The Biden administration is considering granting a reprieve of the federal gas tax, to ease the burden of rising gasoline prices amid high inflation.
Speaking to the Hill, members of the White House economic team – led by National Economic Council director Brian Deese – have said that they are considering the proposal and will meet later this week to discuss details of the plan. Another unnamed Democratic member of Congress said that a gas tax holiday was “definitely an option on the table.”
First established by the Revenue Act of 1932, the federal excise tax on gas was last altered in 1993 where, at the initiative of President Bill Clinton, it was raised to 18.4 cents per gallon of gasoline purchased at pumps, while the diesel tax was raised to 24.4 cents per gallon. The tax is not indexed to inflation and is distinct from state gas taxes and sales tax.
The proposal is being considered as the price of gasoline has increased by 48.7 percent in the last 12 months, per a report by the Bureau of Labor Statistics. The current national average gas price is $5.016 per gallon, which, per the American Automotive Association, is the highest price ever recorded. Influenced, in part, by high global oil prices – at $122.27 per barrel of Brent Crude, an increase of $43 since January – the increase fuel prices has contributed to broader cost-push inflation in the U.S. economy. Per the BLS, the Consumer Price Index measured at 8.6 percent for the month of May, the highest level since 1982.
Proposals to suspend the tax had been considered by the Administration and its allies as early as February across the government but were not acted upon. That month, Democratic Senators Mark Kelly (Ariz.) and Maggie Hassan (N.H.) – both in competitive re-election contests during November’s Midterm races – unveiled legislation to suspend the tax for ten months until January 1st, 2023. “We need to continue to think creatively about how we can find new ways to bring down costs,” Hassan said.
However, Republicans have argued that suspending the tax will make no difference to inflation. They claim that suspending the tax will be inflationary, since residual savings will be channeled into more spending to raise prices and, thus, overall inflation. Republican Senator John Kennedy (La.) has called the proposal a “gimmick…that’s not going to make any difference” and said that the Senate Republican Conference had dismissed the idea. Senator James Lankford, meanwhile, has said that “a gas tax holiday cannot get through the Senate.”
Others, such as Senator Mitt Romney (R., Utah.), have warned that altering the gas tax could jeopardize public highway infrastructure across the country, including projects under the Infrastructure Investment and Jobs Act signed by Biden last year. Under current legislation, revenues from the gas and diesel tax are deposited into the Highway Trust Fund, which is used to maintain the Interstate Highway System, tunnels, bridges, and other roads across the country. The criticism mirrors that received by former President Donald Trump who suggested during the Covid-19 pandemic to cut payroll taxes, which fund Social Security payments.
Economists are divided over the effect of suspending the tax, which generates an average of $42 billion every year. A ten-month holiday – per modelling by The Wharton School of the University of Pennsylvania – would deplete that sum by half. That study also stated that up to 80 percent of the tax decrease would be passed onto consumers in the form of lower prices. However, Mark Zandi, chief economist at Moody’s Analytics has argued that most of the tax relief resulting from the suspension would be captured by big energy companies, while consumers would get very little tax relief in the first instance.
The federal gas tax never been suspended and would require an Act of Congress to amend the U.S. tax code to reduce the tax to $0 and would be subject to a Senate filibuster. So far, the White House has not commented on the proposal.