White House proposes suspension to the federal gas tax

President Biden has proposed a temporary suspension to federal taxes on gasoline in an effort to provide relief for drivers from rising inflation. The President called on Congress to suspend the tax from now until September. 

The federal government taxes gasoline at 18.4 cents per gallon and diesel at 24 cents per gallon. Like revenues from state fuel taxes, revenues from federal fuel taxes help fund infrastructure throughout the country like roads, highways, and bridges. A three month gas tax suspension would equate to roughly $10 billion in lost revenues for the federal Highway Trust Fund, though the President has stated other revenue sources should be used to make up for this loss (some analysts of gas tax suspensions have estimated larger losses to the Trust Fund).  

Estimates of savings for an average driver from a federal gas tax suspension have ranged from $2 to $3 in total to fill up a vehicle (this fluctuates based on the vehicle and the daily price of gas). Some economists and policy analysts have noted that savings to consumers would be minimal, while others have stated that a federal gas tax suspension could actually worsen inflation by increasing demand. Think tanks such as the Tax Foundation, for example, have voiced criticisms of gas tax suspensions, arguing that they offer minimal relief to consumers, harm long-term road fund revenues, and potentially contribute to further price increases. 

“Businesses and working families in Kentucky are all feeling the pressures of inflation right now, and we appreciate efforts to provide relief,” said Kentucky Chamber President and CEO Ashli Watts. “But it is critical that we focus on providing real relief to consumers and not get distracted by short-term solutions that may cause more harm than good. We need to tackle root causes of inflation like increasing investment in domestic energy production so that we can make sure that supply is able to meet demand.”  

The average cost of gas in Kentucky, as of June 23, 2022, is $4.68, which is below the national average of $4.94. 

Several states have proposed state gas tax suspensions. Governor Beshear recently announced a freeze to a scheduled state gas tax increase in Kentucky of two cents per gallon. 

A recent government report showed that inflation, as measured by the Consumer Price Index, surged to 8.6 percent in May, the highest year-over-year increase since December 1981. The report underscored the fact that high prices are lingering longer than many had expected. Inflation is affecting energy prices across the board and has not been confined to just gasoline and diesel. 

Earlier in June, the Kentucky Chamber hosted a webinar with the chief economist of the U.S. Chamber of Commerce, Curtis Dubay, who highlighted a number of different causes of inflation and what it means for Kentucky’s economy. That webinar can be viewed here.