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Gas prices rise again as some states consider tax holidays
A driver pumps gas at a Royal Farms in Columbia, Md., as rising fuel costs put pressure on household budgets nationwide. The national average price per gallon of regular gas is now $3.96, according to the U.S. Energy Information Administration. (Photo by Amanda Watford/Stateline)
Gas prices are climbing again across the United States — with little clarity on where prices are headed next — spurring proposals for state gas tax holidays in the hopes of offering drivers some relief.
The national average hit $3.96 per gallon Monday, up from $3.72 the week before, according to the U.S. Energy Information Administration. A month ago, the average price per gallon was $2.79.
Some analysts warn prices could continue climbing in the coming weeks, potentially pushing the national average above $4 per gallon for the first time since 2022.
Data from AAA, a national travel and motorist organization, shows a similar upward trend for both regular gas and diesel.
While the Energy Information Administration no longer publishes detailed data for every state, regional figures show increases across much of the country. The West Coast, Central Atlantic states and Rocky Mountain region are seeing some of the highest average prices, with California, Colorado and Washington among those experiencing the largest recent increases.
Rising gas prices are putting renewed pressure on household finances, especially for low- and middle-income Americans who have less flexibility to absorb higher transportation costs. The increases can ripple through daily life, influencing how much people drive, where they travel and how they spend money elsewhere.
Gasoline prices don’t live in isolation.
– Steven Durlauf, an economist at the University of Chicago’s Harris School of Public Policy
Still, economists say the most significant factor right now is not just the price itself, but the uncertainty surrounding it. With national policy decisions and geopolitical developments in the Middle East shifting rapidly, there is little consensus on how long prices will remain elevated or how high they could climb.
“Gasoline prices don’t live in isolation,” said Steven Durlauf, an economist at the University of Chicago’s Harris School of Public Policy. Durlauf also is the director of the university’s Stone Center for Research on Wealth Inequality and Mobility. “Reductions in the supply of petroleum, oil-based products affect the entire economy.”
States weigh gas tax holidays
With prices rising, local leaders and state lawmakers in several states — including California, Connecticut, Florida, Georgia, Maryland and Utah — have weighed gas tax holidays as a way to provide relief at the pump.
Georgia lawmakers have already enacted a temporary suspension, while officials in Florida and Maryland have expressed skepticism, citing budget constraints and questions about how much savings would actually reach consumers.
Gas prices have risen across all of these states, with some of the sharpest increases in the South.
Gas tax holidays, which temporarily suspend or reduce state fuel taxes, gained traction in 2022 when gas prices last topped $4 per gallon. Supporters say they can offer immediate, visible relief by lowering the per-gallon cost of fuel.
But researchers and some economists say the benefits are often limited and uneven. A new analysis from the Institute on Taxation and Economic Policy, a left-leaning tax policy research group, estimates that the recent rise in gas prices is on pace to cost American drivers an additional $9.4 billion per month.
The researchers found that gas tax holidays may provide only minimal relief to those who need it most. For households earning less than $53,000 a year, a federal gas tax holiday would save about $5 per month on average.
Some research suggests that much of the benefit from such policies may not reach consumers at all. When fuel supply is constrained, a significant share of the savings can be absorbed within the oil and gas supply chain rather than passed on at the pump.
State-level examples reflect similar patterns. In Georgia, analysts from the Institute on Taxation and Economic Policy found that the state’s newly enacted tax holiday is expected to cost the state about $196 million per month and disproportionately benefit wealthier households: The bottom 60% are expected to receive just 22% of the tax cuts — or roughly $13 per family, according to the ITEP analysis.
Utah lawmakers have spent a year planning for a 15% cut in the state’s gas tax from July through December. But some economists say any savings for consumers might be engulfed by higher prices.
“It’s still unclear the extent people will notice that tax cut,” Phil Dean, chief economist at the Kem C. Gardner Policy Institute at the University of Utah, told the Utah News Dispatch.
There are also fiscal trade-offs. Gas taxes are a key source of revenue for transportation infrastructure, and suspending them — even temporarily — can strain state budgets, particularly in places where revenues have fallen in recent years.
Some experts say more targeted approaches, such as direct income rebates or assistance aimed at lower-income households, may be more effective in offsetting rising fuel costs without reducing transportation funding.
“A tax holiday is, I think, something most economists would be uncomfortable with,” said Durlauf, the University of Chicago economist.
If the consumer demand is still there, gasoline prices might still rise, he said. “It’s not obvious to me that the prices will not just adjust to (gas tax holidays) as well.”
Global tensions
Much of the recent volatility stems from the Trump administration’s war in Iran and uncertainty surrounding the Strait of Hormuz — a critical global oil transit route through which a significant share of the world’s oil supply passes. Iran has effectively restricted access to some vessels in the region, raising fears of supply disruptions that can quickly ripple through global markets.
Even the threat of disruption can send oil prices higher, as traders react to the possibility of reduced supply.
Though the United States produces substantial amounts of oil domestically, it remains part of a global market, meaning international developments still directly affect prices at the pump.
“Americans can’t fence themselves off from the impacts of global changes to supply and demand,” said Patrick De Haan, a petroleum analyst at GasBuddy, a fuel savings and price-tracking company. “Actions have consequences, and consumers are very much feeling that.”
Crude oil remains the single biggest driver of gasoline prices, accounting for about half of the cost of a gallon of regular gas, according to the Energy Information Administration. Refining makes up about 20%, while distribution and marketing account for 11%, and taxes roughly 18%.
Brent crude oil — the international benchmark — has surged in recent weeks, briefly reaching $119 per barrel last week. It settled around $100 per barrel on Monday, and rose again on Tuesday to about $113 per barrel.
Federal forecasts expect prices to remain elevated in the near term before easing later this year.
Seasonal factors are also contributing to the increase. As warmer weather approaches, refineries transition to producing summer-blend gasoline, which is more expensive to manufacture but designed to reduce evaporation and meet environmental standards.
Warmer weather also usually means more drivers will be on the road.
“The oil industry is volatile. It’s a global market, and that’s why we don’t predict what’s going to happen next because it’s impossible to,” said Aixa Diaz, a spokesperson for AAA. “This all coincided at a time when gas would normally be going up anyway for us.”
At its core, gasoline pricing reflects basic supply and demand dynamics. When supply tightens — or is expected to — prices rise. When demand falls, prices tend to drop, sometimes sharply.
“Whenever there’s a perceived shift in either supply or demand, there’s going to be an equal reaction,” De Haan said. “This is just one of the larger reactions, because it’s a larger impact.”
The recent spike has also been fueled by rapidly shifting political signals. President Donald Trump said Monday that the United States is in talks with Iran to resolve the conflict, helping to briefly push oil prices lower after they surged amid Trump’s threats to target Iran’s energy infrastructure. Iran denied there were ongoing talks.
Such volatility, economists say, adds another layer of uncertainty that can weigh on both consumers and the broader economy.
Stateline reporter Amanda Watford can be reached at ahernandez@stateline.org.
This story was originally produced by Stateline, which is part of States Newsroom, a nonprofit news network which includes Wisconsin Examiner, and is supported by grants and a coalition of donors as a 501c(3) public charity.
