Biden Wants to Suspend the Federal Gas Tax. Here's Who Pays and Who Saves

It's one way to provide modest relief to consumers.

Ever since the start of the Ukraine conflict, the cost of gas has been soaring. Combine that with general inflation, and it's no wonder so many Americans are depleting their savings and racking up credit card debt just to stay afloat.

In an effort to provide relief at the pump, President Biden is proposing a temporary suspension of the federal gas tax, which currently amounts to $0.184 per gallon ($0.244 for diesel). But how much will that actually help? And who will bear the cost?

How gas taxes work

Gas taxes are imposed at both the federal and state level. Biden's directive applies to federal gas taxes only, not state gas taxes, which can be much higher than the federal tax rate.

In California, for example, state gas taxes are a whopping $0.682 per gallon. In Pennsylvania, they're $0.587. And nationally, state gas taxes average $0.262 per gallon.

What happens if gas taxes are halted?

Federal gas taxes are used to pump money into the Highway Trust Fund, which pays for highway infrastructure, bridges, and mass transit. The Highway Trust Fund was actually projected to reach insolvency by 2022, but last year, a bill was passed that pumped $118 billion in revenue into the fund, thereby extending its solvency through 2027.

In 2020, federal gas taxes accounted for 84% of the Highway Trust Fund's revenue. And so the concern is that a temporary gas tax holiday could have negative consequences -- and create a scenario where there's not enough money to pay for critical infrastructure down the line.

Meanwhile, the Biden administration anticipates that its proposed gas tax holiday will result in a $10 million loss to the fund. It also thinks Congress can find a way to move money around as needed to make up for that.

Will a gas tax holiday have a big impact?

Suspending gas taxes during the summer months, which tend to be busy driving months, could provide a modest dose of relief for consumers -- but the key word is modest. The reality is that while saving $0.184 per gallon of gas gives consumers a nice break, it ultimately doesn't compensate for sky-high fuel costs.

For example, a consumer who uses 20 gallons of gas per week will enjoy a weekly savings of $3.68. But if that same consumer is also paying $1 more per gallon of gas than usual, ultimately, there's no net savings whatsoever.

Furthermore, the proposed gas tax holiday will only last for three months. If gas costs remain high beyond that point, the relief at hand will only be limited.

Meanwhile, some people are questioning why the Biden administration waited so long to propose a gas tax holiday. And the reality is that it's hard to say. It may be that lawmakers were trying to come up with a more impactful solution to the problem at hand, and in the absence of being able to find one, settled on a temporary suspension of gas taxes.

Earlier on in the year, lawmakers proposed a gas-related stimulus that would pay Americans during periods when fuel costs are high. But that proposal seems to have fizzled out, and that's unfortunate, because it had the potential to provide more relief than the gas tax holiday at play.