Average gas prices have risen above $3.50 per gal, or about $1 more than the average price drivers are paying last year. This has led President Joe Biden to make vague promises regarding government action.
Although it is strange that the White House believes the president has overstated his role in setting the gas price, the White House understands why they are concerned. Gas prices can be used, sometimes incorrectly, to measure the economic health of the country.
Two factors are driving gas prices up right now. Simple supply and demand are the first. As with most commodities, oil went bust at the bottom of the pandemic. However, it is now booming as demand rises and supply lines are unable to keep pace, leading to higher prices. Although global oil production is increasing, it will be some time before that increase in availability is reflected at the pumps.
These global supply-demand problems are not easily solved. Biden approved the biggest-ever crude oil release from America’s strategic reserve to address high gasoline prices. Although this temporarily reduced prices, it was only temporary and three months later the price drop became evident.
Inflation is second to drive up prices. Prices are up 7.5 percent over the past 12 months, and fuel prices have seen some of the largest increases—gasoline prices have shot up by 40 percent since January 2021. While a lot of this is due to supply and demand, some of it can be attributed to persistent, widespread price inflation throughout the economy. A dollar today could buy less gasoline than it would a year ago.
Biden has some control, but misused that. Biden’s American Rescue Plan, worth $1.9 trillion, was reviewed by nearly all economists before Congress approved it in March 2021. They warned that inflation would be a result of dumping new spending into an already-recovering economic system. It turned out that they were right. It’s impossible to reverse this spending.
The White House and the congressional Democrats appear to have a plan for addressing high gasoline prices. This could lead to a price drop in short term, but increase inflation over the long-term.
Sens. Mark Kelly (D–Ariz.) and Maggie Hassan (D–N.H.) The bill would temporarily suspend the federal gasoline tax for the remainder of the year. (Kelly, Hassan and both are running for reelection. Although the Biden administration hasn’t expressed support for this bill, The Washington Post According to reports, White House officials debate it behind-the scenes.
Gas tax holidays mean that you won’t have to pay $0.18 per gallon to the federal government. It is encouraging to see Democratic legislators openly admit to cutting taxes as a way of helping ordinary Americans.
A gas tax holiday, however, is unlikely to succeed as an effective way of decreasing gas prices and curbing inflation.
The gas tax, while it is not the best way to go, does make sense in principle. This flat fee charges people more for using more gas. The revenue goes to the Federal Highway Trust Fund, which pays federal roads projects. This tax system is about as fair and equitable as you can hope for. But suspending the gas tax—and doing so for what are pretty obviously political reasons—creates a number of practical problems.
It would first blow a $20 billion hole into the Highway Trust Fund, at a moment when it is already heading towards insolvency. The hole in the Highway Trust Fund would need to be filled quickly by increasing taxes or transfer revenue from elsewhere.
This would be a further step towards forcing taxpayers to cover infrastructure projects that they may not need, following the massive infrastructure bill by the Biden administration.
However, the immediate issue is that there can be two outcomes to a gas tax vacation. Either the tax break will be significant enough to artificially depress prices at the pump, which necessarily translates into drivers being encouraged to buy more gasoline—or…it won’t be.
If the White House wants to achieve both lower inflation and political points, these seem contradictory results can be problematic.
While experts differ on what outcome will be most likely, there are strong arguments in favor of both.
Howard Gleckman, senior fellow with the Tax Policy Center (a nonpartisan thinktank), tells CBS News that Americans could save only $2 per week by suspending their federal gas tax. That’s probably not enough for most drivers to notice the difference—particularly because gas prices are so notoriously volatile and can change dramatically from place to place due to state and local taxes and the vagaries of the marketplace (near my home in Culpeper, Virginia, prices are generally 50 cents cheaper than near the There are reasonsAbout 70 miles from Washington, D.C., is the office.
If no one notices, what good does a large, explicit political intervention make in the market? Biden’s three-month-old unloading 50 million barrels oil from his strategic stockpile has not helped Democrats’ electoral prospects. It’s possible that a gas tax holiday could generate positive headlines, before quickly being forgotten.
But what happens if this works? The White House then will face a greater problem, as lowering gasoline prices sufficiently to attract attention would result in more fuel consumption. So what is that?
Maya MacGuineas is president of The MacGuineas Foundation. CommitteeFor a Responsible Federal Budget is a nonpartisan organization that supports balanced budgets. It released a statement Monday.
In other words: Higher prices signal that consumers should consume less. Though there are obvious political incentives for the White House and congressional Democrats to lower prices—and not just gas prices—those same higher-than-normal prices are the market’s way of working out the ongoing disconnect between supply and demand that’s driving inflation. Instead of making this mechanism work, any attempts to reduce prices will only increase demand. Remember, gas taxes can not increase gasoline supply.
MacGuineas states that while cutting the gas tax might have some political appeal, this would go in the exact wrong direction and worsen rather than improve our country’s economic problems.
The debate about the gas tax holiday is a reflection of the problem of damned if you do, damned if you don’t that plagues the Biden administration ever since its inception. The temptation to pretend that the White House is doing anything is akin to the $1.9 trillion stimulus plan passed last year. It is usually better to not do anything in circumstances where it can have a meaningful impact on the outcome (e.g. gas prices), than doing nothing, regardless of what opinion the voters may hold.
In that regard, Sen. Joe Machin (D–W.Va.) This could once more save the White House’s policy mistakes. Manchin, who is a key swing vote in the Senate’s Senate, was quickly dismissive when reporters asked him if he would support federal gas tax holidays.
“Our trust funds are broke…want to break them more?” Manchin claimed, according to CNN’s Manu Raju. “It’s absurd.”