Biden’s gas-tax holiday has 4 big problems

President Biden wants to help—both you, and himself. Inflation, at 8.6%, is vexing consumers, and gasoline prices of $5 per gallon are draining the driving budget. The high price of gasoline and other products is the single-biggest reason Biden’s approval rating is at the lowest point of his presidency.

There’s not a lot any president can do about persistent inflation, but Biden has to show he’s trying. So he’s calling on Congress to suspend the federal gasoline tax for three months.

It’s not a popular idea. “Rarely has a presidential proposal encountered such horrible reviews,” Greg Valliere, chief strategist at AGF Investments, wrote in his morning newsletter on June 22. “There are many reasons why this is a bad idea.” Here are four of them:

The savings would be puny. The federal gas tax is 18.4 cents per gallon. If Congress suspended the tax and the savings went entirely to consumers, it would reduce the cost of a 15-gallon fill-up from $75 to $72.24, a savings of $2.76. Every bit helps, but would anybody notice?

Consumers would probably not even get the entire savings. A few states have suspended state taxes on gasoline, and the Penn Wharton Budget Model found the portion of the savings that went to consumers ranged from 58% to 87%. Producers captured the rest of the savings. So if consumers got, say, 75% of the benefit of a gas tax holiday, prices would fall by about 14 cents per gallon, or about $2.10 for a 15-gallon fill-up. Don’t spend it all in one place.

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It could increase demand for gasoline. If the gas-tax holiday were substantial enough to aid consumers’ budgets, then consumers might buy more gas, with the increase in demand putting upward pressure on prices. That would obviously be counter-productive, since demand needs to fall in order for prices to drop. The price drop probably wouldn’t be large enough to boost demand, however, so … what’s the point?

A gas pump displays the price of fuel at a gas station in McLean, Virginia, June 10, 2022. - Wall Street stocks fell sharply early on June 10 following fresh data showing surging consumer prices that quashed hopes inflation would quickly abate.  Friday's report showed the consumer price index (CPI) jumped 8.6 percent compared to May 2021, topping analyst estimates and up from 8.3 percent in the 12 months ending in April.  (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)

A gas pump displays the price of fuel at a gas station in McLean, Virginia, June 10, 2022. (Photo by SAUL LOEB/AFP via Getty Images)

It would take money from the federal highway fund. Federal revenue from the gas tax goes directly into the trust fund used to finance the construction, maintenance and repair of highways and other types of infrastructure. That fund is already chronically short of money, and it would lose more than $2 billion for every month a gas-tax suspension is in effect. Biden says there’s plenty of money for highways from other sources, which is probably true. But the mood in Congress at the moment is squarely against deficit spending, which in theory can make inflation worse. Even Biden has said lowering deficits—not raising them—is a way to tame inflation.

It’s unlikely to pass. House Speaker Nancy Pelosi said in March she opposes a gas-tax holiday. So does Sen. Joe Manchin of West Virginia, who effectively wields a veto given the Democrats’ one-vote majority in the Senate. Even Sen. Tom Carper of Delaware, a close Biden ally, said on June 21 that a gas-tax holiday is “shortsighted and inefficient.” This is a familiar and maddening dilemma for Biden: He can’t even get all Democrats to back favored legislation, and there’s no chance Republicans will come to his rescue.

Biden knows all this. He knows how to read Congress and surely realizes this is yet another Democratic bill doomed to die in the Senate. That’s probably part of the plan. Biden wouldn’t be the first president to propose legislation for show, knowing the votes aren’t there. It lets him say he tried, while blaming somebody else for blocking modest savings for consumers. Plus, Biden won’t have to answer for all the plan’s deficiencies, since it won’t pass. At least he won’t end up adding new problems to all the existing ones.

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