Here are some details you need to know about Biden’s proposal, which is unlikely to come true:
What exactly did Biden offer?
The White House wants Congress to suspend the federal gasoline tax of 18.4 cents per gallon and the federal diesel tax of 24.4 cents per gallon for the next three months, “to provide direct relief to American consumers who have been hurt by Putin’s price hike”. Biden also called on states to suspend their own fuel taxes or find other ways to help consumers. For example, California has considered direct payments of $400 to vehicle owners. Chicago sent drivers $150 gas cards and $50 transit vouchers.
What are the odds of a gas tax exemption occurring?
Congress creates the laws that collect and spend money. But the lawmakers Biden would need to enact his proposed pause on gas tax collection are lukewarm at best. A handful of Democrats have officially backed the idea, but many of them don’t like Biden’s proposal — because it doesn’t go far enough.
Tax holiday critics include House speaker Nancy Pelosi and Senate Majority Leader chuck schumer, who said a pause would bring only meager savings to consumers but could enrich oil companies that are already making record profits. Instead, they prefer legislation that would penalize price gouging by oil companies (who deny the abuse).
Would the tax exemption save me money?
Probably not as much as you think.
If the 18.4-cent-per-gallon tax were suspended as Biden demanded, consumers would save about $3 off the $75 it costs to fill a standard sedan or crossover, assuming 15 gallons are purchased. at $4.98 per gallon.
And motorists may not even see much. One of the reasons Democratic leaders have opposed a gas tax exemption is skepticism that oil companies would pass the savings on to the pump, instead of just pocketing the extra money.
Gas tax exemptions at the state level have given a mixed picture.
The Wharton School at the University of Pennsylvania looked at the impacts in states that have suspended gas taxes in recent months and found that in Maryland, 72% of tax savings were passed on to consumers. , compared to 58% to 65% in Georgia and 71% to 87% in Connecticut. Yet the Wharton researchers found that “these price reductions were often not sustained throughout the duration of the vacation.”
And the dollar amount Wharton put toward savings from a possible federal gasoline tax exemption was meager. In March, they found that suspending the federal gasoline tax through December would save the average person between $16 and $47 on gasoline while cutting federal tax revenue by about $20 billion. of dollars.
Drivers would easily overlook the small gas tax savings amid daily fluctuating fuel prices, which can “drop or rise 10 to 20 cents a gallon in a single [trading] session,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. It might even backfire: “The problem with an 18-cent-a-gallon gas tax exemption is that it stimulates demand when the balance between supply and demand is already geared towards tight supply.”
Kloza suggested that limiting U.S. fuel exports — thereby keeping more of the gasoline supply at home — might be a more effective way to rein in domestic prices.
What would be the impact of the tax exemption on federal infrastructure spending?
In short, the government would have less money for projects such as highways, public transit, bridges and related programs involving the environment and racial equity – including the Infrastructure Act over 1 trillion dollars from Biden.
The federal government deposits gasoline and diesel fuel taxes in the Highway Trust Fund, which it uses to pay for infrastructure projects across the country. According to the Congressional Budget Office, the fund’s tax revenue for the current fiscal year is expected to be about $44 billion, assuming the status quo.
The White House estimates the proposed 90-day furlough could cost up to $10 billion, but said it should have “no adverse effect on the Highway Trust Fund”. Biden called on Congress to use “other revenue” to offset the shortfall, “consistent with proposed legislation in the Senate and House to advance a responsible gasoline tax exemption.”
The bills he was referring to, S.3609 by senator Mark Kelly (D-Arizona) and HR 6787 by Rep. Tom O’Halleran (D-Arizona), call for a federal gasoline tax exemption that would be offset by deficit spending.
Some industry groups that support transportation spending, especially those that depend on federal contracts, said the vacation would undermine Biden’s signature infrastructure act.
Portland Cement CEO Michael Ireland said a petrol tax exemption would “strangle” the law “before it even takes effect”. Stephen Sandherr, CEO of Associated General Contractors of America, called it a “desperate” and “irresponsible” ploy that “won’t relieve the pump” but would “leave a huge hole in the federal highway trust fund.” “.
Construction industry officials have also dismissed any potential benefit from the diesel tax suspension, although the price of diesel fuel has risen more than 40% in the past year and is a factor. important to rising construction costs. They say the damage to the Highway Trust Fund far outweighs any potential short-term benefit of saving 4% on a gallon of diesel, or likely much less, depending on how much savings oil companies pass on.
The Infrastructure Act also depended on a transfer of $118 billion from the Treasury to prevent Congress from needing to find a source of new revenue. But Dave Bauer, CEO of the American Road and Transportation Builders Association, noted that “the biggest payment for the infrastructure bill was the gas tax”, which contributed hundreds of billions of dollars to the bill. .
Without the gas tax, Bauer said, it would have been difficult for Congress to pass the bill.
“If you don’t count that foundational contribution of existing user fees, I mean, how much harder would it have been?” he said. “Without this existing revenue base, they would have needed an additional $200 billion to $250 billion over the next five years.”
Would Democrats even benefit?
The call for a gas tax break began with a handful of Democrats, including Kelly and Maggie Hassan (DN.H.) in the Senate and O’Halleran and Kim Schrier (D-Wash.) in the House, who were looking for an issue that would boost their campaigns in close races. But Pelosi and Schumer immediately called it off.
Biden’s proposal does not bring many Democrats to his side, even as high gas prices and inflation threaten to reduce the party’s chances of retaining its majority in Congress.
Sen. Tom Carper (D-Del.), Chairman of the Senate Environment and Public Works Committee, tweeted that “suspending the primary way we pay for infrastructure projects on our highways is a short-sighted and inefficient way to relieve consumers.
house transport chair Pierre DeFazio (D-Ore.) Called the proposal “short-sighted” and said the gas tax suspension “undermines the impact of the bipartisan infrastructure law.” He pushed for legislation to tackle alleged price hikes by oil companies. The House passed a different bill, HR 7688with the same objective last month.
House Majority Leader Steny Hoyer said he doubted a gas tax exemption would “bring much relief” and told reporters on Wednesday he was unsure if it would make it through the House.
Meanwhile, some of the few Democrats who initially proposed a gas tax exemption have criticized Biden’s proposed 90-day hiatus as too short.
Republicans uniformly dismissed the idea as a gimmick. And many key Democrats agree with them.
Pelosi dismissed the idea as “good public relations” and “very showbiz.” In addition to a price gouging bill, it launched a tax on oil production and direct payments to consumers to compensate for high fuel prices.
So why is Biden pushing this?
The White House is grappling with a deluge of bad economic headlines, and this proposal offers Biden the opportunity to give the impression that he is taking steps to tackle one of the main economic ills that angers people. voters, even if it is unlikely to see the light of day. .
But the gasoline and diesel tax — which hasn’t increased since 1993 — isn’t the reason Americans get stickers at the pumps. The war in Ukraine, inflation, and oil company production cuts are all playing a role, and policymakers in Washington, DC, have few tools to counter them.
Ben Lefebvre contributed to this report.