What is a federal gas tax holiday?
(NEXSTAR) – President Biden hopes to make a final decision on whether to support a federal gas tax holiday in the coming days as high prices at the pump put pressure on Americans already facing some of the worst inflation in decades. The holiday could save motorists nearly 20 cents per gallon of gasoline.
The current federal gas tax is about 18.4 cents, according to the U.S. Energy Information Administration. The tax itself is imposed on those producing the gasoline, which then impacts the prices we pay at the pump.
Simply put, a federal gas tax holiday would temporarily suspend the 18.4-cent gas tax. It doesn’t, however, mean you’ll pay 18.4 cents less per gallon of gas at the pump.
Earlier this year, the Penn Wharton Budget Model estimated that suspending the federal gas tax from March to December would cut the average per-capita gasoline spending by between just $16 and $47. The savings could be even smaller if oil and gas companies – from whom the gas tax is collected – don’t pass the tax savings on to consumers.
Two lawmakers, Sens. Maggie Hassan (D-N.H.) and Mark Kelly (D-Ariz.), introduced legislation in February to suspend the federal gas tax until next year. U.S. Treasury Secretary Janet Yellen recently called it “an idea that’s certainly worth considering.”
The legislation by Hassan and Kelly calls for any price relief to be passed on to consumers instead of oil and gas companies, CNBC reports. Gas tax holidays in Connecticut, Georgia, and Maryland did help consumers save at the pump, a new report from the Penn Wharton Budget Model found. In these states, the majority of the savings went to consumers, instead of service stations and others in the energy sector.
A federal gas tax holiday could mean some relief for motorists, but it could negatively impact the country’s infrastructure. The tax revenue is used to help pay for U.S. highways. Without the federal gas tax, nearly $15 billion in tax revenue would be lost, according to Kiplinger, a business and finance news site.
Temporarily suspending the gas tax is one of the few tools the federal government has to cut gas prices, Kiplinger explains. Other options include tapping the Strategic Petroleum Reserve, encouraging oil production, and allowing more ethanol in gasoline.
The Biden administration has already released oil from the U.S. strategic reserve and increased ethanol blending for the summer, in addition to sending a letter last week to oil refiners urging them to increase their refining capacity. Yet those efforts have yet to reduce price pressures meaningfully.
Congressional action is necessary to suspend the federal gas tax. In March, Speaker Nancy Pelosi (D-Calif.) rejected the idea of suspending the federal gas tax, saying it wouldn’t help consumers much because oil companies wouldn’t be required to pass on the savings.
States also have their own gas tax and, in all but Alaska, that rate is higher than the federal gas tax. Some states are still considering gas tax breaks, while others have already approved some sort of local pump relief.
The Hill’s Brett Samuels and the Associated Press contributed to this report.