With gas prices rising due to the Iran war choking off the flow of oil through the Strait of Hormuz, some lawmakers have revived calls for a federal gas tax holiday. The idea is simple: suspend the 18.4 cent per gallon federal gas tax to give drivers temporary relief at the pump. But while the politics may be appealing, the policy would worsen a much bigger challenge that Congress must confront soon: the Highway Trust Fund (HTF) has a growing structural imbalance
How it Works
The HTF functions as an on-going source of revenue for federally funded highway and bridge projects as well as selected mass transit projects. Money flows into the fund from dedicated revenues, primarily from the federal gas and diesel tax, but also from taxes on tires and heavy vehicles and increasingly from slugs of general fund revenues transferred into the fund to cover shortfalls.These HTF revenues fund programs that are authorized through surface transportation legislation – most recently the Infrastructure Investment and Jobs Act. The current legislation expires on September 30, 2026 and must be reauthorized in order for the programs under the IIJA to continue to draw funds from the HTF.
A very important concern is that the revenues flowing into the fund from the gas and diesel taxes no longer match to the funds flowing out and while the fund has accumulated a surplus from a large general fund transfer in 2021, by 2028, this surplus will be depleted and Congress will need to replenish the trust fund through another general fund transfer, increase tax revenue flowing into the fund, or reduce its outlays for transportation projects.
A Structural Problem, Not a Temporary One
The HTF is financed primarily by an 18.4 cent gasoline tax and by a 24.4 cent diesel tax. These taxes haven’t been raised since 1993, and they are not indexed to inflation. The Pete Peterson Foundation estimates that the purchasing power of the federal gas tax has declined by 55% since that time, meanwhile vehicles have become more fuel‑efficient. At the same time construction costs are rising and the revenue flowing into the fund simply cannot keep up with the cost of expanding, maintaining and repairing the nation’s transportation infrastructure.
The result is a persistent gap between what the HTF collects and what it spends. For nearly two decades, Congress has filled that gap with repeated transfers from the general fund — more than $275 billion since fiscal year (FY) 2008. By one estimate, over the next 10 years, the HTF will have a cumulative $295 million shortfall.
Impact of Pausing the Gas and Diesel Tax
The Penn Wharton Budget Model estimates that pausing federal fuel taxes for four months would cut Highway Trust Fund revenue by about $11.5 billion. To put that in perspective, the fund spent roughly $62 billion in FY2025, so a holiday of that length would eliminate revenue equal to nearly one‑fifth of its annual outlays.
The total relief from a gas tax holiday may not be as much as consumers expect — while worsening the HTF’s finances. The federal gas tax is 18.4 cents per gallon, smaller than the roughly $1.50 increase in prices since the start of the Iran war. Further the “surplus” from the tax would be shared between the supplier and consumer. Because people still need to buy gas regardless of price, demand is somewhat “inelastic,” meaning suppliers could continue to demand higher prices and only pass along part of the tax cut to consumers.
Options for Fixing the Highway Trust Fund
Several revenue options are often discussed as ways to shore up HTF finances, such as:
- A vehicle‑miles‑traveled (VMT) tax, which charges drivers based on how much they use the roads rather than how much fuel they buy.
- Electric vehicle (EV) surcharges, ensuring drivers who use little or no gasoline still contribute to road upkeep.
- Indexing the gas tax to inflation, which would prevent the tax from losing value over time.
These options have various pros and cons (see table below) and could be packaged together to balance the trade offs and ensure that the burden is spread more evenly. Importantly identifying additional dedicated revenue is critical to restoring and maintaining the self-funding nature of the HTF.
| Option |
Revenue potential |
Equity |
Admin complexity |
| Vehicle‑Miles‑Traveled (VMT) |
High long‑run potential; aligns revenue with road use. |
Can be designed progressive; privacy concerns. |
High: requires tracking, billing, and privacy safeguards. |
| Higher EV fees / registration |
Modest near‑term revenue; grows as EVs increase. |
Regressive if flat fees; can be tiered by value/weight. |
Low–medium: uses existing registration systems. |
| Index federal gas tax to inflation |
Moderate, immediate revenue stabilization. |
Maintains user‑pays principle; affects all fuel users. |
Low: simple statutory change. |
Why Self‑Funding Matters
A sustainable HTF is not just a transportation issue — it’s a fiscal one. Relying on general fund transfers undermines the “user pays” principle that has guided federal transportation policy for decades. It also adds pressure to the broader federal budget at a time when deficits and debt are already on an unsustainable path.
Reauthorization in 2026 is a chance to restore the HTF’s long‑term solvency and reduce dependence on general revenues. A gas tax holiday may offer short‑term political appeal, but it moves the country further away from a durable solution.
