Suspending Federal Fuel Tax Pitched By Senate, White House

President Joe Biden and Democratic lawmakers have suggested ending the federal gas tax until 2023 as a way to offset fuel prices that are nearing record levels and possibly appease some on-the-fence voters ahead of midterm elections. Senators Mark Kelly (D-AZ) and Maggie Hassan (D-NH) recently pitched the bill in Congress. While the White House has not made any official endorsements, it’s offered tacit support by saying it didn’t want to limit itself in terms of finding new ways of easing the financial burdens Americans are facing during a period of high inflation.

“Every tool is on the table to reduce prices,” White House assistant press secretary Emilie Simons said in regard to a possible gas tax holiday. “The president already announced an historic release of 50 million barrels from the Strategic Petroleum Reserve, and all options are on the table looking ahead.”

According to the American Automobile Association (AAA), the average price for a gallon of gasoline in the United States is presently $3.48. The Labor Department estimated $3.50 per gallon, citing an annual increase of 40 percent. No matter how you slice it, fuel is roughly a dollar more than it was just a year earlier and spiking at a time when other goods and services have grown similarly expensive. The proposed legislation would temporarily eliminate the 18.4 cents per gallon (24.4 cents for diesel) added to gasoline prices until January 1, 2023.

The bill is co-sponsored by Debbie Stabenow (D-MI), Catherine Cortez Masto (D-NV), Raphael Warnock (D-GA) and Jackie Rosen (D-NV).

“Arizonans are paying some of the highest prices for gas we have seen in years and it’s putting a strain on families who need to fill up the tank to get to work and school,”  said Senator Kelly. ”This bill will lower gas prices by suspending the federal gas tax through the end of the year to help Arizona families struggling with high costs for everything from gas to groceries.”

The opposition has framed the proposal as a way for Democratic legislators to win brownie points ahead of the midterms, with the theory getting a surprising level of support from mainstream media outlets. But the real concern is what’s going to happen to the Highway Trust Fund, as the bill effectively nullifies a year’s worth of cash that’s supposed to be reserved for transportation infrastructure. While state-based taxes would remain in effect, the Committee for a Responsible Federal Budget estimated that at least $20 billion in tax revenue would ultimately be lost if the bill were to pass.

Ed. note: At least one prominent Republican, Florida governor Ron DeSantis, appears in favor of a gas-tax holiday, but other conservatives echo the same critiques that some liberals, and liberal pundits, have made. Politics, strange bedfellows, etc.

The Highway Trust Fund already has its share of problems. The federal fuel tax hasn’t been changed since 1993 and the Biden administration is pressuring the automotive sector to sell more battery electric vehicles that won’t be subject to it. This bill risks reducing the trust’s already dwindling annual budget by almost 50 percent, creating a deficit that will need to be accounted for at the end of the year and further worsen inflation.

Additional concerns have been voiced by environmentalists who believe lowering fuel prices will discourage EV adoption. Criticisms have also been made about how this will impact energy concerns that are effectively getting the federal government to incentivize fuel.

Jason Furman, an economist at Harvard and the chairman of Barack Obama’s Council of Economic Advisers (2013-2017), told Forbes the proposed gas tax holiday would “raise profits for oil companies.” He estimated consumers would technically pay 12 cents less at the pump while the oil industry pocketed the other 6 cents. However, the current draft is supposed to require the Treasury Department to take the necessary steps to ensure oil and gas companies pass their savings back to consumers and redirect federal money back into the Highway Trust, even if it’s not all that clear on how it should be done.

Larry Summers, a former treasury secretary, told The Washington Post that he saw the policy as short-sighted and “goofy.”

“It’s terrible policy at a moment we’ve labeled climate change as an existential threat,” he told the outlet.

People definitely want to pay less at the pump. But it’s hard not to see this fix coming back to bite us later. Spending money America didn’t have is how we got into this financial mess in the first place and there’s going to be a problem when 2023 rolls around and fuel prices surge upwards overnight.

[Image: Architect of the Capitol/AOC.gov]