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Saturday, July 2, 2022

Federal gas tax break: Biden says it will bring ‘a little relief’, but experts say even that could be a stretch

President Joe Biden called on Congress to suspend the federal tax on gasoline to “make life a little easier for families” as average gasoline prices top $5 a gallon. The tax is 18.4 cents on regular gasoline and 24.4 cents on diesel. Biden’s proposal eliminates both taxes for 90 days.

Several states, such as Maryland and Georgia, have temporarily eliminated state gasoline taxes to ease the burden on consumers.

The Conversation asked four experts whether eliminating the gas tax is an effective way to provide economic relief to US households, what federal gas tax revenues are used for, and what other impacts these measures might have.

Not a big relief

Jay Zagorski, Senior Lecturer in Markets, Public Policy, and Law, Boston University

As an economist who has studied gasoline prices, I doubt that the elimination of taxes on gasoline will lead to a significant reduction in gas station prices. Russia’s invasion of Ukraine has sent gas prices skyrocketing, and in the midst of summer driving season, politicians feel the need to show voters they’re up to something. Reducing gas taxes is a big political theater, but as some figures show, it is an ineffective policy.

Government data shows that on average, about 350 million gallons of gasoline are used per day in the US. That’s pretty close to a population of 333 million, so the average person uses about one gallon of gas a day.

Assume that the entire gas tax cut is passed on to the consumer. This translates into an average savings of just 18 cents a day, or $16.56 over 90 days. Sixteen dollars buys two cheese pizzas. Considering that before the pandemic, the typical household in the US spent about $2,100 a year on gas, $16 is hardly a record.

Also, we have some data on what happens during the gas tax holiday, after Maryland tried it a few months ago. According to the American Automobile Association, the average price of gasoline in Maryland shortly before the introduction of the state gasoline tax was $4.25 per gallon. Two days after the state stopped taxing gas, prices were $3.81. The 44-cent drop may seem significant, but it’s not that simple.

First, not all of this decline was due to the abolition of the gas tax. Neither Delaware nor the District of Columbia, both of which border Maryland, have waived gas taxes. However, during the same period, gas prices in Delaware fell by 19 cents a gallon and in Washington by almost 16 cents. These falls are partly due to falling oil prices. Florida, which is far from Maryland, lost 16 cents a gallon over the same period.

I believe that the president’s proposal, unfortunately, will not bring much relief at the gas station.

Today, Americans drive far more than they did 30 years ago, but highway funding has not kept up with them.

Less money for road repairs

Theodore J. Coury, Director of Energy Research, Public Utilities Research Center, University of Florida

The maintenance of federal roads is primarily paid for by gas tax revenues, which go to the Highway Trust. The federal tax of 18.4 cents per gallon, unchanged for almost 30 years, is the main component of these revenues, along with taxes on diesel, gasoline, methanol, liquefied gases and compressed natural gas.

The federal government receives approximately $37 billion to $38 billion a year in gas tax revenue. These earnings have remained fairly stable over the past five years, even in the midst of the pandemic. Other traffic-related fines and charges also go to the Highways Trust Fund, but these are relatively small.

In 2020, the latest year for which data is available, the federal government spent about $46 billion on highway construction projects. This figure does not include subsidies the federal government provides to state and local governments to reduce the cost of borrowing for highway construction projects.

But if the government collected $38 billion in gas taxes, where did the other $8 billion come from? With most politicians strongly opposed to raising gas taxes even to pay for much-needed repairs, the government has turned to less transparent alternatives.

Over the past decade, officials have replenished the balance of the Highway Trust Fund several times with domestic transfers from other accounts. Most recently, the fund received $10 billion in October 2020 and $90 billion in December 2021 this way. This amounts to $100 billion that has not been spent on other services.

If the Highways Trust Fund faces an even larger shortfall, program managers will either green-light fewer infrastructure maintenance projects or transfer money from other programs. This will be the most likely outcome if Congress decides to suspend the federal gas tax.

Ultimately, taxpayers pay for everything the government does. Politicians simply decide how and when it will happen.

Waivers only help drivers

Erich J. Mulegger, Associate Professor of Economics, University of California, Davis

Research shows that for decades, low-income households spent more of their budget on gasoline than higher-income households. This has been helped by the growing shift to electric vehicles, as high-income households in the US are more likely to switch to electric vehicles and, as a result, pay less gasoline taxes.

This means that gas tax holidays tend to benefit lower-income households more than higher-income households, but there are two important caveats.

First, not everyone benefits from gas tax holidays. The very poor who don’t have cars, urban households who rely on public transportation, and older people who tend to drive less benefit less from the tax holiday because they consume less gasoline. A gas tax break may cushion the impact of high gas prices on commuters, but it does not directly benefit households that do not drive.

Second, even optimistic estimates show that gas tax holidays bring relatively modest savings to households. This is because gasoline taxes make up a small fraction of the price of gasoline in the US, especially when compared to crude oil prices.

Even if the savings from the elimination of the federal gas tax of 18.4 cents per gallon pass entirely to consumers, the typical motorist who drives 10,000 miles a year in a Ford F-150 at 20 mpg would get about $7.70. in year. monthly savings from federal gas tax. Drivers of more economical vehicles will save even less.

Consider help for heating and cooling

Sanya Carly, Professor of Public and Environmental Affairs, Indiana University

Millions of Americans face financial hardship every day, and the main reason for this is the cost of electricity. Removing the gas tax could temporarily help people who have to rely on gasoline for transportation and live in energy poverty.

The current gasoline price spikes come at a particularly difficult time for many households.

In a recent study, my colleagues and I found that 28% of all low-income households were struggling to pay their electricity bills from November 2021 to January 2022, and 38% were in debt on utility bills. Now, with higher gas prices, filling up a 12-gallon tank can cost around $60, up from $26 in 2020. This increase may prevent households on a tight budget from covering all their expenses, including basic needs such as food and health care.

Households with vulnerable members, such as young children or people with chronic illnesses, are particularly burdened with energy expenditures than other groups. Temporary relief may be especially beneficial for such users.

But a gas tax holiday may not be the most effective way to provide this relief, especially since these exemptions are temporary. Helping households directly with food and energy costs, or investing in home insulation to reduce their heating and cooling bills, could provide larger and longer-term benefits.

This is an updated version of an article originally published March 24, 2022.

World Nation News Desk
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