The reaction to Trump’s suggested gas tax holiday has been mixed at best. House Republicans say they could have a bill on the floor by next week to suspend the eighteen-cent-per-gallon federal gas tax, but what Trump is supporting isn’t much.
Trump said in a phone interview with CBS News’s Nancy Cordes posted on X:
In a phone interview, President Trump told me that he wants to pause the 18 cent federal gas tax “for a period of time.” “I think it’s a great idea,” he said. “Yup, we’re going to take off the gas tax for a period of time, and when gas goes down, we’ll let it phase back in.”
Some Republicans jumped on the idea because they are sinking in the midterm election and need something to show voters that they are cutting costs.
However, suspending the federal gas tax will not really lower costs for consumers and may drive prices even higher.
A Penn Wharton Budget Model analysis of suspending the federal gas tax for 122 days, as Trump proposed, found:
Not all of the tax cut would reach consumers. Short-run gasoline demand is relatively inelastic — drivers need fuel regardless of small price changes — which gives suppliers some ability to absorb part of the tax reduction as higher margins rather than passing the full savings through to pump prices.
Based on PWBM’s synthetic control estimates (see methodology in our state gas tax holiday analysis), the expected pass-through rates are 0.72 for gasoline and 0.60 for diesel.
Part of the tax cut will go to Big Oil, so what about the rest?