Biden Will Push Congress for a Three-Month Gas Tax Holiday

WASHINGTON — President Biden plans to ask Congress on Wednesday to temporarily suspend the federal gasoline tax, an effort to ease soaring fuel prices that have stoked frustration in the United States.

In a speech on Wednesday afternoon, Mr. Biden will ask Congress to lift federal taxes – about 18 cents per gallon of gasoline and 24 cents per gallon of diesel – until the end of September, just before the election in midterm in the fall, according to a senior official speaking on condition of anonymity to discuss the announcement on Tuesday evening. The president will also ask states to suspend their own gasoline taxes, hoping to ease the economic pain that has contributed to the president’s declining popularity.

The White House will face an uphill battle to get Congress to approve the vacation, however. While the administration and some congressional Democrats have been discussing such a suspension for months, 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 businesses will absorb much of the savings, leaving little for consumers. Sen. Joe Manchin III, a Democrat of West Virginia, said this year the plan “doesn’t make sense.”

Mr. Biden will demand that businesses ensure consumers benefit from the federal tax moratorium, officials said, but did not specify how he might do so. The administration estimates that, combined with a halt in state gasoline taxes and an increase in refining capacity for oil companies, the measures would reduce gasoline prices by at least $1 a gallon, though experts have questioned the effectiveness of gasoline tax exemptions.

The national average for regular gasoline was $4.98 a gallon on Monday, according to AAA, after topping $5 this month. Oil and refined fuel prices rose to their highest levels in 14 years, largely due to Russia’s invasion of Ukraine and subsequent sanctions, as well as a rebound in energy consumption as the economy recovers from the coronavirus pandemic. The White House has increasingly tried to blame Russia for the price hikes, a strategy that has done little to assuage American anxiety.

Mr Biden also freed up strategic oil reserves and suspended a ban on summer sales of higher ethanol blends of gasoline to try to temper price hikes at the pump, fueling frustration among climate activists still unhappy with Mr. Biden’s collapse in climate and social spending. package.

Economists have generally dismissed the idea of ​​suspending the gas tax as inefficient and a waste of public resources. The reason? The federal gas tax is now such a small slice of the price at the pump, representing less than 5% of the total cost, that consumers might not even notice it.

“I don’t think it changes the needle on people’s willingness to buy more, nor does it save them a lot of money,” said Garrett Golding, business economist at the Federal Reserve Bank. from Dallas. “Looks like something is being done to bring down gas prices, but there’s not a lot of it out there.”

Congress hasn’t raised the federal gas tax since 1993. But it has never lifted the tax either. Gasoline and diesel taxes now provide the majority of federal funding used to build and maintain highways — $36.5 billion in 2019 — though spending has exceeded dedicated revenue in recent years.

That means Mr. Biden’s latest step to address a political vulnerability could undermine funding for one of the key legislative achievements of his tenure: infrastructure investments.

Mr. Biden, who has publicly floated the idea of ​​a tax holiday in recent days, sought to allay those concerns on Tuesday.

“Look, it will have some impact, but it won’t have an impact on major road construction and major repairs,” Biden told reporters, adding that the administration has a lot of capacity to maintain the roads. roads.

The tax suspension would cost about $10 billion. Senior administration officials have said Mr. Biden will demand that Congress dip into other pots of money to make up for the loss, something he has done for many years, as the revenue from the tax on the fuel have not kept pace with highway construction and maintenance.

But as global demand for oil and a fractured market have driven prices up, experts have questioned how much the gas tax exemption would benefit consumers.

“Whatever you think of the merits of a gas tax exemption in February, it’s a worse idea now,” said Jason Furman, chairman of the Council of Economic Advisers under President Barack Obama. job on Twitter, arguing that the oil industry was likely to pocket most of the savings.

Consider a median example: Even if all the benefits were passed on to consumers, the owner of a Ford F-150 who goes 20 mpg while driving 1,000 miles per month would save about $9 if the federal gas tax was suspended – the price, these days, of a good ham sandwich.

Progressives and energy experts have advocated other ways to dampen shocks to gas prices or siphon off some of the inflated profits that oil companies and refiners have taken in as supply has remained constrained. In her 2008 presidential campaign, as inflation-adjusted prices approached an even higher point, Hillary Clinton proposed linking a gasoline tax exemption to a levy on oil company profits. .

But of all the weak tools the federal government has at its disposal to lower gas prices, raising taxes is the most salient.

“That’s what voters care about. That’s the thing that politicians are concerned about,” said Erich Muehlegger, associate professor of economics at the University of California, Davis. “Things like a windfall tax on oil companies might be politically attractive, but we don’t necessarily think they will have an immediate impact on gas prices.”

Dr. Muehlegger’s research found that drivers adjust their consumption more in response to changes in gasoline prices than to market changes of a similar magnitude, in part because of the media attention generated by these changes.

States have more power to drive down gasoline prices, since their taxes and charges have risen steadily, to 38.07 cents per gallon on average. So far, three states have enacted and completed gasoline tax exemptions: Maryland, Georgia and Connecticut. New York suspended its tax earlier this month, and Florida will lift its tax for October.

However, gasoline producers and retailers would most likely reap some of the benefits. An analysis by economists from the Penn Wharton Budget Model at the University of Pennsylvania showed that in states where gas price holidays have ended, between 58% and 87% of the value of the gas tax suspended gasoline were passed on to consumers, with suppliers absorbing the rest. A federal suspension would be so less than it could be masked by volatility in the underlying price of oil, which has fallen over the past week.

Biden also plans to target oil companies on Wednesday, demanding they increase refining capacity to cut costs at the pump, just days after accusing executives of profiteering and ‘aggravating the pain’ for consumers . Even as refineries struggled to keep up with growing demand, refiners added less than 1% to their capacity globally.

The administration could also increase refining capacity by easing regulations to reopen a site in St. Croix in the Virgin Islands that has a blemished environmental record. But that action would likely be met with a backlash from environmentalists, who are already frustrated by the sidelining of some of the president’s sprawling climate initiatives.

Michael K. Wirth, the chief executive of Chevron, one of seven refiners the White House asked to meet this week to discuss lowering their prices, dismissed Biden’s criticism on Tuesday. Rather than simply blaming the companies, he said, lowering the high gas price would require “a change in approach” from the government.

“I had no idea they would be hurt so quickly,” Mr Biden said. “Listen, we need more refining capacity. This idea that they have no oil to drill and pull up just isn’t true.

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