May 28, 2026
By Lily Padula and Paula R. Worthington
Rising oil prices associated with the current conflict in Iran have increased pressure on household and transportation affordability nationwide and have led to calls across the country for the suspension or reduction of taxes on motor fuel sales. In the State of Illinois (Illinois or ‘the State’), however, motor fuel taxes now support a broader range of transportation and transit systems than in prior years, meaning temporary tax reductions could have significant implications for transportation funding statewide.
At this time last year, the Regional Transportation Authority (RTA) was facing a roughly $771 million structural deficit, which, if not filled, would have resulted in major service reductions, fare increases, layoffs, and long-term harm to the regional economy. Legislation currently under discussion in Springfield to temporarily reduce Illinois’ sales tax on motor fuel, HB5738, has the potential to recreate another funding hole of significant magnitude. As such, the proposal would not only reduce revenues, as any tax holiday would, but could also significantly undermine the implementation of the newly adopted transit governance framework before it fully takes effect.
In addition, while the impact of a tax holiday and the redistribution of revenues contemplated in HB5738 may appear relatively modest in some parts of the State, the impact on Chicago and northeastern Illinois would be disproportionately large. Chicago and the regional transit system are already confronting significant fiscal pressures, and the proposed changes would further diminish revenues flowing to the region at a particularly fragile moment.
At the same time, the direct benefits to consumers remain uncertain. Research on motor fuel tax holidays nationally has shown that consumers often do not receive the full value of tax reductions at the pump, as portions of the savings may instead be absorbed through market pricing dynamics. Even if consumers experience some short-term relief, that benefit would come alongside potentially significant reductions in public transportation funding and transportation infrastructure investment.
This report examines recent fuel price increases, the implications of potential motor fuel tax holidays for Illinois revenues, and how temporary reductions in motor fuel taxes could affect transportation and transit funding statewide. Because the policy discussion is evolving rapidly, policymakers should carefully evaluate both the transportation funding implications and the likely consumer impacts before advancing any proposals currently being discussed in Springfield.