President Donald Trump has proposed suspending the federal gas tax to help ease rising energy costs, but experts warn this move could have unintended consequences. The current federal gas tax stands at 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. While the idea aims to reduce inflationary pressures driven by the ongoing Iran war, it faces significant hurdles, including the need for Congressional approval, which seems unlikely.
The proposal comes amid persistently high inflation, with the rate above the Federal Reserve's 2% target for 66 consecutive months. Gas and diesel prices have surged due to the closure of the Strait of Hormuz, which has disrupted global oil supply. In September, diesel prices hit a record high of $6.53 per gallon, contributing to the inflation spike.
However, suspending the gas tax could accelerate the insolvency of the Highway Trust Fund, which finances infrastructure projects and is projected to run out of funds by 2028. Additionally, it would worsen the federal deficit, already exceeding $40 trillion, and could drive up long-duration Treasury yields, affecting borrowing costs for businesses and consumers.
Moreover, suppliers might offset the tax savings by raising prices, diminishing the benefits of the holiday. Analysts argue that the root cause of high fuel prices, the Iran war, must be resolved for lasting relief. Thus, while Trump's proposal seeks to provide immediate relief, it risks creating more economic problems than it solves.