Federal gas tax holiday aims to ease prices at the pump, but how much would drivers save?

·5 min read

President Joe Biden called on Congress to suspend the federal gas tax through the end of September “to give Americans a little extra breathing room” as they face soaring gas prices. If there is a gas tax "holiday," how much would U.S. drivers see in savings?

The federal gas tax is imposed on refiners such as Exxon Mobile and Chevron, which means any savings from a tax holiday would trickle down to consumers instead of going into effect directly at the pump. The tax is 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel.

Though a federal gas tax holiday could add up for certain drivers, research indicates that a three-month tax suspension might not last long enough for significant savings.

“Will all of that (18.4 cents) get passed on to the drivers? Will some of it get passed on to the drivers? It's kind of up to the individual gas stations,” AAA spokesperson Andrew Gross said.

Long-term pain: Gas tax holiday relief would probably be mild, short. Americans should brace for higher prices.

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A man pumps gas at a mini-mart in Pittsburgh on June 15, 2022.
A man pumps gas at a mini-mart in Pittsburgh on June 15, 2022.

How much would I save at the pump during a federal gas tax holiday?

Refiners – companies that transform crude oil into finished petroleum products – pay the federal gas tax at terminals as they load tanker trucks with gas. That gas is distributed to stations, which incorporate the tax when pricing gasoline.

Because “multiple factors” affect the final price, “it would be difficult to determine if consumers saw exactly an 18.4-cent decrease in the price of a gallon of gasoline as a result of a repeal of the federal gasoline tax,” Energy Information Administration spokesperson Chris Higginbotham said in an email.

Exactly how much of those savings could get passed down to drivers if a tax holiday goes into effect?  

Patrick De Haan, head of petroleum analysis at GasBuddy, said stations benefiting from the tax break would be pressured to drop gas prices to compete with surrounding stations. He estimated savings of $25 to $65 over the three-month period, depending on the type of vehicle a person drives. Gas-guzzling SUVs and pickups and people who are on the road frequently would see more savings since they require more fuel.

“It could provide more meaningful relief for the rest of the summer, so (it) certainly could bolster the savings for motorists,” De Haan said. But even an 18-cent drop "still keeps prices within the highest they've ever been.”

The average price of regular gas per gallon in the USA was $4.96 as of Wednesday, according to AAA.

Tom Kloza, global head of energy analysis for the Oil Price Information Service, said families could save about $48 total through the tax holiday. He noted that higher profit margins among retailers make it easier to pass along the savings to consumers.

Those estimates seemed high to Richard Prisinzano, director of policy analysis for the Penn Wharton Budget Model.

Prisinzano noted that a three-month tax break wouldn’t give retailers much time to increase their supply of gasoline, which influences the price. The longer the holiday, the more time retailers can increase their supply of gasoline and the easier it is to lower prices.

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President Joe Biden calls on Congress to suspend the federal gas tax June 22.
President Joe Biden calls on Congress to suspend the federal gas tax June 22.

Consumer share of reduction estimated at 80%

A report in March from the Wharton School of the University of Pennsylvania estimated that 80% of a tax decrease would be passed on to consumers through lower prices in a nine-month tax break, although the share of savings passed down for a three-month holiday could be lower – especially if the tax holiday caused demand to spike.

“It's a much shorter gas tax holiday compared to the one we analyzed in March,” said Zheli He, an economist at the Penn Wharton Budget Model. “So I would suspect the expenditure savings will also be lower. But how much of the 18.4 cents will be passed on to consumers is still unknown.”

Prisinzano’s “back-of-the-envelope” estimate for price savings from a three-month tax holiday is $10 to $30 total for drivers if 70% of savings are passed on, although that could be a generous estimate for a three-month holiday.

“I don't think (three months is) that long a time,” he said. “So if you say 30% or even 50% of the tax went through, you're talking about 9 cents (of savings) a gallon.”

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What state has highest gas tax?

Biden called on more states to suspend their gas taxes.

Connecticut, Georgia, Maryland and New York have paused state gas taxes. Other states – including Florida – are considering a state gas tax holiday or plan one this year.

De Haan noted that this could be especially beneficial for drivers in states with high gas taxes such as California, where taxes and fees exceed 68 cents per gallon, according to the American Petroleum Institute.

De Haan warned that it's “a little bit tougher pill to swallow for states to give up some of that revenue."

A report in June from the Penn Wharton Budget Model that examined state gas tax suspensions found savings were “mostly passed onto consumers at some point in the form of lower gas prices,” although price reductions were not sustained through the entire holiday.

In Maryland, 72% of tax savings were passed on to consumers. In Georgia, it was 58% to 65% and in Connecticut, it was 71% to 87%.

"We actually see very different reactions for the gasoline prices," said He, the economist at the Penn Wharton Budget Model. "Every state seems to have really different responses, so it's hard to say which route the federal one will follow in terms of how quickly it's going to address (gas prices)."

You can follow USA TODAY reporter Bailey Schulz on Twitter @bailey_schulz and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday.

This article originally appeared on USA TODAY: Gas tax holiday: How much will drivers in different states save?

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