What is a Gas Tax Holiday?

While many Americans may not realize it, the recent spike in gas prices has caused a huge increase in gasoline costs across the country. In April, the national average price for a gallon of gas was $4.95. 

President Joe Biden blamed the high price on Russia’s invasion of Ukraine. In response, the U.S. banned Russian oil and natural gas imports. This has led to a dramatic spike in gas prices, but it has also prompted Democrats in Congress to call for the suspension of the federal gas tax. 

The federal government currently levies 18 cents per gallon on gasoline and diesel in order to finance the Highway Trust Fund. The price of gas is hovering at a record high of around five dollars a gallon, and President Biden has called for Congress to suspend the federal gas tax for three months. While President Biden’s call for a three-month gas tax suspension seems to help citizens cope with the high price, it is unlikely to affect the gas price in the long run.

Cost of a gas tax holiday

A gas tax holiday would save consumers $50 a week or more, but it would also lower federal taxes by $20 billion a year. Gas tax money funds important road safety programs. But it is unclear whether the tax holiday would be effective in alleviating consumer debt. If the holiday is successful, it might be implemented at a federal or state level. But the question remains, would it actually be effective in reducing gas prices?

Recent gas tax holidays have resulted in lower gas prices, but it depends on whether all states raise their own gas taxes. If they do, then gas prices will likely come down, but not by as much. In addition, consumers’ wallets will feel the effects of high gas prices. 

Impact of a gas tax holiday on prices at the pump

Historically, lower-income households have spent more on gasoline than higher-income ones. While gas tax holidays have helped lower-income households, the growing transition to electric vehicles has increased the use of gas by higher-income families. Lower-income households will likely benefit the most from these breaks. But how will a gas tax holiday affect consumers? What should lawmakers do?

Whether a gas tax holiday will have a noticeable impact on pump prices isn’t clear, but it could save consumers a lot of money. In some states, the government has already implemented a temporary suspension of the federal gas tax, which is about 18 cents per gallon for gasoline and 24 cents for diesel. Although the benefits of the gas tax holiday aren’t directly passing through to consumers, the White House is urging states to do more to lower gasoline prices.