Rising gas prices due to the ongoing conflict in the Middle East have prompted calls for a federal gas tax holiday. In a new insight, Director of Fiscal Policy Jordan Haring examines the fiscal and economic implications of a federal gas tax holiday.

Key points:

• President Trump has expressed support for suspending the gas tax temporarily and both Republicans and Democrats in Congress have introduced legislation to do so.
• Any gas tax holiday would impose costs on the federal budget; a one-month suspension would cost $3.4 billion, a three-month suspension $10.3 billion, and a full-year suspension $41.0 billion.
• Depending on the length, a gas tax holiday could push insolvency of the Highway Trust Fund up by several weeks to 18 months.
• The consumer benefits of a gas tax suspension would be immediate, but modest; for example, a household that uses 50 gallons of gasoline per month would save $9.20 from a one-month suspension, $27.60 from a three-month suspension, and $110.40 from a full-year suspension.
• A federal gas tax holiday could create broader economic distortions, including undermining economic incentives for fuel efficiency and energy conservation; moreover, a gas tax holiday is an ineffective anti-inflation strategy, since fuel prices are primarily driven by crude oil markets, geopolitical conditions, and refining capacity constraints rather than federal tax levels.

Read the analysis.