Federal Gas Tax Holiday: Suspending the Gas Tax

In response to surging gas prices, President Donald Trump and several lawmakers have proposed suspending the federal gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. via a gas taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. holiday. Gas tax holidays have appeal across the political aisle, but suspending the federal gas tax is a uniquely ill-suited policy for addressing rising prices.

Point 1: Why Have a Gas Tax?

The federal gas tax has been set at 18.4 cents per gallon of gasoline since 1993, and it, along with the diesel tax of 24.4 cents per gallon, remains the primary funding source for highway construction. In the context of recent increases in gas prices (around $1.70 per gallon since the beginning of the year), the federal gas tax of 18.4 cents is relatively small. And in real terms, the gas tax has declined over 50 percent since its last adjustment in 1993 because it is not indexed for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin.

Despite its declining value, the gas tax makes some sense as the source of highway funding because it conforms to the user-pays principle. People who drive are also generally the people who benefit most from roads, making the tax an efficient funding source.

The gas and diesel taxes are imperfect user fees and will become more imperfect as electric vehicles (EVs) grow as a share of automobiles. In the past year, we at Tax Foundation have written about the merits of replacing them with a fee based on vehicle miles traveled, differentiated by vehicle weight per axle, as the main federal policy for road funding. But replacing the gas tax with a comprehensive alternative is far from (temporarily) repealing it and replacing it with nothing.

Point 2: Would Consumers Even Benefit?

Advocates of a gas tax holiday argue the policy would offset the costs of higher baseline gas prices.

For one, the federal gas tax is 18.4 cents per gallon. Meanwhile, average gas prices are up to $4.50 nationally this week, an increase of $1.70 per gallon since the beginning of 2026. The federal gas tax is a drop in the bucket (or the fuel tank) relative to the underlying price changes.

Further, the full 18.4 cents might not even be fully passed on to consumers. By reducing the tax, demand may expand, resulting in slightly higher pre-tax prices, causing the benefits to accrue to producers, not consumers. Back in 2022, several states introduced gas tax holidays in response to high gas prices. Those experiments show producers captured a slice of the benefits—around 20 percent, according to a recent paper in Energy Economics.

Point 3: No Way Out Except Supply

The main driver of today’s high gas prices is global supply constraints. The only solution to the problem is expanded supply. That might come in the form of a changed geopolitical situation in the Middle East (a foreign policy matter rather than an economic one), or new production coming online in the United States and elsewhere, which takes time.

Instead of helping new supply come on the market, a gas tax holiday would subsidize demand. In some respects, it is the mirror image of proposals to raise taxes on oil production through supposed “windfall profits taxes” that, despite their names, end up penalizing new production. Subsidizing demand while taxing supply is exactly the opposite policy mix for the current situation.

Pro-supply policy to bring more oil and gas production online would take time to affect gas prices. But waiting for something good to work is better than doing something bad right away.