The White House is weighing a break on the 24.4-cent diesel tax as prices set records

The White House is weighing a way for more diesel buyers to avoid the 24.4-cent federal tax on every gallon, as the fuel’s national price sits near the highest level on record. The idea under discussion is broader sales of red-dyed diesel, the untaxed fuel that farmers and construction crews normally buy for off-road equipment. Reuters reported the deliberations on September 28, and no decision has been announced.

Weekly federal data put the national average at a record $6.529 a gallon for the week of September 21. By September 28 it had eased to $6.382, still about $2.63 above a year earlier.

The 24.4-cent rate and the dyed-fuel exemption

The federal excise tax on diesel is $0.244 a gallon, according to IRS Publication 510. That figure includes a 0.1-cent Leaking Underground Storage Tank levy that applies even to dyed fuel. The publication says the main excise tax is not imposed on the removal, entry or sale of diesel that meets the dyeing requirements and is handled by a registrant at an approved terminal. The Energy Information Administration’s tax summary rounds the diesel rate to 24.3 cents, which accounts for the one-tenth-cent gap between the two agencies.

Red dye is the marker that tells inspectors a gallon was sold without the tax and is meant for permitted uses, which Fox 9 describes as agriculture and construction equipment. The proposal, as Autoblog frames it, would widen that circle to commercial truckers and heavy-equipment operators, the buyers who burn the most diesel and feel its price most directly.

The reported proposal and its source

The Reuters report, by Jarrett Renshaw and Nicole Jao, says the administration is weighing broader sales of red-dyed diesel, which could let some purchasers get around the federal fuel tax. The full text sits behind a subscription wall, so the specifics come from coverage that follows it. Oilprice.com describes the option as an alternative to restricting fuel exports, and says Energy Secretary Chris Wright has been consulting industry executives about ways to lower costs without such limits.

Autoblog describes the plan as expanding access to commercial truckers and heavy-equipment operators, and notes that regular gasoline is under $4 a gallon in only two states. The same outlet connects the fuel squeeze to the administration’s fuel-economy rollback, which it says could cost motorists as much as $7,000 in extra fuel over a vehicle’s life, and to dealer discounts of up to $10,000 on heavy-duty diesel pickups. Those figures are Autoblog’s, and the Reuters report as relayed in the other coverage does not address them.

Price, supply and the skeptics

Nobody quoted in the coverage expects the measure to lower the price of diesel itself. Patrick De Haan of GasBuddy is quoted by Oilprice saying that it is simply diesel with red dye added that is not taxed, and that it does nothing to improve supply or affect price. Tom Kloza of Gulf Oil said, in Fox 9’s reporting, that it would help less than it sounds like, since it does not increase how much diesel is made. Preben Sørli of Rystad Energy said it would not change the underlying wholesale diesel price and would mainly reduce federal tax revenue, and Gregg Ibendahl of Kansas State University called it a much safer idea than an export ban, mostly because it does less.

The scale of the tax explains the modest ambitions. Fox 9 put the federal diesel tax at roughly 4 percent of the current pump price, and the state average of 35.5 cents at roughly 5 percent. A buyer who dodged the federal piece would save a gallon’s worth of about a quarter, while the price of the fuel itself would stay where wholesale markets set it.

Supply, not tax, is the pressure point. Oilprice says U.S. refineries produce about 5.1 million barrels a day and consume about 3.6 million, exporting an average 1.2 million, and it attributes the high prices to Middle East supply constraints during a seven-month U.S.-Israel-Iran conflict that has disrupted Persian Gulf exports. Fox 9 adds Ukrainian attacks on Russian refineries as a second driver. The EIA’s weekly series shows how wide the regional spread is: $5.953 on the Gulf Coast against $8.181 in California.

The year-over-year comparison shows why the pressure is political as well as economic. The EIA’s September 28 reading of $6.382 is $2.628 higher than a year earlier and $2.838 higher than two years ago, so a fleet is paying about 80 percent more per gallon than it did two years ago, and a tax cut of a quarter a gallon would offset only a small part of that increase.

The decision rests with the White House, and the Reuters report is the only account of it so far. Until an order or a Treasury notice appears, the 24.4 cents per gallon in IRS Publication 510 remains the rate that applies at the pump.

This article was produced with the assistance of AI and reviewed by Morning Overview editors prior to publication.

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