With gas prices up to $4.50 a gallon and inflation approaching 4%, Americans are justifiably anxious over growing affordability challenges.

Politicians in both political parties have suggested a “gas tax holiday” to ease the burden. Unfortunately, suspending the federal gas tax will do little if anything to lower cost-of-living expenses. Instead, it will add to an already out-of-control national debt and put vital infrastructure projects at risk.

Currently, Americans pay an 18.4 cents per gallon tax on gasoline at the pump (24.4 cents for diesel). That money helps to fund the Highway Trust Fund, which pays for the construction and repair of interstate highways, bridges, railways and other transportation infrastructure.

As Americans face rising prices at the pump, a gas tax holiday certainly has some political appeal, but its bark is far bigger than its bite. By my estimate, a yearlong gas tax holiday would reduce household costs less than $1 per week. These savings would only reverse one-twentieth of the cost of higher gas prices and one-fortieth of total price growth. Total costs would fall by less than 0.1%.

Americans spend $40 billion annually on federal gasoline and diesel taxes. Were we to eliminate those taxes, evidence from state-level holidays shows suppliers would respond in part by raising their prices to capture some of the gain. The remaining consumer savings would juice demand in a supply-constrained economy, leading other prices to rise. All told, the holiday would probably reduce the total cost of goods and services this year from $22 trillion to something closer to $21.99 trillion.

Perhaps even this minuscule improvement in cost-of-living would be better than nothing if it came free, but in reality, it comes with immense costs.

Even as it stands, the gas tax isn’t bringing in enough revenue to fund our infrastructure, and the Highway Trust Fund is 27 months from insolvency. A one-year gas tax suspension would pull $40 billion out of the trust fund, advancing that insolvency date to June 2027 — one year from now.

As the gas tax holiday ends, a construction and repair holiday would need to begin— projects would have to be halted and funding slashed in half. If the gas tax holiday were extended, federal spending would need to be cut by almost 90 %. Meanwhile, the federal debt, already approaching record levels as a share of the economy, would grow even further.

Congress has never suspended fuel taxes before, and with good reason. Barack Obama once called the idea “a gimmick that would save you half a tank of gas over the course of the entire summer.” Senate Majority Leader John Thune once described the idea as “just a flimsy Band-Aid.” And economists from the left, right, and center have warned that such a holiday would increase pre-tax prices and expand deficits without providing meaningful relief.

To lower energy prices, policymakers need to pursue policies to lower energy prices — subsidizing their demand won’t help. If politicians really want to address affordability, the best thing they can do is begin reducing budget deficits, which would put downward pressure on inflation and interest rates.

Meanwhile, our transportation infrastructure is already dangerously underfunded. We should be working to supplement or perhaps replace the gas tax with a more steady source of revenue, such as a weight-based registration fee or vehicle miles tax. And we need to make sure we’re spending in an efficient and cost-effective manner.

Cutting the gas tax will only expand the deficit and worsen long-term affordability challenges.

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ABOUT THE WRITER

Marc Goldwein is the senior vice president and senior policy director at the Committee for a Responsible Federal Budget. He wrote this for InsideSources.com.

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