Could a Federal Gas Tax Holiday Lower Pump Prices? What Experts Say

Gas Prices Hit $4.46 Per Gallon as Tax Holiday Proposals Gain Traction

The surge in gasoline prices is fueling renewed calls to suspend the federal tax on fuel, with high-profile Democrats pushing the idea as a way to help consumers. However, the proposal faces significant hurdles, including opposition from good-government advocates and concerns about long-term funding for U.S. highways.

Why a Gas Tax Holiday Is Back in the Conversation

Gasoline prices have climbed to an average of $4.46 per gallon in the U.S., according to AAA data from May 2024. This marks a sharp increase from pre-war levels, prompting political figures to revisit the idea of a temporary suspension of the federal gas tax.

While the concept has surfaced before during price spikes, it has never been enacted. However, the current geopolitical climate—marked by disrupted global oil shipments and no clear resolution—has intensified the debate.

How Much Relief Would a Tax Holiday Provide?

The federal gas tax stands at 18.3 cents per gallon, with diesel taxed at 24.3 cents per gallon. Suspending these taxes would offer some relief to drivers, but experts caution it would not fully offset the nearly $1.50-per-gallon increase since the start of the war in Ukraine.

In late April 2024, the Bipartisan Policy Center estimated that suspending the gas tax could reduce retail prices by 9% to 14% per gallon. However, the savings would not be fully passed to consumers, as suppliers may retain a portion of the savings.

Proposed Legislation and Key Supporters

Several prominent Democrats have recently advocated for a gas tax holiday:

• James Talarico, Democratic Senate nominee in Texas, proposed suspending both the gas and diesel taxes in April 2024.
• Sen. Mark Kelly (D-Ariz.), a potential White House candidate, introduced legislation in March 2024 to suspend the federal gas tax.

Will Congress Act? Experts Weigh the Odds

The Rapidan Energy Group, a leading energy consultancy, estimates there is a 25% chance that Congress could suspend the gas tax. Glenn Schwartz, the firm’s director of energy policy, noted that these odds would rise if disruptions in global oil markets persist and prices continue climbing.

However, the White House has indicated that a gas tax suspension is not currently under consideration. A spokesperson stated:

"While the Administration is always considering ways to mitigate these short-term disruptions in the energy markets, a gas tax suspension is not currently under consideration."

The Catch: Highway Funding at Risk

The federal gas tax funds the Highway Trust Fund, which supports the maintenance and expansion of U.S. transportation infrastructure. Suspending the tax could have serious consequences:

• A five-month suspension would reduce federal revenue by $17 billion, or 46% of the estimated fiscal year 2026 inflows from these taxes, according to the Bipartisan Policy Center.
• The fund already operates at a deficit, as fuel-efficient vehicles and electric cars contribute less to the tax base.

State-Level Precedents and Limitations

Some states, such as Georgia and Indiana, have temporarily suspended state fuel taxes in response to price spikes. However, these measures are short-term and do not address the structural funding issues facing federal highway programs.

Bottom Line: Limited Relief with Long-Term Costs

While a federal gas tax holiday could provide modest relief to consumers, the benefits would be temporary and unevenly distributed. Meanwhile, the suspension would exacerbate the financial strain on the Highway Trust Fund, raising questions about the long-term sustainability of U.S. infrastructure funding.