Gas Tax Holiday Politics
Terry H. Schwadron
June 30, 2022
Yes, of course Joe Biden’s decision to support a three-month federal gas tax holiday is political.
Yes, it probably will end up more symbolic than an effective slimming of gas prices, just as the gun measure facing a vote in Congress is largely more symbolic than limiting of weapons, or sending free covid tests to homes is symbolic, but hardly a stopper for covid.
But clearly the president thinks he is being responsive to millions of Americans angry at the continuing high prices at the pump — and this is one of the handful of tools within government’s power to order to let some of the hot air out of the anger balloon. After all, dealing with public anger is something that we expect of our politicians.
Who could oppose a move meant to quench a public demand to Do Something?
The curious thing is that across both aisles of Congress, you hear other politicians pushing back — and claiming economic truth-telling as the reason why. At this moment, it is not at all clear that a temporary suspension of 18.4 cents per gallon off the price — or about two bucks for a tankful — will pass in Congress.
Republicans are harping on a Biden “gimmick” before November elections, some Democrats are criticizing whether a gas holiday provides substantial relief. In conjunction with asking states to do likewise, there could be a much bigger savings, as much as $1 a gallon, that could be charged at gas stations.
But it is doubtful that states whose politicians can benefit from consumer anger want to be seen as cooperating with Biden.
As evidence that every solution has a built-in magnet for criticism, a report from the Committee for a Responsible Federal Budget argues that suspending the federal tax (they looked at a 10-month period) could worsen inflation by redirecting savings at the pump into other consumer goods.
Obviously, Biden has been stung both by widespread blame for rising prices at the pump and a lack of options in waving a magic wand to dissipate anger that no doubt will translate into opposition election votes.
Frustrating Problems
We should start with the basics. We all know gas prices have risen with Biden’s arrival in office, with the fouled global supply lines left by covid and, since the Spring, by worldwide effects of the Russian invasion of Ukraine.
We know there are short-term portions of the price rise and longer-term increases as the world starts its slow, inexorable turn to alternative fuels. We know that oil companies in the United States and elsewhere feel incented to avoid starting new refining and drilling investments, even as Republicans call for more of both immediately, and are collecting their highest profits in a couple of years.
Plus, refiners seem to be favoring diesel and jet fuels over regular gasoline.
Vox News has a even tempered look at the biggest myths around gas prices.
We know that Biden, like all U.S. presidents, can cajole and beg, but oil prices remain well outside his powers to control. Oil prices are set by a nebulous worldwide market subject to the whims of oil producing nations, cartels, shippers and middlemen.
In recent days, Biden has blamed oil companies even as he has called on them to increase domestic production, ordered the release of a million gallons of crude a day from strategic reserves, and sought to redirect anger towards Vladimir Putin’s aggression in Europe for prompting global fuel shortages and higher prices.
In the end, the Biden White House has decided on the gas tax holiday, even if it is more symbolic of action than an effective lowering of gas prices in the heavy summer driving season.
The federal gas tax funds road construction and repair. Using other sources to make up for any could cost $10 billion.
High Skepticism
Any number of economists are skeptical about the efficacy of a gas tax holiday, noting that there is no way to ensure that oil companies and gas stations won’t just charge more. That means the program will have Biden pressuring companies to pass along the savings.
More importantly, if this is all about supply and demand, a tax holiday is silent as to either.
Refining capacity that was cut during the Covid-19 pandemic would take months to get back online, and refineries now are running at nearly 90% of their capacity. Seven top oil executives were to meet with Energy Secretary Jennifer Granholm yesterday.
The country has about 9,000 oil drilling permits unaddressed because approval processes are perceived as difficult and lengthy and the administration’s longer view is on developing solar, wind and electric power and cars.
In the end, of course, this is a problem of managing perception as well as oil. That’s where politics enters the picture.
Unfortunately for us, that emphasis on politics seems to fill the entire public policy screen rather than practical solution-making.
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