- President Biden proposes a three-month federal gas-tax holiday.
- The 18.4-cent tax on gas and 24.4-cent tax on diesel would be suspended for producers.
- But experts say consumers will likely only feel little, if any, relief and maybe, even boost prices.
It’s unlikely Americans will feel any significant or lasting relief from President Joe Biden’s proposal Wednesday for a three-month federal gas tax holiday.
The average national gas price fell this week for the first time in nine weeks, slipping below the key $5 per gallon for regular unleaded, according to GasBuddy. The decline was in line with a tumble in oil prices to about $110 per barrel, from $122, on fears the global economy is slowing and may fall into recession, AAA said.
But an easing in gas prices last week doesn’t mean the coast is clear. The world still has lower-than-usual stockpiles of oil and gas and stretched refining capacity to transform oil into consumer products, and consumption remains strong. AAA predicts car travel will set a record with 42 million people hitting the road this Jully 4 weekend despite historically high gas prices.
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Strong demand could make it backfire
The gas tax holiday, which would suspend the 18.4-cent federal tax on each gallon of gas and 24.4 cents on each gallon of diesel fuel for gas producers (not consumers), would require congressional approval. Biden would need 60 votes – at least 10 from Republicans – in the evenly divided Senate to overcome any filibuster.
If passed, experts see such a move as only providing mild temporary relief, if any, for consumers. The Penn Wharton Budget Model from the University of Pennsylvania estimated that a 10-month federal gas tax holiday would lower average per-capita gas spending by $16 to $47, depending on demand.
Key words: depending on demand.
“While a gas tax holiday may provide temporary relief from record-setting prices for some consumers, it may also drive demand even higher, thereby stoking inflation,” said John Leer, chief economist at research firm Morning Consult.
Biden also is encouraging states suspend their gas taxes, but that’s also unlikely to provide relief for consumers for more than a day or so.
On average, one-third of an increase – or decrease – in state gasoline tax rates is passed through to consumers in the retail price on the day the change takes effect, with no significant impact after that time, according to a June 2020 study by the ARTBA Transportation Investment Advocacy Center.
What the world needs now is more supply
With summer driving not looking to let up any time soon, any lasting relief for consumers at the pump will require rebuilding dwindling supplies. U.S. gasoline inventories ended March 2.6% below the previous five-year average, according to the Energy Information Administration.
“To calm inflation, the U.S. needs additional supply relative to demand, and a gas tax holiday won’t do that,” Leer said.
Unfortunately, there’s no quick fix for supply issues, experts say.
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“Unless the U.S. government is able to find a refinery it can help restart or ramp up production in the next few months, the Biden administration will be left with few good options,” Natasha Kaneva, JPMorgan’s head of global commodities research, wrote in a report.
Biden plans to visit Saudi Arabia next month, though, and some expect him to try to persuade the Saudis to pump more oil, which historicall