With gas prices climbing amid tensions in the Middle East (averaging $4.50 a gallon according to AAA, up more than 50% since the start of the war with Iran), President Donald Trump says he wants to suspend the federal gas tax “for a period of time” to help drivers.
But some economists say the policy would likely have only a limited effect, since gasoline prices are driven mainly by global oil markets rather than federal taxes.
What’s a driver to do as we head toward the Memorial Day holiday? Read on.
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Why a gas tax holiday might not lower prices much
The federal gas tax is 18.4 cents per gallon of regular, layered on top of state taxes (more on those below), but it represents only a small share of what drivers ultimately pay at the pump.
Gas prices are driven far more by global oil markets, which continue to fluctuate. That means even if the federal tax were temporarily suspended, prices would still largely reflect international supply and demand.
Even when costs fall, those savings don’t always quickly reach consumers.
Fuel prices adjust gradually, and companies across the supply chain — from refiners to gas stations — can retain part of the short-term margin depending on competition and local market conditions.
What about state gas tax?
Even if the federal gas tax were paused, drivers in most places in the U.S. would still pay state gas taxes, which are often significantly higher than the federal 18.4-cent tax.
As a result, the impact of a federal gas tax holiday would vary widely depending on where someone lives.
One state has already taken action to address this.
- As Kiplinger reported, Georgia temporarily suspended its state gasoline tax for 60 days in March as fuel prices surged following escalating tensions with Iran.
- The move cut roughly 33 cents per gallon from gasoline prices and about 37 cents per gallon of diesel.
Because Georgia’s state gas tax is higher than the federal tax, the immediate savings there were more noticeable than what a federal suspension alone would provide.
Still, economists note that even state-level tax holidays don’t address the core driver of fuel prices: global oil markets. As mentioned, if crude prices remain elevated, pump prices can stay high even with tax relief in place.
On the flip side, out in California, Gov. Gavin Newsom has so far rejected calls for a state gas tax holiday. (Average fuel prices in the Golden State recently soared above $6 per gallon.)
Newsom has argued that suspending the state’s gas tax could jeopardize infrastructure funding.
Hidden costs?
Worth noting: The federal gas tax also plays a key role in funding roads, bridges, and transportation infrastructure through the Highway Trust Fund.
Suspending it, even temporarily, could remove billions of dollars in dedicated transportation funding unless Congress replaces the revenue elsewhere, according to the Peterson Foundation.
- The Bipartisan Policy Center has estimated that a five-month federal gas tax holiday, for example, could reduce Highway Trust Fund revenue by roughly $17 billion.
- That matters because the fund is already under long-term strain and has required transfers from general federal revenues to stay solvent.
There is also a political hurdle…
Trump can’t suspend the federal gas tax on his own. Congress would need to pass legislation approving the move, and lawmakers would also need to determine how to offset the lost transportation revenue.
Sen. Josh Hawley (R-Mo.) and Sens. Mark Kelly (D-Ariz.) and Richard Blumenthal (D-Conn.) have each introduced proposals to temporarily suspend the federal gas tax — currently 18.4 cents per gallon for gasoline and 24.4 cents for diesel — as a way to provide short-term relief from higher fuel costs.
In a release about his proposed Gas Tax Suspension Act, Hawley stated, “President Trump has proposed to suspend the federal gas tax, and he’s exactly right. American workers and families deserve immediate relief and this legislation will do just that.”
Meanwhile, Kelly stated that “suspending the federal gas tax [via the Gas Tax Relief Act] would help bring prices down and give families some much-needed relief.”
So, even though Congress has never voted to suspend the federal gas tax, the measure might resonate now on Capitol Hill because gas prices are highly visible and directly affect household budgets. Stay tuned.
What you can do about high gas prices
For consumers facing higher gas prices, most of the real relief comes from factors outside domestic policy. But some practical steps might help.
And while gas prices tend to move with global oil cycles, they can shift quickly in both directions depending on supply conditions and geopolitical events.
Hopefully, some real price relief will arrive as unexpectedly as the price spikes did.