Trump proposes suspending the gasoline tax to avoid a political crisis over fuel prices

Gasoline has become Donald Trump’s Achilles’ heel. Fuel prices are a matter of national concern in a country where citizens often commute long distances to work and where cars, with their larger engines, tend to consume more fuel than elsewhere. The war in Iran has driven up oil prices, and the tension in the energy markets has spilled over to the pumps, where gasoline has become more than 50% more expensive since the start of the conflict. Against this backdrop, the U.S. president announced this week that he will propose temporarily suspending the federal gasoline tax. The measure has been described by members of the Democratic opposition as a publicity stunt to divert attention from the rising cost of living for Americans. Other legislators from both parties support the proposal to ease the financial burden on citizens.

Trump’s idea gained traction on Monday in an interview with CBS News, where he floated the idea of ​​suspending the federal gasoline tax. “I think it’s a great idea,” he said. “Yup, we’re going to take off the gas tax for a period of time, and when gas goes down, we’ll let it phase back in.”

The president is suffering a serious setback in the polls due to the fallout from the Iran war. His approval rating is at its lowest point of his two terms, below 40%, according to surveys conducted by various media outlets, with just six months to go before the midterm elections, where his political future hinges on the outcome.

That’s why Trump later insisted on this idea to reporters covering the White House, though he neglected to mention that he needs congressional approval for such a significant measure. Capitol Hill doesn’t seem to favor these kinds of initiatives, given historical precedent. Democratic President Joe Biden already tried, unsuccessfully, to suspend the federal gas tax for three months in the summer of 2022, when gasoline prices were above five dollars a gallon at the start of the war in Ukraine. The only time the United States reduced the tax was in 1934, when Congress cut it by half a cent at the end of Prohibition, as The Washington Post points out.

And even if Trump were to manage the feat of convincing Congress to suspend the gas tax, the effect on consumers would be minimal.

Little room for families

Fuel prices are primarily determined by the cost of oil, which is set in international markets. According to the U.S. Energy Information Administration (EIA), crude oil accounts for 51% of the total price of gasoline. Refining costs make up about one-fifth of the final price; marketing, distribution, and advertising costs account for approximately 11%. And taxes, both federal and state taxes account for 18%.

The federal tax is 18.3 cents per gallon for gasoline and 28.3 cents per gallon for diesel. The EIA explains that there is also a 0.1 cent per gallon state tax on both fuels.

The problem with suspending these taxes is that their revenue is tied to a fund for road maintenance, the Highway Trust Fund. A calculation by the Bipartisan Policy Center, an influential think tank, concludes that a five-month suspension of federal taxes would reduce revenue by $17 billion, representing a 46% drop in the Trust’s annual budget. The cut could therefore further increase the public deficit, affect investment, and worsen the already deteriorating state of the highway network.

Counterproductive decision

Furthermore, some economists warn that Trump’s proposed tax cuts would not achieve their objective because gasoline prices are also determined by many retailers who, during inflationary periods like the current one, avoid passing on savings to consumers in an attempt to offset losses from decreased demand, according to a report from the Wharton School. They also explain that suspending the tax rates would incentivize Americans to drive more in the lead-up to the summer vacation season, when many take road trips. This would increase demand in the face of a supply shortage, which, in turn, would drive prices upward.

The truth is that the conflict in the Middle East is becoming a major headache for Trump. When he ordered the bombing of Tehran on February 28, he expected the military operation to last only four or five weeks, but two and a half months later the war seems to be at a standstill with no end in sight. The president has acknowledged that the truce between the United States and Iran is “on life support” after the failure of peace talks.

The consequence is a surge in oil prices, which have been under extreme pressure since the start of the attack by Washington and Tel Aviv on Iran. The Islamic Revolutionary Guard Corps (IRGC) blocked the Strait of Hormuz, a strategic waterway through which a fifth of the world’s oil and liquefied natural gas passes. It is also a critical route for raw materials essential to the pharmaceutical and food industries, particularly for fertilizers. In retaliation, the United States imposed a blockade on Iranian ports, further exacerbating the situation in global energy markets. Oil has risen from below $70 per barrel to nearly $110.

And the energy spiral is impacting the pumps. Gasoline, the most popular fuel in the United States, has gone from selling for an average of just under $3 per gallon (the equivalent of 3.78 liters) to more than $4.5, representing a 55% increase. It’s the steepest rise in fuel prices in 30 years. Diesel is also skyrocketing. It’s approaching the all-time high set in the summer of 2022, during the height of the Russian invasion of Ukraine, when it reached $5.8 per gallon. Since the outbreak of the war, diesel has become 50% more expensive, putting a dent in the pockets of truckers.

Some states are already easing restrictions

Some states, such as Georgia, Utah, Kentucky and Indiana, have already suspended or reduced their gasoline taxes.

Although a majority in Congress appears to reject the idea, lawmakers from both parties have backed Trump’s proposal, and the president’s influence among Republicans, who control both houses, should not be underestimated. Republican Senator Josh Hawley of Missouri was quick to announce that he will introduce a bill to suspend the federal gas tax. His fellow Republican, Representative Anna Paulina Luna of Florida, is also preparing to introduce legislation in the House of Representatives to advance the president’s plan.

Senate Majority Leader John Thune, who had previously expressed reluctance, has opened the door to considering it. Meanwhile, Democratic senators such as Richard Blumenthal and Mark Kelly have emerged as strong advocates for the initiative to provide relief to families.

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