Three-Month Federal Gas Tax Holiday: Estimated Cost Reductions to Households

Three-Month Federal Gas Tax Holiday: Estimated Cost Reductions to Households

Tax Policy

Three-Month Federal Gas Tax Holiday: Estimated Cost Reductions to Households

Zheli He and Xiaoyue Sun · · 4 min read
Three-Month Federal Gas Tax Holiday: Estimated Cost Reductions to Households

We estimate that suspending the federal excise tax on gasoline from July to September this year would lower average gasoline spending per capita by between $4.79 and $14.31 over three months, depending on geographic location and modeling assumptions, and lower federal tax revenue by about $6 billion during that period.


Overview

President Biden has recently proposed suspending the federal gasoline tax for three months. We provide the following calculations for expediency that are discussed in detail in our March 11, 2022 analysis. We will soon release more analysis that includes a federal tax holiday applied to excise tax on diesel fuel.

Figure 1. Federal, State Taxes and Retail Gasoline Prices by State as of June 22, 2022

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Source: AAA Gas Price Website, American Petroleum Institute

Table 1: Change in Federal and State Tax Revenue, Gasoline Consumption and Expenditure

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Demand Elasticity Change In Federal Tax Revenue (billion $) Change In State Tax Revenue (billion $) Average Consumption Change (gallon) Average Expenditure Change ($)
-0.07 -6.028 0.024 0.206 -14.306
-0.40 -6.028 0.070 0.608 -4.789

Figure 2. Estimated Change in Gasoline Consumption and Expenditures per capita, by State

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Elasticity = 0.07

Figure 2

Elasticity = 0.4

Figure 2 Figure 2

Source: U.S. Energy Information Administration



This analysis was prepared by Zheli He and Xiaoyue Sun under the direction of Richard Prisinzano. Prepared for the website by Mariko Paulson.