What is the Gas Tax? Where Does it Go?

Every time drivers fill their tanks, a portion of the price goes directly to the federal government. The federal gas tax has historically received little attention; concerns about rising gasoline prices and tense international relations have brought the tax into the spotlight. It began in 1932 as a 1-cent-per-gallon excise tax, which is a type of tax that targets a specific product, charged per unit sold. It was part of the Revenue Act of 1932, which aimed to close a budget deficit caused by the Great Depression. After a series of expansions, the most recent increase under President Bill Clinton brought the total to 18.4 cents. 

Revenue primarily fuels the Highway Trust Fund (HTF), a federal account that funds construction and maintenance for highways and bridges and supports public transit like buses and subways. The HTF funds roughly one quarter of all public road spending in the United States. The HTF already spends more than it collects. Since 2008, Congress has repeatedly added money from general tax revenue to keep it running, including $118 billion in 2021. 

The federal gas tax accounts for 83 percent of the HTF’s funding. A small portion of the tax, 0.1 cents per gallon, is directed to the Leaking Underground Storage Tank (LUST) Trust Fund, which pays to clean up leaks from underground fuel tanks that can pollute soil and groundwater.

What is the Gas Tax Suspension Act?

A federal gas tax holiday is a temporary suspension of the federal tax on motor fuel. Under current law, gasoline is taxed at 18.4 cents per gallon and diesel at 24.4 cents per gallon. The Gas Tax Suspension Act (S.4485), introduced in May 2026 by Senator Josh Hawley (R-MO), would suspend both taxes for 90 days, with the president authorized to extend another 90 days. The bill would reimburse the HTF and the LUST Fund for lost revenues from the Treasury’s General Fund.

Why a Gas Tax Holiday?

The political and economic context driving the current proposal is unusually acute. Gas prices have climbed since the United States and Israel began strikes on Iran on February 28, 2026, disrupting oil shipping routes. According to a May 2026 Reuters poll, more than 6 in 10 Americans say their finances have taken a hit from higher gas prices. A March 2026 Reuters/Ipsos poll also linked falling approval of President Trump’s economic handling to rising fuel prices. A White House adviser claimed Americans “feel like that’s their largest vulnerability right now: that specific cost, gas.” 79 percent of Democrats and 59 percent of Republicans report being “extremely” or “very” concerned about current fuel prices.

Importantly, the burden of gas prices is not distributed evenly. Increases in gas prices have a larger impact on lower-income households, as they spend a larger share of their income on fuel than higher-income households. Rural households spend up to 20 percent more on gasoline than their urban counterparts. As a result, even modest price increases hit those with the least room in their budgets the hardest. 

Arguments in Favor of the Gas Tax Suspension Act

Supporters point out that if the full 18.4-cent tax were passed on to drivers, savings would reach $3.68 per fill-up on a 20-gallon SUV. Filling a 15-gallon tank once a week during the 90-day suspension could save up to about $35. The nature of the gas price spike means that the people who stand to benefit the most from these small savings are the same people for whom every dollar counts.

The question of whether these savings would actually reach consumers is real, but proponents highlight that historical evidence from state-level experiments is encouraging. In 2022, five states suspended their gas taxes. A Penn Wharton study of three of them found that 58 to 87 percent of the savings reached consumers. For the federal gas tax, this would translate to 10 to 16 cents per gallon in savings.

Another argument for the Act goes beyond the immediate crisis. The federal gas tax, as currently structured, is an instrument that no longer provides for the needs of an extensive roadway system. Average fuel efficiency has increased substantially, per capita miles traveled has declined, and a growing share of drivers use electric vehicles that contribute nothing to the HTF at all. The result is a fund that collects less and less revenue. The tax also isn’t adjusted for inflation. If it had been since 1993, it would be about 37 cents per gallon today. The proposed tax holiday has renewed scrutiny of these issues. 

Proponents point to a practical answer for the infrastructure funding concern: replenish the HTF and LUST Fund from the U.S. Treasury’s General Fund during the suspension period. Several bills in the 119th Congress, including H.R. 3768, H.R. 8572, S. 4032, and S. 4485, take this approach, as it could maintain transportation infrastructure despite the revenue gap. 

Arguments Against the Gas Tax Suspension Act

Opponents point to tightened global fuel supplies due to the Iran war, and how a gas tax holiday might create additional demand leading to higher costs in a constrained supply environment. In the short run, gasoline demand is relatively inelastic, meaning that people buy about the same amount of gas even when prices change because they still need to get to work and school. So the demand effect may be small. However, even small increases in demand could push up the base price of gas before taxes. Because of this, opponents argue that the tax holiday could end up helping gas producers more than motorists.

The environmental argument against a gas tax holiday could also be impactful. These lower prices could reduce incentives to drive less or invest in fuel-efficient vehicles. The Tax Policy Center has also noted that lower prices encourage the use of fossil fuels and could deter energy-efficient or electric vehicle purchases. Additionally, the impact on the LUST Fund carries a more concrete environmental downside. Reduced revenue for the cleanup of leaking underground storage tanks shifts those costs onto future taxpayers and may delay cleanup of active contamination sites.

Most notable to opponents of the tax holiday is the negative impact on revenue. A five-month suspension would reduce revenue to the HTF by $17 billion, 46 percent of the total projected gas and diesel tax revenue for fiscal year 2026. The Penn Wharton Budget Model estimates $11.5 billion in lost revenue, even for a shorter 4-month suspension. The HTF is already on track to reach insolvency, meaning it will run out of money to pay its bills, with the transit account projected to run dry in 2027 and the highway account in 2028. If the lost revenue were not replaced, a 90-day holiday could move the HTF’s insolvency date about nine months earlier, to June 2027. The American Road & Transportation Builders Association has been unambiguous in its opposition: “Strong transportation networks improve economic growth, save families money, and secure public safety” — an impact they argue is “far more impactful to Americans than minimal potential savings at the pump.”

If the HTF is supplemented with the General Fund, the federal deficit would increase by approximately $12 billion. At a moment of elevated fiscal pressure, this could be detrimental, opponents argue.

Moving Forward

As of late September 2026, no federal gas tax holiday has passed, and a House push for a vote stalled on September 15. The debate now overlaps with Congress’s work to renew highway funding, which expires September 30.

A federal gas tax holiday may not be the relief its supporters promise, but it could provide real savings to consumers at the cost of billions in lost infrastructure funding and a larger federal deficit. Ultimately, the debate comes down to a policy question: do the consumer savings justify the substantial hit to infrastructure funding and the deficit?

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