Gas prices are going through the roof. Right now, the average price for a gallon of regular unleaded gas in the U.S. is well over $4 per gallon ($4.33 per gallon on March 14). And that’s a national average – prices are much higher in some parts of the country (well over $5 per gallon in California). Plus, there’s no sign of a retreat any time soon, so who knows how high gas prices will go. The Biden administration is looking for a way to help reduce the pain at the pump – but the options are limited. Encouraging greater oil production and tapping the nation’s Strategic Petroleum Reserve are certainly on the table, but what about a gas tax holiday?
Temporarily suspending the 18.4¢ per gallon federal gas tax would certainly put a dent in higher gas prices. Even though it wouldn’t come close to wiping out the entire price increase we’ve experienced lately, it’s one tool at the federal government’s disposal. In fact, a bill has been introduced in Congress that would reduce the federal gas tax to zero for the rest of the year. And while the Biden administration is concentrating more on increasing the global oil supply, it hasn’t ruled out the possibility of a fuel tax holiday.
State gas tax holidays are also possible. In fact, they could help reduce gas prices even more because state gas taxes are higher than the federal tax in all but one state (Alaska). A number of governors and state lawmakers from around the country are publicly supporting fuel tax holidays in their state. And leaders in at least one state have already agreed to a temporary suspension of their fuel tax and are working on legislation to finalize the deal. Expect more state governors and legislators to follow their lead.
Will the Federal Gas Tax be Suspended?
At this point, a federal gas tax holiday seems unlikely. First, it wouldn’t save people all that much money. For example, a person who drives 12,000 miles a year in a car that averages 25 miles per gallon would only save about $70 if the federal gas tax was suspended for the rest of 2022. But the overall loss of tax revenue would be high – estimated to be about $20 billion. That’s money that wouldn’t be available for road repairs and other needed infrastructure projects. The cost-benefit analysis doesn’t favor a gas tax holiday in many people’s minds.
There’s also some concern that the oil companies wouldn’t pass along all the savings to consumers if the federal gas tax was suspended. The current bill in Congress addresses this concern by stating that the “policy of Congress” is that “consumers immediately receive the benefit of the reduction in taxes” and that “transportation motor fuels …….