The Disparate State Impacts and Enormous Cost of a Gas Tax Holiday
Alex Brill | AEIdeas
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.
