Reaction to Trump’s suggested gas tax holiday has been mixed, to say the least. House Republicans say they could introduce a bill by next week to suspend the eighteen-cent-a-gallon federal gas tax, but what Trump supports isn’t much.
Trump said in a phone interview with Nancy Cordes of CBS News published on X:
In a phone interview, President Trump told me he wants to suspend the 18-cent federal gas tax “for a period of time.” “I think it’s a great idea,” he said. “Yes, we will remove the gas tax for a period of time, and when the price of fuel goes down, we will let it come back gradually.”
Some Republicans jumped on the idea because they were foundering in the midterm elections and needed something to show voters they were cutting costs.
However, suspending the federal gas tax won’t really reduce costs for consumers and could even drive up prices.
A budget model from Penn Wharton analysis to suspend the federal gas tax for 122 days, as proposed by Trump, revealed:
Not all tax cuts will benefit consumers. Short-term gasoline demand is relatively inelastic—drivers need fuel regardless of small price changes—which gives suppliers some ability to absorb some of the tax cut in the form of higher margins rather than passing on the full savings in prices.
Based on PWBM synthetic control estimates (see methodology in our analysis of state gas tax holidays), 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 companies, so what about the rest?