Alex Brill assesses the likely impact of a federal gas tax holiday.
Legislative interest in suspending the federal gas tax in response to high fuel prices gained support recently when President Trump told a reporter, “I think it’s a great idea. Yup, we’re going to take off the gas tax for a period of time, and when gas goes down, we’ll let it phase back in.” Last month, Senator Josh Hawley (R-MO) introduced legislation to suspend the 18.4 cents per gallon federal gasoline tax and the 24.4 cents per gallon diesel tax for 90 days with an option to extend the tax holiday for an additional 90 days if the President deems it appropriate. In March, Senators Mark Kelly (D-AZ) and Richard Blumenthal (D-CT) introduced a gas tax holiday through September. Other lawmakers, on a bipartisan basis, have also introduced similar bills in the past.
However, as researchers have noted, there are significant concerns with this policy, including the possibility that the tax cut won’t be passed forward to consumers, the potential negative impact on the federal Highway Trust Fund, and the overall fiscal impact. As I demonstrate here, this policy offers only partial and disparate relief at a significant fiscal cost. …
… From the consumer perspective, in the best-case scenario of a federal gas tax holiday, the price of gas would fall immediately by the amount of the tax break. However, in Alabama, Mississippi, and Kentucky, the states where drivers face the largest burden from higher prices, a gas tax holiday would save drivers $9-$11 per month, offsetting, at most, 20 percent of the additional monthly cost for gasoline. In Minnesota, California, and Hawaii, the tax holiday would save an average driver $6-$7 per month. At most, drivers in North Dakota, Nebraska, and Kansas could have more than 25 percent of the additional cost offset, while drivers in Arizona and Alaska would see only 15 percent of their additional cost offset.
