Why Gas Tax Holidays Backfire

Adjusting end prices can’t address the underlying shortage. In fact, waiving taxes may intensify demand when supply is already stretched.

The Daily Economy

By Thomas Savidge

April 20, 2026

Energy price increases are hitting Americans hard. In the March 2026 Everyday Price Index, my colleague Pete Earle noted that the Iran war drove up energy prices, with adjacent industries feeling the impact, while core inflation remained muted. These price increases resemble an energy shock rather than broad-based inflation that might concern the Fed.  

For ordinary Americans, however, Earle comments, “consumers are first encountering the shock in the most visible and psychologically powerful places — gas stations, travel, and transportation-linked expenses — while the rest of the basket remains relatively stable.” 

The “visible and psychologically powerful” price increases have many policymakers rightly concerned. Both Indiana and Georgia have enacted state gas tax holidays while Utah will implement one from July through December. Several states are also considering issuing similar policies, and federal lawmakers have proposed a nationwide gas tax holiday. 

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