President Donald Trump said on Monday that he would reduce the 18-cent federal gas tax for a yet-to-be-determined period as US fuel prices surge amid the Iran war.
Waiving the tax would require Congress, currently controlled by Trump's fellow Republicans, to pass legislation.
“Yeah, I'm going to reduce it,” Trump told reporters when asked whether he would suspend the tax. Asked how long the suspension would last, Trump said in the Oval Office, “till it's appropriate.”
The decision comes on the heels of Trump's rejection of Iran's response to a U.S. peace proposal, which has fuelled concerns that the 10-week-old conflict will drag on and continue to paralyse shipping through the Strait of Hormuz, pushing oil prices higher on Monday.
Days after Washington floated a proposal aimed at reopening negotiations, Iran on Sunday released a response focused on ending the war on all fronts, including Lebanon, where U.S. ally Israel is fighting Iran-backed Hezbollah militants.
Tehran also demanded compensation for war damage, emphasised its sovereignty over the Strait of Hormuz, and called on the United States to end its naval blockade, guarantee no further attacks, lift sanctions and remove a ban on Iranian oil sales.
Within hours, Trump dismissed Tehran's offer in a social media post.
"I don't like it — TOTALLY UNACCEPTABLE," Trump wrote on Truth Social, without giving further detail. The U.S. had proposed an end to fighting before starting talks on more contentious issues, including Iran's nuclear programme.
Tehran responded on Monday by defending its stance.
"Our demand is legitimate: demanding an end to the war, lifting the (U.S.) blockade and piracy, and releasing Iranian assets that have been unjustly frozen in banks due to U.S. pressure," Foreign Ministry spokesperson Esmaeil Baghaei said.
US Senator Josh Hawley, a Missouri Republican, said on X that he was introducing legislation on Monday to suspend the gas tax. In March, some Democrats, including Senator Mark Kelly, had proposed suspending the tax until October.
The federal gas tax generates about $2.5 billion per month in road funding. Since 2008, more than $275 billion — including $118 billion from the 2021 infrastructure law — has been shifted from the general fund to pay for road repairs.
Trump also told CBS earlier on Monday that a bailout plan for airlines struggling with surging jet fuel costs had not “really been presented” and added that “the airlines are doing not badly.”
Energy Secretary Chris Wright said on NBC News’ “Meet the Press” on Sunday that the Trump administration was open to suspending the federal gas tax. Several US states, including Indiana, Kentucky and Georgia, have also moved to cut fuel taxes to provide consumers some relief at the pump.
Gas prices have climbed since the war in Iran began on February 28, with the average price of a gallon in the US reaching $4.52 on Monday, according to AAA. That is the highest level since 2022, when average prices peaked at $5.01 a gallon.
Rising fuel costs, which could also push up the price of groceries and other goods, pose a political challenge for Trump and fellow Republicans ahead of the November midterm elections. Trump acknowledged that the tax accounts for only a small portion of the overall cost of gasoline, but said, “it's still money.”
Meanwhile, businesses are also feeling the strain from rising energy prices linked to the US-Israel conflict with Iran, with many economists warning of weaker hiring and investment in the coming months.
Nearly half of American business economists surveyed by the National Association for Business Economics said the conflict had negatively affected their operations, according to a report released Monday. More than half cited rising energy prices as a major concern, while over two-thirds reported higher material costs over the past three months — the highest level recorded by the organisation since July 2022.
The conflict, which began with US and Israeli attacks on February 28, has intensified global energy market pressures. Crude oil prices have continued to rise amid tensions in the Strait of Hormuz, driving up transportation and operating costs for businesses worldwide. Supply disruptions involving essentials such as fertilizer have added to the strain.
Consumers are increasingly bearing the burden as companies pass on higher costs beyond the immediate spike in fuel prices. Nearly half of NABE’s respondents — economists from businesses, trade associations and academia — said their firms were passing at least some cost increases on to customers, though that figure was down from 60 per cent in January.
At the same time, 16 per cent of respondents said they expected to raise prices further over the next six months, while none anticipated lowering prices.