Nikki Haley calls for ending federal gas tax. Here’s how much people could save at the pump

Former South Carolina Gov. Nikki Haley wants to eliminate the federal gas tax, which is part of an economic plan the Republican presidential hopeful will roll out Friday.

It’s a move that would require approval from Congress. If a federal gas tax elimination was signed into law, it would be a move that could save families hundreds of dollars a year, depending on how much they drive.

The federal gas tax, which was last raised in 1993, is 18.4 cents per gallon, but each state also adds a tax per gallon to help pay for road projects.

“Yes, we want to eliminate the federal gas tax. We have to get more money in our taxpayers’ pockets,” Haley said Wednesday on Fox Business. “It’s a small portion of what actually goes to pave roads, and of that portion, a lot of it goes to bike trails and hiking trails and things like that.”

A motorist who drives about 15,000 miles a year in a vehicle with 25 miles per gallon fuel efficiency pays about $110 a year in federal gas taxes, said Patrick De Haan, the head of petroleum analysis for Gas Buddy.

A study by the University of Pennsylvania’s Wharton School of business estimated a savings of $16 to $47 per capita if a federal gas tax holiday was in effect from March to December of last year, because people would drive more because of a lower price at the pump.

“Consumers are so price sensitive. It’s hard to measure how much more consumers would drive, how much demand would go up, because there’s so much elasticity it doesn’t matter to a lot of travelers,” De Haan said. “But it also affects your behavior. If gasoline was 18.4 cents a gallon lower year-round every day, people might drive more. They don’t have to sacrifice as much to drive the same distance. Generally, that produces more consumption.”

In her time as governor, Haley previously said she would support increasing the state gas tax in South Carolina. But that came with caveats.

She initially opposed any increase to the gas tax when she was governor but later said she would support an increase if it came along with an income tax cut and restructuring of the South Carolina Department of Transportation.

Haley supported a 10-cent increase per gallon of gas from 16.75 cents in the state in exchange for lowering top income tax rate from 7% to 5%.

Ultimately, the increase in the gas tax in the state came in 2017 after Haley resigned to become United States ambassador to the United Nations.

South Carolina lawmakers pushed forward with at 12-cent increase to the gas tax, phased in over six years. The additional money is being used to upgrade and improve the state’s road network. As part of the deal, income taxpayers also had the ability to have that money rebated to them as the increase was phased in.

It was a plan that was vetoed by Haley’s successor, Gov. Henry McMaster, but the General Assembly overrode him.

In 2022, state lawmakers also pushed forward with an income tax cut to bring the highest rate from 7% to 6.5% and then to 6% over the course of five years if revenues to the state allow.

Haley did succeed in making changes in the state Department of Transportation.

In 2016, South Carolina changed the structure of the transportation department. The governor now appoints members to the S.C. DOT commission with confirmation from lawmakers. It also took the day-to-day decision-making of signing contracts, finalizing permitting and decisions on land acquisition out of the commission’s hands and gave those responsibilities to the department secretary.

Ultimately, any elimination of the federal gas tax would require congressional approval.

A proposal from President Joe Biden for a three-month federal gas tax holiday did not gain traction when gas prices were at high levels.

The gas tax goes into a federal Highway Trust Fund, which pays for highway and public transportation programs.

When it comes to federal road projects, Haley said she would not pay for them out of the highway trust fund.

“Let’s go back and make sure we do that not with the Highway Trust Fund, but that we do it out of the general fund in a way that we’re looking at infrastructure, roads, bridges, ports for 20, 30 years out and not just keep piecemealing it the way we are,” Haley said on Fox Business. “That way you also help families that are suffering from inflation.”