Trump Administration Weighs Pausing Federal Gas Tax to Reduce Fuel Prices

The Signal

Energy Secretary Chris Wright told NBC's Meet the Press on May 10 that the Trump administration is "open to all ideas" to lower fuel costs, including suspending the federal gas tax [1]. His remarks marked a subtle shift from President Trump's March 26 statement that he had "thought about" a suspension but was "not ready" to pursue one [2]. With the national average for regular gasoline at $4.52 per gallon—up $1.40 from a year ago and the highest since the 2022 peak of $5.01—the political pressure to act is mounting [3].

The trigger is unmistakable: the U.S.-Iran conflict and the near-total closure of the Strait of Hormuz since early March have disrupted roughly 20 percent of global oil trade, producing what the International Energy Agency has called "the largest supply disruption in the history of the global oil market" [4]. WTI crude surged from $55.44 per barrel in December 2025 to $109.76 in early May 2026—an 87.6 percent increase [5].

Source: FRED / EIA

Data as of May 4, 2026CSV

Against that backdrop, an 18.4-cent tax cut amounts to a rounding error.

What the Tax Actually Is

The federal excise tax on gasoline has been fixed at 18.4 cents per gallon since 1993. Diesel carries a 24.4-cent levy. Together they generate approximately $41 billion annually for the Highway Trust Fund, which finances road, bridge, and transit projects nationwide [6]. Inflation has eroded the tax's purchasing power by 55 percent since it was last raised [7].

The tax represents roughly 4 percent of today's pump price. State taxes add another 30 to 60 cents per gallon depending on the jurisdiction, bringing the combined U.S. average tax burden to approximately 57 cents per gallon [8].

The Pass-Through Problem

If the tax were suspended, would consumers actually pocket the full 18.4 cents? Research from the 2022 state gas tax holidays suggests not. Maryland passed 72 percent of its tax savings to consumers, Georgia 58-65 percent, and Connecticut 71-87 percent [9]. A city-level study across 108 cities found an average pass-through rate of 79 percent [10].

Applied to the federal rate, that means consumers would likely see 10 to 16 cents of relief—not the full 18.4 cents [11]. The Bipartisan Policy Center estimated the direct tax relief would reduce total household spending by about 0.2 percent [11]. For a household consuming 1,200 gallons annually, the savings would amount to roughly $150-$220 over a full year—assuming the suspension lasted that long.

Moreover, the savings tend to erode over time. Research found that the price reduction diminished as the legislated end of a holiday approached, and that geographic isolation, fuel content requirements, and proximity to wholesale supply all reduced pass-through rates [10].

The Highway Trust Fund Trade-Off

The Highway Trust Fund is already running a structural deficit. In fiscal year 2025, spending reached $58.5 billion against only $38.9 billion in fuel tax revenue—a gap of nearly $20 billion that Congress has been filling with general fund transfers since 2008 [6][7].

Source: CBO / PGPF

Data as of Oct 1, 2025CSV

A 90-day federal gas tax holiday would cost approximately $10.5 billion. A six-month suspension would drain roughly $21 billion [12]. The Committee for a Responsible Federal Budget estimates a one-month holiday alone costs $3.5 billion [12]. These losses would accelerate the fund's projected insolvency from 2028 to as early as September 2027 [12].

The consequences are not abstract. Federal highway programs typically cover 80 percent of project costs, with states matching the remaining 20 percent [13]. If the fund were depleted, the Department of Transportation could slow reimbursements to state and local governments, effectively halting construction mid-project. The Bridge Formula Program—which distributes funds based on each state's share of deficient bridges—would be among the first casualties [14].

States most dependent on federal highway funding include rural states with extensive road networks but limited tax bases—Alaska, Montana, Wyoming, and the Dakotas receive far more from the fund than their residents contribute in fuel taxes [13].

The Constitutional Question

The federal gas tax is a creature of Congress, established under the Internal Revenue Code. Only Congress can suspend it, and it has never done so [15]. The president cannot unilaterally waive a legislatively mandated excise tax through executive order.

This reality is reflected in the legislative activity already underway. Senators Richard Blumenthal and Mark Kelly introduced the Gas Prices Relief Act to suspend the tax through October 1, 2026, and Congressman Chris Pappas introduced companion legislation in the House [16]. Without such legislation, Wright's "open to all ideas" framing is aspiration, not policy.

Indiana has provided a state-level counterexample: Governor Mike Braun suspended both the state gas sales tax and excise tax through executive action, but Indiana's tax structure grants the governor that authority explicitly [17]. No analogous federal mechanism exists.

The Skeptic's Case

Economists broadly view gas tax holidays as ineffective. The core argument: in a supply-constrained market—which the Strait of Hormuz closure has definitively created—suppressing demand-side price signals does little to increase fuel availability. Prices re-equilibrate as demand responds to the artificially lower price, and retailers absorb the remaining gap [9][12].

The Penn Wharton Budget Model's analysis of state holidays found that while consumers captured a majority of immediate savings, the macroeconomic stimulus effect was negligible [9]. The Committee for a Responsible Federal Budget characterized the policy as one that "would only marginally reduce consumer costs" while costing billions in infrastructure revenue [12].

Supply-side alternatives exist. The Strategic Petroleum Reserve, diplomatic engagement to reopen the Strait, accelerated permitting for domestic refinery capacity, or targeted subsidies for low-income drivers would each address the price spike more directly. The administration has pursued some of these—Wright emphasized increased domestic production goals in the same interview—but the gas tax suspension captures political attention disproportionate to its economic impact [1].

Winners and Losers

Beneficiaries: The trucking industry stands to gain most in absolute dollar terms. Long-haul truckers consuming 20,000+ gallons of diesel annually would save approximately $4,000 per year from a diesel tax suspension [18]. Agricultural operations dependent on diesel-powered equipment and seed deliveries would see proportional relief. The American Trucking Associations has expressed cautious support for temporary relief measures [18].

Losers: The American Road & Transportation Builders Association has warned that suspension "would diminish needed infrastructure revenue" and "jeopardize the long-term sustainability of investments for highway and public transit programs" [18]. Construction unions whose members build federally funded projects face potential work stoppages if reimbursements slow. State DOTs already managing budget constraints would face cascading delays.

Georgia became the first state in 2026 to suspend its gas tax, signing HB 1199 in April [19]. Ohio Governor Mike DeWine rejected a similar proposal in his state, citing infrastructure funding concerns [20].

International Context

The U.S. federal gas tax is among the lowest fuel levies in the developed world. The EU average excise duty on gasoline is $2.53 per gallon—nearly fourteen times the U.S. federal rate. The Netherlands levies $3.85, the United Kingdom $3.22, and Germany $3.01 per gallon [8][21].

Source: Tax Foundation / AFDC

Data as of Jan 1, 2026CSV

When EU nations faced their own energy crisis in 2022, several cut fuel taxes temporarily. The results were instructive: fiscal costs exceeded 1.5 percent of GDP in some countries during the first year, with more than half spent on "costly non-targeted measures" [22]. The IMF concluded that broad price-suppressing measures were "fiscally costly" and failed to "promote energy savings or target the most vulnerable energy users" [22]. The preferred alternative: lump-sum transfers to vulnerable households, which achieved comparable relief at roughly half the fiscal cost [22].

The lesson for the U.S. is clear. A gas tax suspension is regressive—higher-income households consume more fuel and capture more of the benefit in absolute terms. Targeted measures like expanded earned income credits, transit subsidies, or direct payments to low-income households would deliver more relief per dollar of government revenue forgone.

The Arithmetic of Symbolism

At $4.52 per gallon, the federal gas tax accounts for 4.1 percent of the price. Crude oil—currently near $110 per barrel—accounts for roughly 55-60 percent. Refining margins, distribution, and state taxes make up the rest [5][8].

Suspending the federal tax addresses 4 percent of the problem. The Strait of Hormuz crisis that elevated crude prices by $50+ per barrel since December is responsible for an estimated $1.16 per gallon increase [4]. No tax policy can substitute for supply restoration.

The administration faces a gap between what it can control and what voters demand. Congress is unlikely to pass suspension legislation quickly—the 2022 proposal under Biden failed despite bipartisan support and $5 gas [15]. And even if enacted, a 10-16 cent reduction at the pump would be swallowed by a single day's price fluctuation in the current volatile market.

Wright acknowledged the trade-offs directly: "Everything has trade-offs," the White House noted in floating the idea [3]. The question is whether 10 cents of consumer relief justifies $21 billion in lost infrastructure funding and the acceleration of Highway Trust Fund insolvency by a year or more—a question that may matter more to the next Congress than to drivers filling their tanks today.