Federal Gas Tax Suspension Could Reduce U.S. Gasoline Prices by About 4%

By Robert I. Harris, Assistant Professor of Economics, Georgia Institute of Technology

*Originally published on The Conversation, republished May 13, 2026*

Vehicles sit parked at fuel pumps as regular gasoline prices above $6 per gallon and diesel prices above $7 per gallon are displayed outside a Mobil gas station in Redondo Beach, California, on April 30, 2026. (Photo by Patrick T. Fallon/Getty Images)

With U.S. gasoline prices averaging over $4.50 per gallon in mid-May 2026, President Donald Trump has called on Congress to suspend the federal gasoline tax of 18.4 cents per gallon and the diesel tax of 24.3 cents per gallon. A bipartisan bill introduced in the Senate by Democratic Sens. Mark Kelly of Arizona and Richard Blumenthal of Connecticut, along with Republican proposals, seeks this suspension, according to Politico. A companion bill is expected in the House, though passage remains uncertain.

Several states also impose their own gasoline taxes, which range from approximately 9 cents per gallon in Alaska to about 71 cents per gallon in California, including excise and sales taxes. Indiana, Georgia, and Utah have temporarily suspended their state gasoline taxes for portions of 2026, while other states are evaluating similar actions.

Studies of previous state-level gas tax suspensions indicate that consumers receive between 58% and 87% of the tax reduction at the pump, according to research on tax incidence. This range reflects variations across studies and regions, with one analysis estimating an average of about 79% passed through to consumers.

Even if the full federal tax were passed on to consumers, national average gasoline and diesel prices would decline by approximately 4%, based on January 2026 data. In high-cost states like California, the percentage reduction would be smaller due to higher base prices.

Components of the Retail Gasoline Price

The retail price of a gallon of gasoline comprises four main elements: the cost of crude oil, refining, distribution and marketing, and taxes.

According to U.S. Energy Information Administration data from January 2026, crude oil represented about 51% of the national average pump price, refining about 20%, distribution and marketing about 11%, and taxes about 18%. These proportions fluctuate with market conditions: crude oil can exceed 60% during price spikes, while taxes and logistics claim larger shares when crude prices fall.

Crude Oil as the Dominant Factor

Crude oil costs, which form the largest share, are determined by global markets. A 2009 study by economist Lutz Kilian found that major fluctuations typically stem from changes in global demand and expectations rather than supply disruptions.

However, early 2026 conditions—marked by the war in Iran—represent a supply shock exception. Disruptions to shipping through the Strait of Hormuz and attacks on Middle Eastern oil infrastructure have removed millions of barrels per day from global supply.

Gasoline demand remains relatively inelastic in the short term, as most drivers cannot quickly reduce mileage or fuel efficiency. Consequently, crude oil price increases largely translate to higher pump prices rather than reduced consumption.

Refining Costs and Regional Variations

Refining converts crude oil into gasoline on an industrial scale. The U.S. gasoline market is not uniform: about one-quarter of supply is reformulated gasoline, a cleaner blend required in urban areas of 17 states and the District of Columbia to curb smog.

California mandates an even stricter formulation, produced by few out-of-state refineries. The state's geographic isolation—no pipelines connect it to other refining regions—exacerbates price differences. California's gasoline prices have consistently exceeded the national average, attributable in part to its approximately 71 cents per gallon in combined state taxes and stringent environmental regulations.

A 2015 refinery fire in Torrance, California, reduced in-state production capacity, contributing to prices 20 to 30 cents per gallon above levels explained by taxes and regulations alone. University of California, Berkeley, energy economist Severin Borenstein has termed this differential the "mystery gasoline surcharge," linking it to limited refinery and retail competition in the state. California's Division of Petroleum Market Oversight estimated this surcharge cost drivers about $59 billion from 2015 to 2024, though the exact beneficiaries—such as refineries or retailers via contracts—remain unclear.

Distribution and Marketing Expenses

This category encompasses costs from refinery to retail pump, including transport by pipeline, ship, rail, and truck to wholesale terminals, then local trucks to stations.

At retail, expenses include station rent, labor, bulk gasoline purchases, credit card fees (up to 6-10 cents per gallon at current prices), and franchise fees to brands like Sunoco or ExxonMobil. Most station operators earn only a few cents per gallon on fuel sales, which explains why many stations prioritize convenience store revenue. Research by Borenstein and colleagues documents "rocket and feather" pricing: retail prices rise swiftly with wholesale increases but decline gradually when wholesales fall.

Implications of Gas Tax Suspensions

Federal gas tax suspension would require congressional approval. These taxes primarily fund road and bridge maintenance. Suspending them shifts those costs to future users or general taxpayers.

Gasoline taxes also aim to internalize driving externalities, such as carbon emissions, air pollution, congestion, and accidents. Borenstein's analysis indicates current U.S. fuel tax rates fall below estimated societal costs. Eliminating the tax would reduce charges to drivers while increasing uncompensated costs borne by others.

The Jones Act's Role

The 1920 Jones Act mandates that cargo between U.S. ports travel on U.S.-built, U.S.-owned, and mostly U.S.-crewed vessels. Of the world's approximately 7,500 oil tankers, only 54 comply, with 43 capable of carrying refined fuels like gasoline.

This restriction contributes to fuel movements: Gulf Coast gasoline is sometimes exported while the Northeast imports, reflecting high domestic shipping costs. Economists Ryan Kellogg and Rich Sweeney estimate the Act adds about 1.5 cents per gallon to East Coast prices, totaling roughly $770 million annually for drivers there.

In response to 2026 war-related price pressures, the Trump administration has temporarily waived Jones Act requirements for fuel shipments, a measure previously used after hurricanes disrupted Gulf refineries and pipelines.

Key Drivers of Pump Prices

Collectively, these elements mean pump prices primarily track global crude costs plus domestic additives, some inefficient. Tax suspensions offer a temporary, partial price relief averaging less than full pass-through. Jones Act waivers shave fractions of a cent, though permanent repeal could alter transport dynamics for fuels and goods, potentially affecting costs, emissions, and infrastructure.

Standardizing fuel blends across states and seasons might modestly lower prices but could increase emissions. Long-term mitigation of oil shocks favors more efficient gasoline vehicles or alternatives like electric cars.

For now, understanding the breakdown of a $4.50 gallon clarifies its components: predominantly global crude, augmented by refining, logistics, and taxes.

*This article includes material previously published on May 1, 2026. Republished from The Conversation under a Creative Commons license. Read the original article here.*

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