Why suspending the gas tax won’t help consumers

President Donald Trump has proposed suspending the federal gas tax as prices at the pump have jumped following the start of the Iran War. But would that really make a meaningful difference for cash-strapped consumers?

Gas prices rose 5.4% between March and April, pushing April’s year-over-year inflation to 3.8% — its highest level in three years, according to Labor Department data. Meanwhile, AAA gas price tracker shows that the average price of gasoline stands at over $4.50, which is about 43% higher than it was last year.

Americans have to pay more for their daily commute, while farmers are facing rising fertilizer and fuel costs.

But pausing the gas tax (a move that would require Congressional approval) won’t help U.S. consumers or farmers, and will end up worsening the national deficit, experts told Marketplace.

The federal tax currently stands at 18.4 cents per gallon of gas and 24.4 cents per gallon of diesel fuel. Getting that money back just won’t make a meaningful difference when gas prices have gone up by 40% or even higher in some parts of the country, said Gilbert Metcalf, a visiting professor at the Massachusetts Institute of Technology’s Sloan School of Management.

Suspending the gas tax also won’t help farmers because they already get an exemption from the gas tax, Metcalf said.

“If eliminating the tax leads to a little bit more demand for gasoline, then that's just going to drive up the pre-tax price, which will just hurt farmers yet again,” Metcalf said.

When there's a “shock” to the industry, like a war or a hurricane, prices go up instantly, but they come down slowly, said Akshay Rao, a marketing professor at the University of Minnesota.

Consumers will already have gotten used to paying higher prices, so retailers will continue charging them that amount until they face competitive pressure from other gas stations, Rao explained. So even if the gas tax were suspended, we might not even see gas prices go down by the full 18 cents, Rao said.

Even when a “shock” to the system is removed, gas retailers will have higher-priced inventory at their gas stations, which means they’ll need to recoup those costs before they can reduce prices, Rao said.

Pausing the federal gas tax, which brings in $3.5 billion a month, would also be bad for the deficit, Metcalf said. The U.S. has already spent $954 billion more than it’s raked in so far this fiscal year.

Even though this money is earmarked for the Highway Trust Fund, which pays for infrastructure in the U.S., we don’t have enough gas tax revenue going into the fund. That means we have to support it by using money from the general budget, Metcalf said.

“So every dollar that we take away in gas tax revenue means that's another dollar we have to spend out of the general budget,” Metcalf explained.