Sid Salter
- Federal and state fuel taxes are flat taxes. The current spike in gas prices doesn’t bring in more tax revenue for the state or the federal government.
In the past year, voices as disparate as President Trump and members of both houses of Congress, along with Mississippi elected officials, have called for suspending either federal or state taxes on gasoline and diesel fuel in response to soaring prices for both commodities.
Over the past year, fuel prices have surged across both regular gasoline and diesel, driven largely by global energy disruptions and ongoing geopolitical conflicts, including the war in Iran and the conflict between Russia and Ukraine. Nationwide, regular gasoline has increased by $1.25 per gallon (+39.7%), while diesel has surged by $2.67 per gallon (+72.2%). In Mississippi, drivers face an even sharper percentage-based hike at the pump because of lower baseline costs from the prior year, according to the American Automobile Assn. (AAA).
On July 1 in Mississippi, new laws took effect, cutting the sales tax on groceries and raising the state tax on gasoline. The higher gas tax, to be phased in over three years, will ultimately increase the state tax to 27 cents per gallon.
Mississippi’s 2025 legislation raised the state’s motor fuels tax to 21 cents per gallon beginning last year and rose to 24 cents on July 1 of this year before peaking at 27 cents per gallon on July 1, 2027. The federal gas tax remains at 18.4 cents per gallon, or CPG, the same as it has been since 1993.
The federal excise tax on highway diesel fuel is 24.3 cents per gallon, plus an additional 0.1-cent-per-gallon Leaking Underground Storage Tank (LUST) fee, for a total federal tax of 24.4 cents per gallon.
Several politicians urged Mississippi Gov. Tate Reeves to take immediate action to ease the financial strain from rising gasoline and diesel costs, including declaring an economic emergency, temporarily suspending the state fuel tax on gas and diesel, and providing provisions to allow farmers and loggers to use off-road fuel to expand the available supply.
Respected agricultural and forestry organizations, including the Mississippi Farm Bureau, the Mississippi Loggers Association, and some 20 other groups, have joined in pleas to state officials seeking relief.
Federal and state fuel taxes are flat taxes. The current spike in gas prices doesn’t bring in more tax revenue for the state or the federal government. Governments can only take in more revenue from gas taxes if the volume of gas consumed increases, and automobiles are now manufactured to require less fuel than a decade ago.
Energy experts say the real benefit of suspending federal and state fuel taxes is greatly overstated, and that while it makes consumers feel better, the actual savings are less than expected. The University of Pennsylvania said that a federal fuel tax suspension like that proposed by the White House would diminish the federal Highway Trust Fund by at least $11.5 billion.
The Tax Foundation takes the long view on the wisdom of suspending fuel taxes, as the non-partisan tax policy experts wrote in August:
“These holiday gimmicks, like those for state sales taxes, are inefficient at providing relief to consumers. They exacerbate funding issues for roadways, even though road user fees already struggle to cover their costs, while only minimally lowering drivers’ tax bills.”
Georgia Tech economist Robert Harris was blunter:
“As an energy economist, I have seen that suspending those taxes does reduce prices, but not as much as politicians—or drivers—might hope. Research on past gas tax holidays has found that consumers receive about 79% of the reduction in gas taxes. That means oil companies and fuel retailers keep about one-fifth of the tax cut for themselves rather than passing those savings to the public.
“Suspending the federal gas tax, which would require Congress to pass a law, wouldn’t help consumers much. Even if oil companies passed on all the savings to consumers, the national average for gas and diesel would drop by only about 4%. The reduction in high-cost states such as California would be even smaller.
“Gas taxes are just one factor that drives gas prices. Overall, the price of a retail gallon of gas is the sum of four components: the cost of crude oil, refining, distribution and marketing, and taxes.”
