The US Driver Does Not Have a 18.4c/gal Problem

A federal gas tax holiday is once again being discussed as gasoline prices approach $5 per gallon, but despite repeated attempts since 1993, Congress has never approved a suspension of the tax. Even if passed, an 18.4 cent reduction would do little to solve a gasoline market being driven by structurally tight refined product balances, rapidly declining inventories, and a global supply disruption tied to the Strait of Hormuz.

The gas tax holiday is more political theater than economic solution. It allows lawmakers to appear responsive without addressing the real problem  

A federal gas tax holiday remains unlikely to pass. Congress must approve any suspension, and despite pushes in 2000, 2008, and 2022, lawmakers have never enacted one.  

An 18.4 cent tax cut does little to solve a $4.50 gasoline problem. Even with a full pass through, which is unlikely, gasoline prices would still remain well above the five year summer average of roughly $3.56 per gallon.

The US Driver doesn’t have a 18.4c/gal problem

The idea of a federal gas tax holiday tends to reappear whenever gasoline prices surge sharply, particularly during periods of geopolitical disruption. This is now the fourth major time the idea has surfaced since the federal gasoline tax was established in 1993, following previous pushes in 2000, 2008, and 2022. Yet despite repeated political support during periods of high gasoline prices, Congress has never approved a suspension of the tax.

Now, in 2026, the idea has returned once again as nominal US gasoline prices approach $5 per gallon heading into the peak summer driving season. The latest push is tied directly to the Iran conflict and the closure of the Strait of Hormuz, with multiple bipartisan proposals circulating in Congress, including bills from Senators Josh Hawley and Mark Kelly. Some proposals would suspend the tax for 90 days, while others would extend through the end of summer or longer. President Trump has publicly endorsed the idea, while Energy Secretary Wright has also expressed support.

Despite the political momentum, Congress would still need to approve any suspension of the federal gasoline tax. The president cannot unilaterally pause the tax because taxation authority rests with Congress, which remains one of the key reasons a federal gas tax holiday has never actually been implemented.

But the reality is that the American consumer does not have an 18.4 cent per gallon problem. The American consumer has a $4.50 increasing to a $5.00 per gallon problem.

Even under the most optimistic scenario where consumers receive the full benefit, gasoline prices would still remain materially above what Americans have become accustomed to paying during recent summers. The average summer gasoline price over the past five years was roughly $3.56 per gallon. An 18.4 cent reduction does little to meaningfully change the affordability problem consumers are facing today, nor does it change the reality that US inventories are increasingly being drawn into the global market to offset shortages abroad.

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The broader problem is that the gasoline market itself remains fundamentally tight. The rapid drawdown in gasoline and refined products on water, combined with tightening global refined product balances, continues pulling US barrels into the export market in an attempt to offset shortages abroad. In that environment, an 18.4 cent tax holiday would likely do more to reduce funding for the Highway Trust Fund than materially relieve the underlying supply pressures driving high gasoline prices.

At the same time, suspending the tax becomes expensive very quickly. The federal gasoline tax is currently 18.4 cents per gallon, while diesel is taxed at 24.4 cents per gallon. A three month suspension would cost the government roughly $10 billion in lost revenue, while a six month suspension could cost more than $20 billion. Most of that money flows directly into the Highway Trust Fund, which already faces projected insolvency around 2028 without additional funding support.

The broader problem is that the gasoline market itself remains fundamentally tight. The rapid drawdown in gasoline and refined products on water, combined with tightening global refined product balances, continues pulling US barrels into the export market in an attempt to offset shortages abroad. In that environment, an 18.4 cent tax holiday would likely do more to reduce funding for the Highway Trust Fund than materially relieve the underlying supply pressures driving high gasoline prices.

In many ways, the gas tax holiday debate feels more political than economic. It allows Washington to appear responsive to rising gasoline prices without directly confronting the much larger structural problem underneath the market: the world is short refined products, inventories are tightening globally, and the supply disruption tied to the Strait of Hormuz is far larger than any tax policy can offset.

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