Source: Fortune.com
Summary
President Donald Trump signed an executive order deferring taxes on red-dyed diesel, a fuel used by farmers and truckers, to address high fuel prices. The move, which would save truckers about 24.4 cents per gallon, is in place through the end of the year. Energy analysts and industry groups say the policy does little to address the root causes of high prices. They argue it is more political posturing than a real solution. A Reuters/Ipsos poll shows Trump’s approval rating at 32%, with cost of living concerns top of mind for Americans.
Our Reading
The announcement sounds familiar.
Trump’s tax deferral on red-dyed diesel is a short-term fix.
Industry experts call it a political move, not a real solution.
The policy doesn’t increase fuel supply or lower prices significantly.
Uncertainty remains about future tax obligations for truckers.
The real fix requires geopolitical stability, not executive orders.
Author: Evan Null
The ramifications of a red-dyed diesel tax deferral
Chief among the concerns from industry stakeholders is that a tax deferral is not the same as a tax break, likely leaving truckers or drivers to still have to pay for the use of red-dyed diesel down the line.
“We do not expect most reputable diesel retailers and fuel marketers to do this,” the Society of Independent Gasoline Marketers of America and the National Association of Truck Stop Owners said in a joint statement to their members. “First, the tax is still owed, so there’s limited upside.”
David Russell, global head of market strategy at TradeStation Group, explained that deferrals are leaving truckers on edge because of the possibility they will still have to pay the taxes, just down the line. Trump has asked the Treasury to look for ways to eliminate the deferral, but the agency has not provided any guidance.
“You have an unusual situation where they’re basically saying, ‘We’re going to try to not enforce a tax for a period of time, and we’re going to hope that Congress later blesses that action,’” Russell told Fortune. “And if not, then we might be on the hook, or we might create a situation where gas stations need to pay that tax back to the government later.’ So it creates a lot of uncertainty.”
Even without the potential tax concerns, red-dyed diesel makes up only a fraction of the total fuel—about 30%—used by commercial vehicles, De Haan argued. Because red-dyed diesel is typically only used for specific contexts like farming, and isn’t widely available at many truck stops. The White House said more than 4,000 retailers in the U.S. distribute dyed diesel.
Solving the U.S. fuel supply problems
Analysts agreed that solving the U.S.’s fuel shortage would require larger geopolitical stabilization, such as the ending of the wars in Iran and Ukraine. Russell said that if the worst of the conflict in the Middle East were over, bottlenecks could ease—and combined with the few disruptions to the U.S.’s domestic oil production as a result of a mellow hurricane season so far, that could mean diesel prices could actually ease on their own.
“The real solution to this situation is ultimately the supply and demand in the market,” Russell said. “It would not be because of this measure with red diesel. It would be a result of the improving situation and normal seasonal dynamics.”
De Haan, however, fears a potential future spike in gas prices if Ukraine repeats its attack on Russian oil refineries—which is what Trump has attributed rising gas prices to—and suggested the best bet to increase global oil supply is for the president to keep his word to end the war in Ukraine. Otherwise, the red-dyed diesel tax deferral would have limited impact because actual fuel supply would not increase.
“Aside from solving the underlying geopolitical issues, I don’t know that there’s a great, quick win here,” De Haan said. “The president is scrambling ahead of the midterms to do something, but I just don’t know that this is really a needle mover in my mind.”
The story was originally featured on Fortune.com.
