United States President Donald Trump said he wants to suspend the federal fuel tax “for a period of time, and when gasoline prices drop, we will gradually reintroduce it.” The measure – excise taxes amount to 18.4 cents per gallon for gasoline and 24.4 cents for diesel – is intended to lower fuel prices at service stations, which have risen sharply since the start of the war with Iran along with crude oil prices.
THE PRICE OF GASOLINE IN THE UNITED STATES
Gasoline, in particular, has surpassed $4.5 per gallon – the highest in four years: before the war it was $2.9 – and the price increase is weighing on consumers and businesses. Lowering the cost of living was one of Trump’s main promises, which he must consider ahead of the November midterm elections.
THE CONTEXT
Suspending excise taxes will not solve the situation at its root – oil and derivative prices will structurally fall when the Strait of Hormuz is reopened and the situation returns to normal – but it could provide some relief to the American economy. On the other hand, the federal government would see its revenues drop by about half a billion dollars per week: these funds flow into the Highway Trust Fund and are usually invested in the construction and repair of roads.
Moreover, the president cannot suspend the tax unilaterally without Congress’s approval: Republicans have said they will introduce a bill, and Democrats had already moved in this direction. It is still possible that Congress will reject the proposal, as happened in 2022 with Democrat Joe Biden in the presidency.
WILL THE SUSPENSION OF FUEL EXCISE TAXES HELP AMERICANS?
According to experts interviewed by Cnn, suspending fuel excise taxes may not translate into significant savings for consumers, both because it does not address the underlying causes of the situation and because it could stimulate demand at a time of supply crisis, thereby contributing to price increases. Furthermore, refiners and distributors of gasoline and diesel, to protect themselves from future raw material price hikes, might withhold part of the “tax benefit” instead of passing it entirely on to end customers: consequently, prices at service stations could fall less than expected.
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Finally, the federal government could offset the revenue loss for the Highway Trust Fund – whose budget has been insufficient for years – by drawing more from taxpayer-paid taxes or by reducing spending on highway and bridge maintenance.
