New York — As high fuel prices squeeze household budgets during the war with Iran, US President Donald Trump wants to suspend his government’s tax on gasoline.
It’s Trump’s move He cannot do it on his own The President has not yet determined how long he would like this pause to continue. But lawmakers from both parties are already pushing to suspend the federal gas tax, with some legislation in Congress now proposing to halt it until October 1.
Proponents of suspending the gas tax claim it will provide just that Much-needed relief for families and businesses Now she struggles to make ends meet, – Exacerbating economic disparities Low-income families are the most affected. Much of this is because the world’s flows of oil and other basic necessities have been upended since the United States and Israel went to war nearly three months ago — sending energy costs, including gas prices, soaring.
However, suspension is unlikely to produce a significant (or immediate) effect on the pump. Critics warn of potential long-term consequences. The federal gas tax represents a small fraction of what Americans pay to fill their tanks, but it is also a source of billions of dollars in revenue that state highway and public transportation programs depend on.
Here’s what we know.
The federal gas tax is about 18.4 cents per gallon. But drivers will not immediately see the full amount deducted from their bills under the suspension.
“You can’t suspend the tax and then expect everyone to wake up the next morning and suddenly gas is 18 cents cheaper,” said Carl Davis, research director at the Institute on Taxation and Economic Policy, a nonprofit. “It doesn’t work that way.”
This is because the state gas tax is not collected directly from pumping stations, but rather at the wholesale level. The hope around the suspension is that the tax cut will eventually be passed on to consumers in the form of lower rates, but Davis stresses that’s not guaranteed — noting that what he’s seen at the state level is limited relief that takes time to trickle down, if it reaches drivers at all during the temporary holidays.
Suppliers may also keep a portion of the savings, in an attempt to cover profit margins. When taking this into consideration, the University of Pennsylvania Penn Wharton budget model expected Nearly 72% of the federal gas tax cuts would actually reach consumers – equivalent to about 13.2 cents of the full price of 18.4 cents per gallon.
Even so, the savings for average drivers is not significant. If the federal gas tax is suspended from June 1 to October 1, for example, Penn Wharton’s budget model estimates that a household that fills a 15-gallon tank once a week will save about $35 during those four months.
At the same time, gas prices in the United States remain much higher today than they were before the war — with the national average standing at about $4.50 a gallon on Monday, per the AAA Auto Club, compared with $2.98 in late February. With households still feeling the pinch of expensive bills, Davis points out that it may be difficult for many drivers to “even notice” the tax cut if it reaches them.
Trump himself has acknowledged that the federal tax represents a small percentage of gas prices. “But it’s still money,” he told reporters on Monday.
The U.S. gas tax is also the largest source of revenue for federal highway and public transportation programs. His suspension could mean the loss of billions of dollars in those cash flows, which experts warn could have long-term consequences.
At current fuel price and demand levels, the government could lose $8.35 billion in revenue over the four-month suspension period, a Penn Wharton budget model confirmed to the AP on Monday. If the federal diesel tax (at 24.4 cents per gallon) were also halted, that number could rise to nearly $11.5 billion.
Legislation in Washington proposes to offset any loss Highway Trust Fund revenues With public money, but critics warn that would increase the federal deficit — and potentially jeopardize the long-term sustainability of infrastructure projects. The federal gas tax has also remained unchanged since 1993, which experts say has actually eroded the purchasing power of the Highway Trust Fund when accounting for inflation.
With the exact details of the potential tax suspension still up in the air, it is difficult to predict the future. “But you can easily imagine some kind of combination of higher national debt and decreased funding for roads, bridges and other transportation projects,” Davis said. “In the end there will be a result.”
Aside from the federal government, each state also imposes its own separate gas taxes. These rates range from 9 cents per gallon in Alaska to approximately 71 cents in California, per the government. Data At the beginning of this year.
As part of efforts to combat rising prices amid the war with Iran, several states – including Indiana And Georgia – Recently implemented a temporary suspension of its gas taxes. Kentucky and Utah have reduced fees. Other countries are considering similar options.
But it may be difficult for others to follow suit.
Unlike the federal government, states typically have to balance their budgets each year. Beyond basic transportation infrastructure, some states also rely on fuel tax revenues to fund education, environmental initiatives, and other public programs.
total, Lots of factors Contribute to what drivers pay at the pump. State and federal taxes, seasonal demand, and even the more expensive fuel blends needed for warmer weather are all pieces of the pie. But the cost of crude oil – the main ingredient in gasoline – accounts for the bulk.
Despite efforts by governments around the world to boost supplies during the war, including… Utilize emergency oil stocksOil prices remain steep. Both Brent crude, the international standard, and U.S. crude are now trading above $100 a barrel — up from about $70 just months ago.
All eyes are on the Strait of Hormuz, through which a fifth of the world’s oil passes. But Tehran and Washington remain in a standoff over the key waterway, with broader ceasefire talks underway Continue to procrastinate.
Analysts have repeatedly warned that if the war continues and supply chains are disrupted long enough, prices for gas and a host of other commodities could continue to rise.
“This is really a foreign policy issue,” Davis said. “There is no fiscal policy assistance plan that can be imposed.”