Would a Gas Tax ‘Holiday’ Really Lower Prices

Would a Gas Tax ‘Holiday’ Really Lower Prices

The Biden administration hopes to further reduce gas prices by halting the collection of the federal gas tax as they have begun to decline from their recent highs.

On Wednesday, President Joe Biden requested that the federal gas tax, which adds 18.4 cents to the cost of each gallon of gasoline and 24.4 cents to the cost of each gallon of diesel fuel, be suspended for three months.

Democrats in the House and Senate have submitted laws to stop the tax from being collected, but Republicans haven’t joined them yet. Congress must take action to stop the tax from being collected.

In a statement made on Wednesday at the White House, Biden stated, “I fully appreciate that the gas tax holiday alone is not going to fix the problem, but it will provide people with some immediate respite, just a little breathing room while we continue to work to bring down costs for the long haul.”

Inflation and the high cost of the crude oil required to create gasoline have both contributed to this year’s sharp increase in fuel costs. Additionally, Biden attributes the increase in gas prices to the difficulties brought on by Russia’s invasion of Ukraine, which led to sanctions against Russia’s oil exports. A normal gallon of gas cost $4.96 on average on Wednesday, marking eight straight days of price declines after initially surpassing the $5 mark on June 11.

Additionally, Biden is urging local action from the states. Every state has some kind of gas tax, which can range from as little as 15.13 cents in Alaska to 68.15 cents in California. A number of states have already passed or proposed such legislation.

The amount by which the gas tax cut would reduce prices is debatable. Results from two recent research ranged widely. According to a Penn Wharton Budget Model research, the three states that reduced state-level gas tax collection this spring gave customers tax breaks of anywhere between 58% and 87%. However, a different research supported by the American Road & Transportation Builders Association (ARTBA) indicated that when gas taxes were stopped or altered, consumers only noticed an 18% difference.

The federal gas tax is used to fund highways, which is why the ARTBA opposes the gas tax holiday and why Vice President Biden called on Congress to make up the $10 billion in lost tax revenue. Some economists are dubious about the effectiveness of a gas tax holiday because of these issues.

Whatever you may have thought of the benefits of a gas tax holiday in February, Jason Furman, a former economic adviser to then-President Barack Obama, stated on Twitter that the concept was now worse.

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