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Saturday, June 25, 2022

EXPLAINER: How Biden’s proposed gas tax holiday will work

Matthew Daley

WASHINGTON ( Associated Press) — Faced with persistently high gasoline prices averaging about $5 a gallon nationwide, President Joe Biden on Wednesday called on Congress to suspend federal gasoline and diesel taxes for three months.

If the savings from the federal gas tax of 18.4 cents per gallon are fully passed on to consumers, drivers will save about $2.76 per 15-gallon fill-up.

However, it’s unclear whether Biden can push his proposal through Congress, where lawmakers, including some Democrats, are skeptical or even opposed to the idea. Many economists are also wary of gas tax holidays.

See how the proposed gas tax credits will work and what impact they could have on gas prices and the highway trust fund, which is paid in large part by taxes on gasoline and diesel.

WHY DOES BIDEN OFFER GAS TAX HOLIDAYS?

The price of gas has skyrocketed globally — and nearly $2 a gallon in the United States — since Russian President Vladimir Putin began amassing troops on the border with Ukraine. High gas prices pose a fundamental threat to Biden’s political and political ambitions. They caused a drop in economic confidence, fueled record inflation and exacerbated the huge problems Democrats faced in retaining control of the House and Senate in November.

Biden’s past efforts to lower gas prices, including removing oil from the US strategic reserve and increasing the share of ethanol this summer, have done little to save gas. Biden says the gas tax holiday could provide some direct relief for consumers, and he urges states to follow suit by suspending their own gas taxes or helping consumers in other ways.

“I am doing my part. I want Congress, states and industry to do their part too,” he said in a White House speech.

HOW MUCH MONEY WILL DRIVERS SAVE?

It’s unclear exactly how much drivers will save; a lot depends on whether states cut or suspend their own gas taxes, as Biden suggested. But it is not clear how many of them would have done so.

It also raises the question of whether all the savings will go to the drivers.

However, recent studies show that the gas tax holiday will lead to lower prices.

An analysis of Penn Wharton’s budget model shows that the recent suspension of state gasoline taxes in Maryland, Georgia, and Connecticut has largely been passed on to consumers in the form of lower gas prices. About 72% of tax savings in Maryland were passed on to consumers, up to 65% in Georgia and up to 87% in Connecticut, the report said.

However, the price cuts did not continue throughout the entire tax holiday period, and prices rose after the holiday was cancelled, the report said.

HOW MUCH WILL THE GAS TAX HOLIDAY COST?

The administration says a three-month pause would cost about $10 billion. Otherwise, the forgone revenue will go to the Highway Trust, which funds most of the federal government’s spending on highways and public transportation.

Critics of the tax break say it could cut spending on roads, bridges and other infrastructure that are hallmarks of a Biden presidency. But the White House says money can 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 rise by tens of billions and could jeopardize the administration’s 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 was a landmark political achievement of the Biden presidency,” said Dave Bauer, president and CEO of the American Road and Transportation Association.

WHAT DOES CONGRESS SAY?

MPs from both parties expressed skepticism or even outright disagreement.

House Speaker Nancy Pelosi said lawmakers “will see where the consensus is to move forward” with the Biden plan, but she and other Democrats in Congress have long been concerned that the gas tax suspension would allow oil companies to make additional profits without any guarantees that savings are passed on to consumers.

Rep. Peter DeFazio, Oregon, chairman of the House Committee on Transportation and Infrastructure, said he opposed the tax suspension in part because it provides little relief and could become permanent. “You know what’s going on in this city: you suspend the tax and it disappears forever,” he said on Wednesday. “I don’t want to compromise the highway trust fund. We haven’t raised the gas tax since 1993, and now it’s 6 cents over 1993. No, I in no way support downplaying this contribution to rebuilding our crumbling infrastructure.”

Meanwhile, Senate Republican Leader Mitch McConnell derided the gas tax holiday as an “inefficient gimmick,” while Rep. Katie McMorris Rogers, R-Wash. called it a “political band-aid” that can do little to reduce refueling costs.

The plan could also have long-term implications for road safety and improvements by diverting funds from infrastructure projects across the country, added McMorris Rogers, the top Republican on the House Energy and Commerce Committee. “At the suggestion of President Biden, people will be forced to drive on unsafe pothole roads to get gas they cannot afford,” she said.

House Majority Leader Steny Hoyer, MD, said he was not sure if Democrats had the vote to pass it. “We haven’t counted, so we don’t know yet.”

WHAT DO THE EXPERTS SAY?

Mark Goldwein, senior policy director for the non-partisan Committee on a Responsible Federal Budget, said the gas tax holiday would not have an impact on inflation or lead to big gas station savings. He also worried that it might not be temporary, as the White House suggested.

“Do we really think that gas prices will go down in three months? Are we going to raise prices right before the election?” Goldwine asked in an interview. A long-term suspension of the gas tax would be disastrous for the administration’s 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 concern for many American households,” especially those on low incomes. Despite a small gas tax holiday, Zandi said it is “a move to help these households.” “They are under a lot of pressure due to high gasoline prices. And this is meant to provide some temporary relief. I mean, it’s pretty obvious why the administration is focused on this.”

However, Zandi said the plan “is not an instant solution. It’s on the edge.”

___

Associated Press contributors Josh Boak, Nathan Ellgren, and Kevin Fracking contributed to this story.

World Nation News Desk
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