President Biden proposed a gas tax holiday. Here's how the plan would work.
Facing stubbornly high gas prices that average about $5 a gallon nationwide, President Joe Biden on Wednesday urged Congress to suspend federal gasoline and diesel taxes for three months.
If savings from the 18.4 cents-a-gallon federal tax on gas are fully passed along to consumers, drivers would save about $2.76 for a 15-gallon fill-up.
It’s unclear, though, if Biden can push his proposal through Congress, where lawmakers, including some Democrats, are skeptical or even opposed to the idea. Many economists also are wary of a gas tax holiday.
A look at how the proposed gas tax holiday would work and what impact it might have on gas prices and a highway trust fund that is paid for in large part by taxes on gasoline and diesel fuel.
WHY IS BIDEN PROPOSING A GAS TAX HOLIDAY?
The price of gas is up dramatically around the world - and by nearly $2 per gallon in the United States - since Russian President Vladimir Putin began amassing troops on the border of Ukraine. High gas prices pose a fundamental threat to Biden’s political and policy ambitions. They’ve caused confidence in the economy to slump, contributed to record inflation and adds to the formidable challenges that Democrats face in keeping control of the House and the Senate in November.
Biden’s past efforts to cut gas prices - including release of oil from the U.S. strategic reserve and greater ethanol blending this summer - have done little to produce savings at the pump. Biden says the gas tax holiday can provide some direct relief to consumers, and he is calling on states to follow suit by suspending their own gas taxes or helping consumers in other ways.
“I’m doing my part. I want Congress, states and industry to do their part as well,” he said in a White House speech.
HOW MUCH MONEY WOULD DRIVERS SAVE?
It's unclear exactly how much drivers would save; a lot depends on whether states lower or suspend their own gas taxes, as Biden has suggested. But it's not clear how many would do so.
There's also the question of whether the full savings would be passed on to drivers.
Still, recent studies indicate that a gas tax holiday would result in lower prices.
A Penn Wharton Budget Model analysis says recent suspensions of state gasoline taxes in Maryland, Georgia and Connecticut were mostly passed onto consumers in the form of lower gas prices. About 72% of tax savings in Maryland were passed onto consumers, up to 65% in Georgia and up to 87% in Connecticut, the report says.
However, the price reductions were not sustained during the entire tax holiday, and prices rose once the holiday was lifted, the report said.
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HOW MUCH WOULD A GAS TAX HOLIDAY COST?
The administration says the three-month pause would cost about $10 billion. The lost revenue would otherwise go to the Highway Trust Fund, which finances most federal government spending for highways and mass transit.
Critics of the tax holiday say that could lead to decreased spending on roads, bridges and other infrastructure that are the hallmark of the Biden presidency. But the White House says the money could be transferred from other government accounts and that infrastructure remains a top priority for the president.
If the holiday is extended, as some experts expect, the cost could be tens of billions higher and could jeopardize administration efforts to build and maintain roads and bridges.
Even a temporary gas tax holiday “sets a bad precedent and undermines the funding mechanism in the infrastructure investment law that has been the signature policy achievement of the Biden presidency,″ said Dave Bauer, president and CEO of the American Road & Transportation Builders Association.
WHAT DOES CONGRESS SAY?
Lawmakers from both parties expressed skepticism, or even outright opposition.
House Speaker Nancy Pelosi said lawmakers “will see where the consensus lies on a path forward” for Biden’s plan, but she and other congressional Democrats have long worried that suspending the gas tax would allow oil companies to reap additional profits with no guarantee the savings would be passed along to consumers.
Rep. Peter DeFazio, D-Ore., chairman of the House Transportation and Infrastructure Committee, said he opposes the tax suspension in part because it provides minuscule relief and could become permanent. “You know what happens in this town: you suspend the tax, it’s gone forever,” he said Wednesday. “I do not want to compromise the highway trust fund. We have not raised the gas tax since 1993, and it’s worth 6 cents now compared to 1993. No, I do not support in any way degrading that contribution to rebuilding our crumbling infrastructure.”
Senate Republican leader Mitch McConnell, meanwhile, mocked the gas tax holiday as an “ineffective stunt,” while Rep. Cathy McMorris Rodgers, R-Wash. called it a “political band-aid” that would do little to lower costs at the gas pump.
The plan also could have long-term consequences on road safety and improvements by diverting funds away from infrastructure projects across the country, added McMorris Rodgers, the top Republican on the House Energy and Commerce Committee. “Under President Biden’s proposal, people will be forced to drive on unsafe, potholed roads to get the gas they can’t afford," she said.
House Majority Leader Steny Hoyer, D-Md., said he was unsure if Democrats have the votes to pass it. “We haven’t counted, so we don’t know yet.″
WHAT DO EXPERTS SAY?
Marc Goldwein, a senior policy director for the nonpartisan Committee for a Responsible Federal Budget, said the gas tax holiday would not make a dent in inflation or produce big savings at the pump. He also worried it may not be temporary, as the White House suggested.
“Do we really think in three months gas prices will be down? Are we going to raise prices right before an election?″ Goldwein asked in an interview. A long-term suspension of the gas tax would be catastrophic to administration efforts to build and maintain roads and bridges, he said.
But Mark Zandi, chief economist at Moody’s Analytics, said high gas prices are “the number one financial problem for many American households,″ especially those with low incomes. While small, a gas tax holiday “is a step to help these households,″ Zandi said. “They’re under a lot of pressure because of the high gasoline prices. And this is intended to provide some temporary relief. I mean, it’s pretty obvious why the administration is focused on this.″
Still, Zandi said the plan “is not a slam-dunk solution. It’s on the margin.″