Committee for a Responsible Federal Budget

Gas Tax Holiday Would Take A Wrong Turn

Feb 15, 2022 | Taxes

The White House and some in Congress are reportedly considering suspending the 18.3 cent federal gas tax for the remainder of 2022. The Committee for a Responsible Federal Budget recently estimated that such a proposal would reduce gas tax revenues by $20 billion and, without the general revenue transfer proposed in recent legislation, would advance the Highway Trust Fund insolvency date from 2027 to 2026.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

With inflation at a 40-year high, policymakers are appropriately focused on how to bring prices under control. But new tax cuts aren’t going to stop this inflation; after all, excessive tax cuts and spending are part of what caused high inflation.

While a gas tax holiday might provide some temporary relief, much of the benefit may flow through to oil producers or lead to higher prices in other sectors of the economy. By boosting demand in an already over-stimulated economy, the holiday would likely boost inflation in 2023 once it ends. The holiday will also undercut the Administration’s efforts to address climate change.

Meanwhile, the federal government would be out $20 billion this year alone – and much more if the holiday were extended. The Highway Trust Fund is just five years from insolvency, and the last thing we need is to cut its primary revenue source or paper over shortfalls with yet another general revenue transfer.

As it stands, the gas tax will only cover half of highway and transit spending by the time the trust fund runs out. As inflation subsides, we should either raise that tax or find a new funding source to supplement or replace it. A well-designed carbon tax could generate ample tax revenue while substantially reducing carbon emissions and tempering excessive demand.

The pain Americans are feeling at the gas pump – and with rising costs throughout the economy – should be taken seriously and addressed thoughtfully. While cutting the gas tax may have political appeal, it would move in exactly the wrong direction, worsening rather than improving our nation’s economic challenges.


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