% growth rate on top of the $28.0 billion would be $1.68 billion in new, biennial revenue. Presuming approximately 17% of the $1.68 billion stems from transportation-related sectors, then $286 million of the tax increase could be avoided by simply shifting growth to more productive resources, such as expanding the economic infrastructure in the state.

Shifting revenue growth towards higher-yielding transportation infrastructure is especially relevant given declining demand for government services in other sectors in the coming years.

Conclusion 

The increased taxes and fees included in HB2025 will create a significant drag on economic activity in Oregon. In addition, given the wide range of tax instruments included in the package, there is not a tight connection between which households will benefit from the investments, and those who are asked to fund them. 

That said, the long-running lack of investment in Oregon’s transportation infrastructure has led to a drastic need for more to be done. With such a great need, many proposed transportation projects will lead to large returns on investment. Over time, it is likely that the benefits of these investments will outweigh the economic drag of taxation on net.  

Given that policy is focused on addressing the dire needs of Oregon’s current transportation infrastructure, it is unlikely that HB2025 is composed of the potential projects that stand to generate the largest returns. Also, while the package is expected to create some long-run value overall, it will clearly result in winners and losers among those who benefit most from the projects and those who are asked to pay the most for them. Furthermore, the package reflects a stop-gap solution, doing little to address the long-run transportation funding gap that will worsen going forward. 

 

Appendix A

Gasoline Demand Elasticity and Revenue Forecasting

Economists use the term price elasticity of demand to measure how much consumers reduce their purchases when prices go up. Gasoline is a good example: it’s essential for most people’s daily life, so demand doesn’t drop sharply when prices rise — at least not right away. This is called inelastic demand. But over time, as people find alternatives (like fuel-efficient cars or public transit), demand becomes more responsive — or elastic.

This time horizon matters for tax policy. In the short run, people can’t instantly change their habits, so a gas tax hike mostly boosts revenue. But in the long run, as driving behavior and vehicle choices shift, fuel use declines — and so do tax collections.

Recent studies show this pattern clearly. Short-run elasticity of gasoline demand is around –0.2 to –0.4. That means a 10% price increase would reduce fuel use by just 2% to 4% at first — allowing most of the added tax to flow in as revenue. But long-run elasticity estimates are closer to –0.5 or even –0.6, meaning fuel consumption could eventually fall by 5% to 6% or more in response to the same price change. That’s a big deal for revenue forecasts.

For example, Levin, Lewis, and Wolak (2016) used detailed gas station data and estimated short-run elasticity between –0.27 and –0.35.[xii] Kilian and Zhou (2023) found similar values using national data, and pointed out that newer vehicles and high gas prices make people more price-sensitive over time.[xiii] Older studies had lower estimates because they used coarse or outdated data.

What does this mean for TRIP 2025? In the early years, Oregon’s phased 15¢ fuel tax increase is likely to generate revenue growth. Most drivers will keep filling up, even if they grumble at the pump. But long term, the base of taxable fuel — the number of gallons sold — is expected to shrink, especially as electric and high-MPG vehicles become more common. That could flatten or even reverse revenue gains, despite ongoing tax hikes.

Revenue Forecasting Under Different Elasticity Assumptions

To estimate how gasoline tax revenue might respond to the TRIP 2025 increase, we modeled consumption and tax collections under several price elasticity assumptions. We used 2021 data from the U.S. Energy Information Administration (EIA), which reported Oregon’s gasoline consumption at approximately 4,008.2 thousand gallons per day. This equates to about 1.46 billion gallons annually. We assumed a baseline gasoline price of $4.00 per gallon and modeled the full $0.20 per gallon tax increase once fully phased in.

The table below shows the estimated number of gallons sold, the resulting tax revenue, and the revenue loss compared to a baseline scenario where demand is perfectly inelastic (i.e., fuel use stays constant at 1.46 billion gallons). The final column shows how much less revenue would be collected due to behavioral responses — for example, under long-run elasticity of –0.6, fuel consumption is expected to fall by about 2.5%, reducing annual revenue by roughly $8.8 million even with the higher tax rate.

To walk through one case: under short-run elasticity of –0.2, fuel use declines slightly to 1.448 billion gallons. At 20 cents per gallon, this yields $289.7 million in tax revenue — just $2.9  

million less than the baseline. In contrast, long-run elasticities lead to larger drops in consumption and revenue.

This exercise underscores a crucial point: even modest long-run changes in driving habits or vehicle efficiency can significantly erode the taxable fuel base. Our simulation, based on 2022 gasoline sales volumes, shows that higher price elasticity over time leads to meaningful revenue losses — even with small price increases like Oregon’s planned 20-cent hike. While short-run revenue gains may look solid, they are unlikely to hold. In fact, Oregon’s gasoline consumption has already been trending downward over the past decade, and that trend is expected to accelerate with rising EV adoption and stricter fuel economy standards.

Put simply: tax revenue from gasoline is likely to decline over time — not because the rate isn’t high enough, but because there will be fewer taxable gallons. Policymakers should be cautious about assuming stable collections from fuel taxes, even with inflation indexing. Long-run elasticity and structural shifts in transportation mean that the revenue base is shrinking — slowly but surely.

 

Elasticity Scenario	Price Elasticity of Demand	Estimated Gallons Sold (millions)	Tax Revenue ($ millions)	Revenue Loss vs. Baseline (E=0) ($ millions)
Short-run (low)	-0.2	1448.36	$289.67	-2.93
Short-run (high)	-0.4	1433.73	$286.75	-5.85
Long-run (low)	-0.5	1426.42	$285.28	-7.31
Long-run (high)	-0.6	1419.10	$283.82	-8.78

 

References