Federal Gas Tax Faces Calls for Suspension

The U.S. federal gas tax — 18.4¢ per gallon for gasoline and 24.4¢ per gallon for diesel — has entered the political spotlight after a sharp near-term jump in fuel prices tied to geopolitical tensions, according to Fortune (Mar 28, 2026). Lawmakers in both parties have floated temporary suspension proposals that would pause the federal levy, shifting the optics of immediate consumer relief against longer-term infrastructure funding needs. The tax rates have not been raised since 1993, a fact policymakers cite when debating the tax's erosion in purchasing power and its suitability as the primary revenue source for the Highway Trust Fund (Congressional Research Service, 2021). Any pause would directly reduce federal receipts earmarked for highways and public transit, prompting renewed scrutiny of funding gaps created by sweeping 2021 infrastructure commitments and by chronic shortfalls in excise-tax–based financing.

Context

The federal motor fuels excise tax has been a cornerstone of U.S. surface-transportation finance for decades, but its real value has fallen. The statutory rates — 18.4¢ for gasoline and 24.4¢ for diesel — have remained unchanged since 1993 (CRS, 2021), meaning inflation has eroded buying power by roughly half over three decades. Policymakers point to the Bipartisan Infrastructure Law (the IIJA, enacted November 2021) as evidence of Congress's willingness to remake transport priorities: the law authorized approximately $550 billion in new infrastructure spending over five years (White House, Nov 2021). That legislative choice increased baseline demand for stable Highway Trust Fund transfers at a moment when excise revenues were under structural pressure from improved fuel efficiency and, increasingly, electric vehicles.

Public pressure to act is driven by the visibility of pump prices. On March 28, 2026, Fortune reported renewed calls for a federal gas-tax holiday as retail prices rose on geopolitical risk tied to Iran (Fortune, Mar 28, 2026). For many constituencies — logistics firms, state budgets, and consumers — the immediate appeal of a temporary suspension is clear: a headline reduction at the pump. But transportation finance specialists caution that a pause simply shifts costs to future taxpayers or to states, and it complicates multi-year capital planning for roads, bridges, and transit systems.

The political calculus is further complicated by regional variation. States with higher per-mile driving patterns and less dense transit networks feel price shocks differently from transit-rich urban centers. Moreover, many states already levy excise taxes that exceed the federal levy; those state collections would persist even if the federal charge were suspended, muting the consumer relief and concentrating the fiscal hit on federal programs. The constellation of actors involved — federal lawmakers, state transportation agencies, transit authorities and private carriers — creates a complex negotiation space for any short-term policy move.

Data Deep Dive

The headline numbers are simple but their fiscal implications are not. At the statutory 18.4¢/gal gasoline rate, each 1 billion gallons of gasoline consumption corresponds to $184 million in federal excise receipts. Diesel at 24.4¢/gal generates $244 million per billion gallons consumed. Historical collections data show that motor-fuel excise taxes have been a primary funding input to the Highway Trust Fund, but they are not the fund's only source; general-fund transfers and other receipts have been used episodically to prevent insolvency. The IIJA's $550 billion authorization in 2021 expanded program flows and capital commitments, increasing the pressure on reliable funding mechanisms (White House, 2021).

Examining purchasing power, the 18.4¢ gasoline tax in 1993 is roughly equivalent to approximately double that amount in 2026 dollars when adjusted by cumulative CPI changes since 1993 (BLS CPI-U series). That gap highlights the effective decline of the excise in real terms and explains why infrastructure advocates and some lawmakers argue for a rate reset or indexation to inflation. Conversely, a temporary suspension would be a nominal reduction that does not address the structural mismatch between revenue and long-term obligations.

The short-term fiscal math of a suspension is also straightforward to model. Suspending the federal rate for one month would reduce federal excise receipts by roughly 1/12th of the annual flow — a non-trivial figure relative to Highway Trust Fund outlays for maintenance and transit grants. For context, recurring annual federal motor-fuel excise receipts have historically been in the tens of billions of dollars range (USD), so even a single-month suspension would require compensating adjustments or additional transfers to sustain committed multi-year projects. Sources: Fortune (Mar 28, 2026); White House (IIJA, Nov 2021); Congressional Research Service (2021).

Sector Implications

Road construction and public transit agencies operate with planning horizons measured in years; they rely on predictable federal matching dollars and formula grants to schedule projects. Reductions in federal excise receipts, even temporarily, will complicate cash-flow management and may trigger re-prioritization of capital programs, particularly for states that already depend heavily on federal grants. Transit agencies that have recovered ridership unevenly since the pandemic could face renewed vulnerability if federal support tightens, increasing the risk of service cuts or fare adjustments.

For freight and logistics operators, the immediate benefit of any federal gas-tax holiday is modest relative to total fuel bills, but the symbolic value is high. Transportation companies make fuel hedging, equipment replacement, and route-optimization decisions on longer timelines; sudden policy reversals complicate fleet planning, including transitions to lower-carbon vehicles. A suspension could also distort market signals that encourage fuel efficiency and electrification investments, potentially slowing decarbonization trajectories.

State governments will be an intermediary channel for the economic and political effects. Many states levy excise taxes that are larger than the federal charge; in such states a federal pause would deliver smaller proportional relief to consumers while pushing the federal funding shortfall onto the states and transit agencies. Conversely, low-tax states would see more immediate consumer stimulus but also higher relative exposure to subsequent federal funding pullbacks. These diverging regional outcomes create incentives for asymmetric lobbying and could fragment a unified federal response.

Risk Assessment

A temporary federal gas-tax suspension carries several material risks. First, there is fiscal risk: a reduction in excise receipts undermines the Highway Trust Fund's ability to meet scheduled obligations unless supplemented by general-fund transfers or offsetting revenue measures. Without credible backstops, states and transit agencies face project delays. Second, policy risk arises from precedent: a politically expedient carve-out could set expectations for recurring relief in future price spikes, eroding a norm of stable dedicated funding for infrastructure.

Operational risk is also present. Agencies obligate funding and sign contracts based on multi-year revenue projections; a sudden suspension and subsequent reinstatement would complicate contract negotiations and could increase borrowing costs, as agencies shift to short-term financing to bridge gaps. Market risk includes potential volatility in fuel prices if a suspension triggers anticipatory behaviors — e.g., stockpiling or demand surges — that counterintuitively raise near-term prices and blunt intended consumer relief.

Finally, distributional risk matters. A one-size-fits-all federal pause would not be progressive: rural households with longer commutes benefit more in absolute dollar terms than urban residents who rely on transit. Similarly, lower-income households that spend a higher share of income on transport may receive larger relative relief, but if service cuts to transit follow fiscal strain, those households could be net losers. These layered risks underline why many transportation finance experts emphasize targeted measures over blanket tax holidays.

Outlook

Legislatively, prospects for a short-term federal gas-tax suspension depend on balance-of-power calculations in Congress and the White House's appetite for redirecting general revenues. Any federal action that reduces excise receipts will likely be paired with proposed offsets — ranging from one-off general-fund transfers to future tax changes — to preserve solvency for the Highway Trust Fund. Given the IIJA's expanded commitments, lawmakers face a constrained fiscal environment if they pursue a suspension without credible offsets.

Market participants should expect heightened policy debate rather than immediate structural reform. Calls for indexation of the federal excise tax, or for converting to a miles-traveled user fee, have gained traction as longer-term solutions but face steep political hurdles. Near-term, a temporary suspension would be modest relative to the scale of annual transportation spending and would likely be followed by renewed pressure to refill federal coffers.

The most probable policy path in the medium term is a hybrid approach: targeted consumer relief measures (vouchers, credits) for vulnerable households coupled with a substantive discussion of revenue modernization. Such a combination would address immediate affordability concerns without entirely destabilizing multi-year capital programs. For a deeper dive into infrastructure financing alternatives, see our topic research and recent policy notes on user-fee mechanisms and bond financing structures at topic.

Fazen Capital Perspective

Our analysis suggests that headline tax holidays are politically potent but economically blunt. A short-term suspension of 18.4¢/gal would deliver visible consumer relief but also create an immediate funding gap equivalent to a material slice of the Highway Trust Fund's predictable receipts; absent offsets, that gap will be borne by capital programs or by taxpayers later. Contrarian to the populist framing, the most durable policy would not be a stopgap suspension but a phased modernization: index the excise to inflation, introduce a gradual bump tied to purchases of high-VMT vehicles, and pilot distance-based pricing for heavy freight corridors.

We view the long-term fiscal sustainability of surface-transportation finance as being best served by hybrid revenue instruments that combine a modestly higher excise with targeted user fees and more robust general-fund backing for transit provision. Such a portfolio approach spreads risk, preserves investment-grade predictability for multiyear projects, and better aligns incentives for decarbonization and efficient road use. Policymakers should weigh the short-term optics of consumer relief against a decade of deferred maintenance and higher long-term costs.

FAQ

Q: Would a one-month federal gas-tax suspension meaningfully lower national pump prices? A: A one-month suspension would reduce the federal component (18.4¢) at the pump, but the net retail reduction would vary by state because of differing state excises and local levies. In many states the federal share is a minority of total taxes on fuel, so the consumer impact would be material but limited; moreover, retailers and wholesale dynamics can mute the pass-through.

Q: What historical precedents exist for federal excise pauses or transfers? A: The Highway Trust Fund has periodically relied on general-fund transfers and legislative fixes to avert insolvency; for example, prior Congresses authorized transfers and adjustments rather than suspensions to maintain continuity. The IIJA in 2021 created new spending imperatives ($550 billion over five years) that increased reliance on stable revenue flows (White House, Nov 2021).

Bottom Line

A federal gas-tax suspension would provide headline consumer relief but risks creating meaningful fiscal gaps for highways and transit; structural modernization of revenue sources would be a more durable solution. Policymakers must balance short-term political pressures with the fiscal discipline required to fund multi-year infrastructure commitments.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.