Could an Adjustable Fuel Tax Work?
Diesel prices are high right now, and there have been many, many steps that governments at various levels have taken to try to provide some relief. Georgia suspended their tax for sixty days in the Spring of 2026, and in that article we mentioned a possible policy: having the fuel tax fluctuate inversely with the total price (total price goes down, tax goes up). Here, we look at the concept further.
Hypothetical
Assume a relationship where the diesel tax starts at $1 per gallon when it would otherwise be free, and then the tax decreases by 1 cent for every ten cents that the purchase price increases. This would provide some downward negative pressure on the price as it increases, for instance, a $5 base purchase price would have a diesel tax of 50 cents, making the total cost per gallon at $5.50. The current federal diesel tax is 24.4 cents per gallon, which by itself is less than our model, but adding in the previously mentioned Georgia tax would be another 37.1 cents, so our total tax would be eleven-and-a-half cents less.
Where this gets interesting is that it creates an incentive for lawmakers at both state and federal levels to enact policy that drives the average price down, as it increases the amount of money the various infrastructure funds get. If Congress passed a philosophy of “drill, baby, drill”, and reduced the base price of diesel to $3 per gallon, that would mean that prices would be $3.70 per gallon, a 40% increase for the government and a 33% drop in total fuel price.
Changing the amount of tax removed from the diesel price would also stabilize prices slightly, as opposed to the constant tax we have today. If prices drop by ten cents, they actually drop by nine cents. If prices rise by twenty cents, they truly increase by only eighteen.
Conclusion
What are your thoughts on the idea of having a flexible fuel tax? Should it increase as diesel prices rise, or decrease? Let us know your thoughts on the concept in the comments below, and if you like the idea, be sure to write to your representatives and senators!
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