Shell station, West Linn, Oregon. (This was the price on May 2. It’s 10 cents higher now.)
In response to a question about the Iran War, President Trump (famously) said “I don’t think about Americans’ financial situation.” Around the same time, though, the White House was floating a policy that seemed designed to offer relief from rising gas prices: Suspending the federal gas tax. The policy is emblematic of the Trump brand of populism – something that sounds good but would do very little.
Before considering its political viability, it’s worth understanding why this is not a very good idea in the first place. The current federal gasoline tax – 18.4 cents per gallon – supports the underfunded Highway Trust Fund, which is estimated to be depleted in the next few years. The Highway Trust Fund allocates money toward highway and mass transit projects by providing grants to state and local governments. Given the massive infrastructure problems facing the country – which the public overwhelmingly wants the government to spend money to fix – a policy that delivers even less money for repairs to our roads, subways, and bridges would be unwise. (The current federal tax has not increased since 1993; if anything, one could make a strong argument that the gas tax is too low).
Would suspending it save money? Not much. Estimates vary; the Penn Wharton Budget Model suggests that consumers might get “60 to 72 percent of the tax savings at the pump, with the remainder captured by suppliers.”
Ironically, the last president to suggest a gas tax holiday was President Joe Biden, who floated the idea in 2022 in response to the spiking prices linked to the Russian invasion of Ukraine. Some Republicans who opposed the idea when it came from Biden are now somewhat supportive of Trump’s plan.
Does that mean it’s more likely to happen this time around? There are already gas tax bills in the House and Senate, so it remains to be seen if there is any real momentum to enact such a policy. But if the goal is to deliver relief to the public, there are other options available. For instance, CEPR senior economist Dean Baker suggested a windfall profits tax: “We can simply tax back some of the money we’re handing over to the industry because of the Iran war and send it to people in the form of rebate checks, similar to the $2,000 pandemic checks we got in 2021.”
The chances of passing Trump’s preferred policy might be slim, and the odds of Trump supporting a tax on the oil companies that helped power his victory might be zero. But other policymakers could take up the cause.
This first appeared on CEPR.
