Vulnerable Democrats have championed the move ahead of midterm elections, but experts remain skeptical that suspending the federal tax would benefit consumers much.
Fueling up recently at a gas station in New York. The national average for regular gasoline was $4.98 per gallon on Monday, according to AAA, after topping $5 earlier this month.Credit…Amir Hamja for The New York TimesJune 22, 2022Updated 6:25 a.m. ET
WASHINGTON — President Biden plans to call on Congress on Wednesday to temporarily suspend the federal gas tax, an effort to dampen the soaring fuel prices that have stoked frustration across the United States.
During a speech on Wednesday afternoon, Mr. Biden will ask Congress to lift the federal taxes — about 18 cents per gallon of gasoline and 24 cents per gallon of diesel — through the end of September, just before the fall midterm elections, according to senior officials speaking on the condition of anonymity to discuss the announcement on Tuesday night. The president will also ask states to suspend their own gas taxes, hoping to alleviate the economic pain that has contributed to the president’s diminishing popularity.
The White House will face an uphill battle to get Congress to approve the holiday, however. While the administration and some congressional Democrats have for months discussed such a suspension, Republicans widely oppose it and have accused the administration of undermining the energy industry. Even members of Mr. Biden’s own party, including Speaker Nancy Pelosi, have expressed concern that companies would absorb much of the savings, leaving little for consumers. Senator Joe Manchin III, Democrat of West Virginia, said this year that the plan “doesn’t make sense.”
Mr. Biden will demand that companies ensure that consumers benefit from the moratorium on the federal tax, the officials said, though they did not specify how he might do so. The administration estimates that combined with a halt on state gas taxes and an increase in refining capacity by oil companies, the measures would lower gas prices by at least $1 a gallon, although experts have questioned gas tax holidays’ effectiveness.
The national average for regular gasoline was $4.98 per gallon on Monday, according to AAA, after topping $5 this month. Oil and refined fuel prices have risen to their highest levels in 14 years in large part because of Russia’s invasion of Ukraine and the resulting sanctions, as well as a rebound in energy use as the economy recovers from the coronavirus pandemic. The White House has increasingly tried to direct the blame for the rising prices toward Russia, a strategy that has done little to quell anxiety among Americans.
Mr. Biden has also released strategic petroleum reserves and suspended a ban on summertime sales of higher-ethanol gasoline blends to try to temper price increases at the pump, fueling frustration among climate activists still unhappy over the collapse of Mr. Biden’s climate and social spending package.
President Biden has sought to assuage concerns that a gas tax holiday could undermine funding for investments in infrastructure, one of his major legislative accomplishments. Credit…Haiyun Jiang/The New York TimesEconomists have generally dismissed the idea of suspending the gas tax as ineffective and a waste of public resources. The reason? The federal gas tax is now such a small slice of the price at the pump, coming in at less than 5 percent of the total cost, that consumers might not even notice.
“I don’t think it moves the needle on people’s willingness to buy more, and it doesn’t exactly save them a whole lot of money, either,” said Garrett Golding, a business economist at the Federal Reserve Bank of Dallas. “It sounds like something is being done to lower gas prices, but there’s not a whole lot of there there.”
Congress has not increased the federal gas tax since 1993. But it has never lifted the tax either. Taxes on gasoline and diesel now supply the majority of federal funding used to build and maintain highways — $36.5 billion in 2019 — although outlays have exceeded dedicated revenues in recent years.
That means Mr. Biden’s latest step to address one political vulnerability could undermine funding for one of the primary legislative accomplishments during his time in office: investments in infrastructure.
Mr. Biden, who has publicly discussed the idea of a tax holiday in recent days, sought to assuage those concerns on Tuesday.
“Look, it will have some impact, but it’s not going to have an impact on major road construction and major repairs,” Mr. Biden told reporters, adding that the administration has plenty of capacity to maintain roads.
The suspension of the taxes would cost roughly $10 billion. Senior administration officials said Mr. Biden would demand that Congress dip into other pots of money to backfill for the loss, which it has done for many years as gas tax revenues failed to keep pace with highway construction and maintenance.
But as global oil demand and a fractured market have sent prices soaring, experts have questioned how much the gas tax holiday would benefit consumers.
“Whatever you thought of the merits of a gas tax holiday in February it is a worse idea now,” Jason Furman, the chairman of the Council of Economic Advisers under President Barack Obama, posted on Twitter, arguing that the oil industry was likely to pocket most of the savings.
Consider a median example: Even if all of the benefits were passed on to consumers, the owner of a Ford F-150 that gets 20 miles to the gallon driving a thousand miles per month would save about $9 if the federal gas tax were suspended — the cost, these days, of a decent ham sandwich.
Progressives and energy experts have advocated alternative ways to smooth out gas price shocks or siphon off some of the ballooning profits that oil companies and refiners have taken in while supply has remained constrained. In her 2008 campaign for the presidency, as inflation-adjusted prices approached an even higher point, Hillary Clinton proposed pairing a gas tax holiday with a levy on oil company profits.
Speaker Nancy Pelosi on Capitol Hill last week. Ms. Pelosi has expressed concern that oil companies would absorb much of any savings from a gas tax holiday, leaving little for consumers.Credit…Shuran Huang for The New York TimesBut among all the weak tools that the federal government has at its disposal to lower gas prices, lifting taxes is the most salient.
“That’s the thing that voters care about. That’s the thing that politicians care about,” said Erich Muehlegger, an associate economics professor at the University of California, Davis. “Things like a windfall tax on oil companies might be attractive from a political standpoint, but we don’t necessarily think they’ll have an immediate impact on gas prices.”
Dr. Muehlegger’s research has found that drivers adjust their consumption more in response to changes in gas prices than they do to market-based changes of similar magnitude, in part because of the media attention generated by those changes.
States have more power to lower gas prices, since their taxes and fees have been steadily rising, to 38.07 cents per gallon on average. Three states have so far passed and completed gas tax holidays: Maryland, Georgia and Connecticut. New York suspended its tax at the beginning of this month, and Florida will lift its tax for the month of October.
However, gasoline producers and retailers would most likely reap some of the benefits. An analysis by economists with the University of Pennsylvania’s Penn Wharton Budget Model showed that in the states where gas price holidays have concluded, between 58 percent and 87 percent of the suspended gas tax value was passed on to consumers, with suppliers absorbing the rest. A federal suspension would be so much smaller that it may be obscured be the volatile underlying price of oil, which has fallen over the past week.
Mr. Biden also plans to take aim at oil companies on Wednesday, demanding they expand refining capacity to bring down costs at the pump, only days after accusing executives of profiteering and “worsening the pain” for consumers. Even as refineries have struggled to keep up with growing demand, refiners have added less than 1 percent to their capacity worldwide.
The administration could also expand refinery capacity by loosening permitting regulations to reopen a site in St. Croix in the Virgin Islands that has a blemished environmental record. But that action would probably be met with a backlash from environmentalists, who are already frustrated with the sidelining of some of the president’s sprawling climate initiatives.
Michael K Wirth, the chief executive of Chevron, said that lowering the high price of gas would require “a change in approach” by the government rather just blaming oil companies.Credit…Justin Lane/EPA, via ShutterstockMichael K. Wirth, the chief executive of Chevron, one of seven refiners the White House asked to a meeting this week to discuss lowering their prices, rejected Mr. Biden’s criticisms on Tuesday. Rather than just blaming the companies, he said, lowering the high price of gas would require “a change in approach” by the government.
“I didn’t know they’d get their feelings hurt that quickly,” Mr. Biden said. “Look, we need more refining capacity. This idea that they don’t have oil to drill and to bring up is simply not true.”
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