Biden Pushes Congress for Three-Month Gas Tax Holiday

Source: By Zolan Kanno-Youngs and Lydia DePillis, New York Times • Posted: Wednesday, June 22, 2022

Vulnerable Democrats have championed the move ahead of the midterm elections, but experts remain skeptical that suspending the federal tax would benefit consumers much.

President Biden has sought to assuage concerns that a gas tax holiday could undermine funding for investments in infrastructure, one of his major legislative accomplishments.
Doug Mills/The New York Times

WASHINGTON — President Biden called on Congress on Wednesday to temporarily suspend the federal gas tax, an effort to give Americans “just a little bit of breathing room” from soaring fuel prices even as economists and lawmakers in both parties expressed skepticism that the move would make much of a difference.

During an afternoon speech, Mr. Biden asked Congress to lift the federal taxes — about 18 cents per gallon of gasoline and 24 cents per gallon of diesel — through the end of September, shortly before the fall midterm elections. The president also asked states to suspend their own gas taxes, hoping to alleviate the economic pain that has contributed to his diminishing popularity.

“I fully understand that the gas tax holiday alone is not going to fix the problem,” Mr. Biden said. “But it will provide families some immediate relief. Just a little bit of breathing room as we continue working to bring down prices for the long haul.”

The White House faces an uphill battle to get Congress to approve the holiday, however. While the administration and some congressional Democrats have for months discussed such a suspension, Republicans widely oppose it and have accused the administration of undermining the energy industry. Even members of Mr. Biden’s own party, including Speaker Nancy Pelosi, have expressed concern that companies would absorb much of the savings, leaving little for consumers.

Senator Mitch McConnell of Kentucky, the Republican leader, quickly dismissed the president’s call for suspending the tax. “This administration’s big new idea is a silly proposal that senior members of his own party have already shot down well in advance,” he said.

Mr. Biden said he wanted to ensure that consumers benefit from the moratorium on the federal tax. The administration estimates that the combination of several possible steps — the suspension of the tax, a halt on state gas taxes and an increase in refining capacity by oil companies — would lower gas prices by at least $1 a gallon.

But critics have questioned the effectiveness of gas tax holidays, dismissing the idea as little more than a desperate attempt by the White House and vulnerable Democrats to show that the party is attentive to Americans’ financial pain.

Economists and some members of Congress have criticized the idea of suspending the federal gas tax as a wasteful step for the government, given the revenue that would be sacrificed in a bid to provide only a mild dose of relief to consumers. Its impact on them would be quite limited: The tax is now such a small slice of the price at the pump, coming in at less than 5 percent of the total cost, that Americans might not even notice its absence.

“I don’t think it moves the needle on people’s willingness to buy more, and it doesn’t exactly save them a whole lot of money, either,” said Garrett Golding, a business economist at the Federal Reserve Bank of Dallas. “It sounds like something is being done to lower gas prices, but there’s not a whole lot of there there.”

This year, oil and refined fuel prices rose to their highest levels in 14 years because of Russia’s invasion of Ukraine, the sanctions imposed on President Vladimir V. Putin and a rebound in energy use as the United States recovers from the coronavirus pandemic. The White House has increasingly tried to direct the blame for the rising prices toward Russia, a strategy that has done little to quell anxiety among Americans. The national average for regular gasoline was $4.95 per gallon on Wednesday, according to AAA, after reaching $5 this month.

Mr. Biden has also released strategic petroleum reserves and suspended a ban on summertime sales of higher-ethanol gasoline blends to try to temper price increases, frustrating climate activists still unhappy over the collapse of the president’s climate and social spending package.

Congress has not increased the federal gas tax since 1993. But it has never lifted the tax either. Taxes on gasoline and diesel now supply a majority of federal funding used to build and maintain highways — $36.5 billion in 2019 — although outlays have exceeded dedicated revenues in recent years.

That means Mr. Biden’s latest step to address one political vulnerability could undermine funding for one of the primary legislative accomplishments during his time in office: investments in infrastructure.

“I have not been for alleviating the gas tax because of the infrastructure implications there,” Senator Shelley Moore Capito, Republican of West Virginia, said on Wednesday.

But one of the more common questions she hears from constituents, she added, is: What about my gasoline?

“I think it’s a temporary fix,” Ms. Capito said. “But yes, people were saying, ‘Do something.’”

Senator Rick Scott of Florida, the chairman of the Senate Republicans’ campaign arm, questioned where the federal government would find revenue normally generated from the gas tax that supports building roads, bridges and other infrastructure projects in his state.

“What expenses are we going to cut out?” he said, adding that the proposal to suspend the tax showed that “Democrats know they’re in deep trouble.”

Mr. Biden sought to assuage those concerns on Tuesday.

“Look, it will have some impact, but it’s not going to have an impact on major road construction and major repairs,” he told reporters, adding that the administration had plenty of capacity to maintain roads.

The suspension of the taxes would cost roughly $10 billion. Senior administration officials said Mr. Biden would ask Congress to dip into other pots of money to backfill the loss.

But as global oil demand and a fractured market have sent prices soaring, experts have questioned how much a gas tax holiday would benefit consumers.

“Whatever you thought of the merits of a gas tax holiday in February, it is a worse idea now,” Jason Furman, the chairman of the Council of Economic Advisers under President Barack Obama, posted on Twitter, arguing that the oil industry was likely to pocket most of the savings.

As one example, even if all of the benefits were passed on to consumers, the owner of a Ford F-150 that gets 20 miles to the gallon driving a thousand miles per month would save about $9 if the federal gas tax were suspended.

Progressives and energy experts have advocated alternative ways to smooth out gas price shocks or siphon off some of the ballooning profits that oil companies and refiners have taken in while supply has remained constrained. In her 2008 campaign for the presidency, as inflation-adjusted prices approached an even higher point, Hillary Clinton proposedpairing a gas tax holiday with a levy on oil company profits.

But among the limited tools that the federal government has at its disposal to lower gas prices, lifting taxes could resonate the most with Americans.

“That’s the thing that voters care about. That’s the thing that politicians care about,” said Erich Muehlegger, an associate economics professor at the University of California, Davis. “Things like a windfall tax on oil companies might be attractive from a political standpoint, but we don’t necessarily think they’ll have an immediate impact on gas prices.”

Dr. Muehlegger’s research has found that drivers adjust their consumption more in response to changes in gas prices than they do to market-based changes of similar magnitude, in part because of the media attention generated by those changes.

Senator Maggie Hassan, Democrat of New Hampshire, who faces a tough re-election bid, said Mr. Biden would need to go further to provide relief to voters. In a statement, she said the White House should move forward with a gas tax suspension for the rest of the year, rather than only three months.

“I will keep pressing my colleagues in Congress to suspend the gas tax, and I continue to urge the president to take executive action to immediately lower families’ energy costs,” she said.

States have more power to lower gas prices, since their taxes and fees have been steadily rising, to about 38 cents per gallon on average. Three states have so far passed and completed gas tax holidays: Maryland, Georgia and Connecticut. New York suspended its tax at the beginning of this month, and Florida will lift its tax for the month of October.

However, gasoline producers and retailers would most likely reap some of the benefits. An analysis by economists with the University of Pennsylvania’s Penn Wharton Budget Model showed that in the states where gas price holidays have concluded, between 58 percent and 87 percent of the suspended gas tax value was passed on to consumers, with suppliers absorbing the rest. A federal suspension would be so much smaller that it may be obscured by the volatile underlying price of oil, which has fallen over the past week.

Mr. Biden also plans to take aim at oil companies on Wednesday, demanding they expand refining capacity to bring down costs at the pump, only days after accusing executives of profiteering and “worsening the pain” for consumers. Even as refineries have struggled to keep up with growing demand, refiners have added less than 1 percent to their capacity worldwide.

Emily Cochrane, Catie Edmondson and Stephanie Lai contributed reporting.