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Biden weighs a gas tax holiday. How much would consumers really save?


JUNE 20, 2021

President Joe Biden stops and speaks to members of the media as he walks on the beach with his granddaughter Natalie Biden and daughter Ashley Biden, in Rehoboth Beach, Del., Monday, June 20, 2022. – (AP Photo/Manuel Balce Ceneta)

WASHINGTON, D.C. — Facing pressure to do something legislatively to curb skyrocketing gas prices, President Joe Biden said Monday he will make a decision on pursuing a federal gas tax holiday by the end of the week.

The move would suspend a federal tax of 18.4 cents per gallon of gas and 24.4 cents for diesel as fuel prices have soared above $5 a gallon in many states.

While it might provide some short-term relief, the policy has plenty of critics. Many economists argue a pause in the federal gas tax could drive up inflation once the holiday ends, deplete transportation funds and only reduce a fraction of the overall historic spike in gas prices.

Here’s what a gas tax holiday could look like and the factors the White House is taking into account:

What is Biden considering?

Although Biden hasn’t discussed specifics of a policy, Senate Democrats in February proposed suspending the tax until the end of the year.

Several Senate Democrats with tough elections in November introduced the gas tax holiday. They include Raphael Warnock, D-Ga., Mark Kelly, D-Ariz., and Maggie Hassan, D-N.H.

What do Republicans think about the idea? 

Republicans in the Senate slammed the measure as a desperate election-year stunt, meaning a proposal might need all 50 Democratic senators to pass.

“It’s an attempt to provide some political cover for Democrats who are running for reelection this year and don’t want to have to defend the administration or their party’s position on energy,” Senate Minority Whip John Thune, R-S.D., told NBC News in February.

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How much in savings would be felt by consumers?

While skeptics have raised concerns that oil companies would pocket the tax cut, new research shows the bulk of savings would be passed on to consumers under a federal gas tax suspension.

It just wouldn’t be very much savings.

Maryland, Connecticut and Georgia suspended state gas taxes this year to combat rising inflation. The Wharton School of the University of Pennsylvania released budget estimates Wednesday showing the majority of cost savings in these states went to consumers instead of gas companies or filling stations.

In Maryland, 72% of all tax savings passed to consumers. In Georgia, it was between 58% and 65%, and in Connecticut between 71% and 87%.

But the state gas tax in all three locations is more than 25 cents, meaning its holidays provided greater relief for consumers than a federal gas holiday would.

A study from the University of Pennsylvania in April estimated the price of gas would decrease by 14.72 cents a gallon if 80% of the benefit were passed along to consumers. A federal gas holiday from March to December would lower average per capita gasoline spending by $47.

How badly would a gas tax holiday hurt transportation funds? 

Revenue collected through the federal gas tax supplies the Highway Trust Fund, which pays for federal surface transportation and mass transit projects.

The nonprofit Committee for a Responsible Federal Budget found the Democrats’ proposal to suspend the gas tax would decrease the trust fund’s revenue by about $20 billion, if the holiday were in effect from March to December.

Democrats’ proposal seeks to offset the trust fund’s decrease in revenue collections with general revenue. But complicating any move, Biden’s $1.2 trillion infrastructure law last year included an infusion of $118 billion into the Highway Trust Fund.

“Part of the challenge with the gas tax, of course, is that it funds the roads, and we just did a big infrastructure bill to help fund the roads,” Energy Secretary Jennifer Granholm said Sunday on CNN’s “State of the Union.” “If we remove the gas tax, that takes away the funding that was just passed by Congress to be able to do that.”

What do critics say about suspending the gas tax?

Many economists say a gas tax holiday is simply bad public policy that wouldn’t result in significant savings.

“I’m no fan of the gas tax holiday,” Larry Summers, former Treasury secretary in the Clinton administration who also advised Barack Obama, said Sunday on NBC’s “Meet the Press.” “I think that’s kind of a gimmick, and eventually you have to reverse it.”

Summers has increasingly warned of an impending recession and blamed spending from Biden’s $1.9 trillion American Rescue Plan, passed in 2021, for fueling inflation. The White House disputes both points.

Gas prices continue to skyrocket in Arizona, as this gas station shows a typical price to pay for gas Tuesday, June 7, 2022, in Phoenix. – Photo by Ross D. Franklin, AP

Other critics have pointed out that the highest earners spend more on than gas than those who earn the least, meaning a gas tax holiday would disproportionately favor the wealthy.

The Committee for a Responsible Federal Budget warns that a gas tax holiday would further increase demand for gasoline while supply chains remain strained. The result could be higher inflation rates after the holiday is lifted.

There are also environmental concerns with incentivizing the use of fossil fuels.

And critics of a gas tax holiday note the U.S. already has one of the lowest gas taxes among highly developed nations.

Why might Biden suspend the gas tax despite the criticism?

Biden has few levers at his disposal to fight inflation and curb gas prices, plus a shirking window to act before the November midterm elections.

Suspending the gas tax would give Americans their clearest example of how Biden is trying to ease the inflation burden for drivers.

Saddled by historic inflation, Democrats face major headwinds to hold power in Congress after November. Biden’s approval rating has shrunk to new lows in recent polls, including 39% in a new USA TODAY/Suffolk University poll last week.

How long have we paid a federal gas tax?

The federal gas tax goes back to 1933, under the Franklin D. Roosevelt administration.

The value has increased over time and helped fund the Korean War and other issues before the creation of the Highway Trust Fund in 1956, when 100% of gas tax revenue collections started going toward roads.

The last gas tax increase – 4.3 cents a gallon – came in 1993. It’s remained 18.4 cents for nearly three decades.

Since its inception, the gas tax has never been suspended, though the idea has been floated. During the 2008 presidential campaign, then-Sen. Barack Obama opposed calls from Republican Sen. John McCain and Democratic primary opponent Sen. Hillary Clinton to enact a gas tax holiday during the Great Recession.

“This isn’t an idea designed to get you through the summer,” Obama said at the time. “It’s an idea designed to get them through an election.”

What else might Biden do to lower gas prices?

In response to rising gas prices, Biden has tapped the oil from the Strategic Petroleum Reserve and slammed oil and gas companies for increasing their profits amid the inflation.

Biden said he plans to sit down this week with CEOs of oil companies and seek “an explanation how they justify making $35 billion” during the first quarter of 2022.

Biden also told reporters Monday the administration is also exploring sending gas rebate cards to Americans, but the Washington Post reported that a nationwide chip shortage is complicating that effort.

To ease the burden of rising inflation, the president has discussed pushing proposals in Congress to lower the cost of insulin and other health care costs – elements of his domestic agenda that stalled in Congress earlier this year.

“I think we’re going to be able to get a change in Medicare and a reduction in the cost of insulin,” Biden said.

The president hopes to pay for the proposals by reversing former President Donald Trump’s 2017 tax cuts for corporations, but Biden’s plan faced previous resistance in the evenly divided Senate.

Courtesy/Source: This article originally appeared on USA TODAY