Transportation Fuel Taxes: Impacts of a Repeal or Moratorium

Legislation that would repeal or otherwise provide for a summer-long moratorium of federal transportation fuel taxes has been introduced in the 110th Congress. Simultaneously, Senators McCain and Clinton are proposing a summer fuel tax collection moratorium as part of their Presidential campaigns. Fuel prices have risen rapidly in 2008 for a variety of reasons. Those seeking to alter federal fuel tax collection are doing so in the belief that a reduction in fuel taxes would give Americans a modest level of economic relief from high pump prices. Current market conditions and the marginal amount of tax relief incorporated in most proposals, however, raise uncertainty as to whether prices to individuals and businesses would fall and whether any price decline would be meaningful to consumers in economic terms. Also of concern is the possible impact of any repeal or moratorium on the overall federal budget deficit. A reduction in transportation fuel taxes would result in a decrease in spending for Highway Trust Fund-supported federal programs, unless Congress designated alternate sources of funding for these programs. As a result of the structure of the federal programs, the effects of a fuel tax repeal on federal transportation programs would not necessarily be immediate, but depending on the length and scope of the repeal or suspension, they could be substantial. Source: Congressional Research Service

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