Trump wants to lift the federal tax on gas. But don’t expect much relief even if it happens

By Tami Luhby, CNN

(CNN) — President Donald Trump said Monday that he intends to suspend the federal gas tax amid soaring prices at the pump as the US war with Iran drags on.

The spike is deepening consumers’ pessimism about the economy, adding to Republicans’ concerns about their fate in November’s midterm elections.

However, pausing the 18.4-cent-per-gallon levy on gas and the 24.4-cent-per-gallon tax on diesel won’t do much to relieve drivers’ pain, multiple experts told CNN. Suspending the tax could wind up pushing up prices more and would hurt the Highway Trust Fund, which depends on the revenue from the levy.

Also, Trump would need congressional approval to suspend the federal gas tax — which lawmakers have never done, despite calls now and in the past when fuel prices have risen sharply. In 2022, a Democratic-controlled Congress rebuffed former President Joe Biden’s request to suspend the levy. More recently, several lawmakers have introduced bills to pause the tax.

Gas prices have skyrocketed to a nationwide average of $4.52 per gallon on Monday, up from $2.98 per gallon before the conflict began on February 28. The main issue is that oil tankers still can’t pass safely through the Strait of Hormuz despite a ceasefire, which Trump said Monday was “on massive life support.”

There are several reasons why drivers wouldn’t see a lot of relief at the pump. Among them is that retailers and other players in the supply chain typically don’t pass along all of those savings to consumers, according to the Penn Wharton Budget Model, which previously examined the impact of states’ gas tax holidays in 2022.

If the federal levy is suspended, gas prices will fall an average of 13.2 cents a gallon, and the cost of diesel will decline by 14.6 cents a gallon, according to a Penn Wharton analysis published Monday. A household filling a 15-gallon tank once a week between June 1 and October 1 would save a total of about $35.

“The actual benefit to consumers is going to be pretty small,” said Kent Smetters, faculty director at Penn Wharton.

A gas tax holiday doesn’t address the supply problem at the heart of the price hike, said Steve Cicala, associate professor of economics at Tufts University. In fact, it could put upward pressure on prices, since the initial dip could heighten demand.

“This does nothing about the supply crunch,” he said. “It is instead encouraging drivers to drive during a supply crunch, which drives prices up further.”

Hurting highway maintenance

The federal taxes on gas and diesel have been major sources of funding for federal transportation through the Highway Trust Fund since 1956, according to the Bipartisan Policy Center. But a five-month suspension of the levy would reduce revenue by about $17 billion, or 46% of total gas tax revenue projected to flow to the fund this fiscal year.

The tax already doesn’t provide enough revenue for the fund, which has run deficits since fiscal year 2008 and required infusions of general revenue. The fund is set to run dry in fiscal year 2028.

Suspending the tax could force lawmakers to decide between filling an even larger gap with taxpayer funds or reducing spending on highways, bridges and mass transit. Allowing roads and bridges to deteriorate will also cost consumers, including in wear and tear expenses for their vehicles, said Xan Fishman, vice president of the energy program at the center.

One issue is that the current gas levy was set in 1993 and isn’t adjusted for inflation. If it were, it would be 40.8 cents a gallon, according to the center.

States take action

Several states, however, have moved recently to try to provide relief for their drivers.

Georgia in March suspended the state’s 33.3-cents-per-gallon tax on gas and 37.3-cents-per-gallon levy on diesel fuel for two months. Gov. Brian Kemp, a Republican, will soon have to decide whether he will renew the holiday.

Meanwhile, Indiana Gov. Mike Braun, a Republican, announced in April that he is suspending the state’s 7% use tax on fuel for a month. He recently extended the measure and also paused the state’s 36-cents-per-gallon gasoline excise tax through early June.

Kentucky and Utah have also taken actions to reduce their gas taxes for several months.

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