President Donald Trump announced Monday his intent to pause the federal gasoline tax amid soaring pump prices, as the US conflict with Iran drags on.
This spike exacerbates consumer pessimism about the economy, intensifying Republican worries regarding their standing in the November midterm elections.
Nevertheless, eliminating the 18.4 cents per gallon levy on gasoline and the 24.4 cents per gallon on diesel will offer little immediate relief to drivers’ financial strain, several CNN experts indicated. Halting the tax could further inflate prices and negatively impact the Highway Trust Fund, which relies on the revenue generated by that levy.
Furthermore, Trump would require Congressional approval to suspend the federal gas tax—an action lawmakers have never taken, despite calls both currently and in the past when fuel costs dramatically increased. In 2022, the Democrat-controlled Congress rejected former President Joe Biden’s request to enact a pause on the collection. Recently, several legislators have introduced bills proposing a tax suspension.
Gasoline prices had rocketed to a national average of $4.52 per gallon on Monday, up from $2.98 per gallon before the conflict commenced on February 28th. The core issue remains that oil tankers are still unable to transit the Strait of Hormuz safely, even amid a ceasefire that Trump on Monday characterized as “on strong life support.”
There are several explanations for why motorists aren’t seeing significant relief at the pump. Among them, retailers and other supply chain participants generally do not pass on the entirety of such savings to the public, according to the Penn Wharton Budget Model, which previously examined the effect of state gas tax holidays in 2022.
Should the federal levy be halted, gas prices would likely decrease by an average of 13.2 cents per gallon, with diesel costs dropping by 14.6 cents per gallon, based on Penn Wharton analysis released Monday. If a household fills a 15-gallon tank weekly between June 1st and October 1st, the total savings would amount to approximately $35.
“The actual benefit for consumers would be quite minimal,” stated Kent Smetters, faculty director at the University of Pennsylvania’s Wharton School.
A gas tax holiday does not address the supply constraints underlying the price escalation, pointed out Steve Cheema, an associate economics professor at Tufts University. In fact, it could put upward pressure on prices, as the initial price drop might spur greater demand.
“It does nothing to solve the supply shortage,” he noted. “Instead, it encourages drivers to drive more during a supply shortage, which consequently drives prices up further.”
Damage to Highway Maintenance
Federal taxes on gasoline and diesel fuel have served as the primary source of funding for federal transportation infrastructure through the Highway Trust Fund since 1956, according to the Bipartisan Policy Center. A five-month suspension of the levy, however, would reduce revenues by an estimated $17 billion, or 46% of all projected gas tax receipts slated for the fund this fiscal year.
The tax already fails to generate sufficient revenue for the fund, which has been running deficits since fiscal year 2008 and requires infusions from general revenues. In fiscal year 2028, the fund is projected to become insolvent.
A tax suspension might force lawmakers to choose between covering the resulting shortfall with taxpayer money or enacting cuts to spending on highways, bridges, and public transit. The deterioration of roads and bridges would also impose costs on consumers, including expenses related to wear and tear on their vehicles, remarked Xan Fishman, the energy program’s vice president at the center.
One contributing factor is that the current gas fee was established in 1993 and has not been indexed for inflation. If it had kept pace, the fee would stand at 40.8 cents per gallon, the center reports.
States Taking Action
Several states, however, have recently implemented measures to provide relief to their motorists.
In March, Georgia suspended its gas tax of 33.3 cents per gallon and its diesel tax of 37.3 cents per gallon for a two-month period. Governor Brian Kemp, a Republican, is soon due to decide whether he will extend this break.
Meanwhile, Indiana Governor Mike Braun, a Republican, announced in April that he was pausing the state’s 7% fuel tax for one month. He recently extended that measure and also suspended the 36-cent-per-gallon excise tax on gasoline until early June.
Kentucky and Utah have also taken steps to reduce gas taxes over several months.
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