Save and Invest

Biden calls on Congress to pass a federal gas tax holiday this summer, but the savings might not be worth much

Share
President Joe Biden speaks about gas prices in the South Court Auditorium at the White House campus on June 22, 2022 in Washington, DC.
Drew Angerer | Getty

With gas prices hovering at about $5 a gallon, President Biden is asking Congress to legislate a gas tax holiday, which would suspend a federal gas tax through September.

The levy, which charges an 18-cent tax per gallon of gasoline and a 24-cent tax per gallon of diesel, finances highway and public transportation projects through the Highway Trust Fund. 

To provide additional relief for drivers, the White House is also calling on states to enact tax holidays on state gas taxes, which average about 26.16 cents per gallon of gasoline. Connecticut, Florida, Georgia, Maryland and New York have already temporarily suspended gas taxes, with other states contemplating the move as well.

The White House pegs the cost of the proposed gas tax holiday at $10 billion, although it's asking Congress to find another way to fund the tax holiday, leaving the Highway Trust Fund revenue intact.

A federal gas tax holiday faces hurdles

Critics of gas tax holidays argue that the tax only represents a fraction of the total price of gas, and that it's not clear how much of the tax savings would end up in the hands of consumers. 

An eight-month federal gas tax suspension would reduce per-capita gasoline spending only by only $47 or less, according to a March study by the Wharton School of the University of Pennsylvania.

A gas tax holiday would face legislative hurdles as well, as it would require the bipartisan support of at least 10 Republican senators to pass through the Senate, which seems unlikely

Also, Democratic Sens. Joe Manchin (W.Va.) and Tom Carper (Del.) have already expressed skepticism about the effectiveness of gas holidays, which former president Barack Obama once called a "gimmick."

On the other hand, 73% of Americans were in favor of suspending the federal fuel tax as of March, according to a Politico/Morning Consult poll. Since then, gas prices have jumped up about 50 cents, reaching a U.S. average of $5 for the first time, according to AAA data.

Sign up now: Get smarter about your money and career with our weekly newsletter

Don't miss: How to downgrade your credit card without lowering your credit score

VIDEO1:4501:45
Jim Cramer on the moment he made his first $1 million