Federal Gas Tax Holiday Would Cost a Lot and Have Little Payoff

Gas prices are rising for reasons Congress can’t resolve by statute, unless it wants to rein in the conflict in Iran. The war has pushed energy markets into near panic, with the Strait of Hormuz’s state of openness changing by the day.

In response, legislators are pushing for a federal gas tax holiday, which would take an underfunded system and make it slightly more underfunded to free up a few pennies. Congress instead should help households directly while bolstering federal transportation funding—or at least without further sapping it.

What began as a Democratic affordability proposal is gathering bipartisan steam. President Donald Trump has floated suspending the federal 18.4-cent-per-gallon gas tax, Sen. Josh Hawley (R-Mo.) has introduced Republican legislation to pause federal gas and diesel taxes, and House Speaker Mike Johnson has called the general idea “intriguing.”

The appeal is obvious. Gas prices are giant roadside economic indicators that touch all aspects of American life. With pump prices climbing above $4.50 per gallon, lawmakers want to show they’re doing something ahead of the November midterm elections. Being able to announce a fix in simple terms is a nice bonus.

But a federal gas tax holiday isn’t just bad supply-shock policy. It’s also too small to solve the affordability problem, too blunt to target households in overall economic distress, and costly enough to worsen a serious transportation funding gap. The federal gas tax has been stuck at 18.4 cents since 1993, while the Highway Trust Fund remains tied to that fuel-tax revenue and a reality where costs climb yearly.

The federal gas tax is one of the main revenue sources for the HTF, which pays for highways, roads, bridges, and mass transit. Suspending the chief funding source during a price spike would further weaken an already anemic fund. Congress wouldn’t be suspending a healthy tax with a savings backstop—it would be suspending a deeply neglected revenue source for a critical fund already on life support.

Congress could issue refundable credits or direct payments to low- and moderate-income households, with adjustments for regions where fuel prices have spiked most acutely.

Photographer: Brian Kaiser/Bloomberg via Getty Images

The average price per gallon of gas in 1993 hovered around $1.10—putting 18.4 cents at about a 17% rate. At $4.50 per gallon, that’s the equivalent of a 76.5 cent tax, or just about four times the current levy. Suspending the tax would move the needle in the wrong direction.

A properly functioning gas tax preserves the basic user-fee principle that drivers buy gasoline, and gasoline taxes help fund the roads and bridges those drivers use. This connection has never been perfect—different cars don’t impose identical costs on the transportation system. And those costs haven’t stayed the same across three decades of inflation. But the core idea still has value: Road use should be roughly tied to road funding.

Congress has allowed that link to diminish by refusing to update the tax, resulting in an HTF that looks more like a piece of policy history than a durable financing mechanism. Every few years, lawmakers seem to rediscover that transportation infrastructure costs money.

The war and blockade are already imposing additional costs on the US economy through higher fuel prices. A gas tax holiday would take that external shock and route part of it into the HTF, ensuring the conflict’s effects linger after oil markets stabilize.

The blockade may end, tanker traffic may normalize, and prices may fall. But the forgone revenue will still have to be replaced, borrowed, or absorbed through abandoned projects and deferred maintenance. The HTF could be insolvent as early as next year, absent intervention.

Supporters of a gas tax holiday may answer that Congress can backfill the HTF later. Although that’s possible in the narrowest sense—Congress can always move money around—that doesn’t make the gas tax holiday good policy.

Diverting money from other federal subsidies, revenue, or programs would involve tradeoffs. Borrowing the money shifts the cost forward, and using general revenue makes transportation funding more dependent on annual fiscal politics.

The best approach is to separate two problems that the holiday assumes can be safely merged: household hardship and transportation finance. To ameliorate the former, Congress should give families temporary, targeted support.

Congress could issue refundable credits or direct payments to low- and moderate-income households, with adjustments for regions where fuel prices have spiked most acutely. It could supplement existing benefit systems for households with documented increased transportation burdens; support employer-based commuter assistance for workers who can’t work remotely; or create short-term flexible credits that can be used for gasoline, transit, rideshare, or other transportation needs.

If lawmakers insist on suspending the federal gas tax, they should at least provide a contemporaneous, dedicated backfill that doesn’t depend on future appropriations theater. Congress could pair any temporary suspension with an indexing of the federal gas tax to inflation, phase in a mileage-based user fee, adopt more direct road-use charges, or design a system with considerations for electric and highly efficient vehicles without punishing cleaner transportation.

High gas prices are real, and the hardship they create can’t be dismissed with a lecture on fiscal responsibility or belt tightening. But a federal gas tax holiday is barely more than a poorly targeted discount financed by a transportation system already running on borrowed time.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social.

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