In an effort to reduce financial strains at the pump, President Joe Biden will ask Congress to suspend federal gasoline and diesel taxes for three months on Wednesday. However, this measure also highlights the political toxicity of high gas prices during an election year. According to the White House, the Democratic president will also request that states suspend their gas taxes or offer comparable relief.
Barack Obama, during the 2008 presidential campaign, called the idea a “gimmick” that allowed politicians to “say that they did something.” He also warned that oil companies could offset the tax relief by increasing their prices. High gas prices pose a fundamental threat to Biden’s electoral and policy ambitions. They’ve caused confidence in the economy to slump to lows that bode poorly for defending Democratic control of the House and the Senate in November.
At issue is the 18.4 cents-a-gallon federal tax on gas and the 24.4 cents-a-gallon federal tax on diesel fuel. If the gas savings were fully passed along to consumers, people would save roughly 3.6% at the pump when prices are averaging about $5 a gallon nationwide. But many economists and lawmakers from both parties view the idea of a gas tax holiday with skepticism.
Biden’s past efforts to cut gas prices — including the release of oil from the U.S. strategic reserve and greater ethanol blending this summer — have done little to produce savings at the pump, a risk that carries over to the idea of a gas tax holiday. Biden has acknowledged how gas prices have been a drain on public enthusiasm when he is trying to convince people that the U.S. can still pivot to a clean-energy future.
Mark Zandi, the chief economist at Moody’s Analytics, estimated that the majority of the 8.6% inflation seen over the past 12 months in the U.S. comes from higher commodity prices due to Russia’s invasion and continued disruptions from the coronavirus. “In the immediate near term, it is critical to stemming the increase in oil prices.”
Biden described a country already nursing some psychological scars from the coronavirus pandemic that is now worried about how to afford gas, food, and other essentials. “If you notice until gas prices started going up,” Biden said, “things were much more, they were much more optimistic.” The president can do remarkably little to fix prices that are set by global markets, profit-driven companies, consumer demand, and aftershocks from Russia’s invasion of Ukraine and the embargoes that followed. The underlying problem is a shortage of oil and refineries that produce gas, a challenge a tax holiday cannot necessarily fix.
Zandi said last week, suggesting that Saudi Arabia, the United Arab Emirates, and a nuclear deal with Iran could help to boost supplies and lower prices. Republican lawmakers have tried to shift more blame to Biden, saying he created a hostile environment for domestic oil producers, causing their output to stay below pre-pandemic levels.
Senate Republican leader Mitch McConnell mocked the idea of a gas tax holiday in a February floor speech. “They’ve spent an entire year waging a holy war on affordable American energy, and now they want to use a pile of taxpayers’ money to hide the consequences,” he said. Democratic House Speaker Nancy Pelosi has previously expressed doubts about the value of suspending the federal gas tax.
Administration officials said the $10 billion costs of the gas tax holiday would be paid for and the Highway Trust Fund kept whole, even though the gas taxes make up a substantial source of revenue for the fund. The officials did not specify any new revenue sources. The president has also called on energy companies to accept lower profit margins to increase oil production and refining capacity for gasoline. This has increased tensions with oil producers: Biden has judged the companies to be making “more money than God.” That kicked off a chain of events in which the head of Chevron, Michael Wirth, sent a letter to the White House saying that the administration “has largely sought to criticize, and at times vilify, our industry.” Asked about the letter, Biden said of Wirth: “He’s mildly sensitive. I didn’t know they’d get their feelings hurt that quickly.” Energy companies are scheduled to meet Thursday with Energy Secretary Jennifer Granholm to discuss ways to increase supply.
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