WASHINGTON — President Biden plans to ask Congress on Wednesday to temporarily suspend the state gas tax to curb rising fuel prices that have been causing frustration in the United States.
During a speech Wednesday afternoon, Mr. Biden will ask Congress to raise federal taxes — about 18 cents a gallon gasoline and 24 cents a gallon diesel — by the end of September, just ahead of the fall midterm elections, senior officials said on condition of anonymity to discuss Tuesday night’s announcement. The president will also ask states to suspend their own gas taxes in hopes of easing economic woes that have contributed to the president’s waning popularity.
However, the White House will have to face an uphill battle to get Congress to approve the holiday. While the administration and some Congressional Democrats have debated such a suspension for months, Republicans largely oppose it and have accused the administration of undermining the energy industry. Even members of Biden’s own party, including Speaker Nancy Pelosi, have expressed concern that companies would absorb much of the savings, leaving little to consumers. West Virginia Democrat Senator Joe Manchin III said this year that the plan “makes no sense.”
Mr. Biden will require companies to ensure consumers benefit from the federal tax moratorium, officials said, though they did not specify how he might do so. The government estimates the measures, combined with a halt to state gas taxes and oil companies increasing refining capacity, would reduce gas prices by at least $1 a gallon, though experts question the effectiveness of the gas tax exemptions.
The national average for regular gasoline was $4.98 a gallon Monday, according to the AAA, after topping $5 this month. Oil and refined fuel prices have risen to their highest levels in 14 years, in large part due to the Russian invasion of Ukraine and the resulting sanctions, as well as a rebound in energy use as the economy recovers from the coronavirus pandemic. The White House has increasingly sought to pin the blame for soaring prices on Russia, a strategy that has done little to quell Americans’ fears.
Mr. Biden has also freed up strategic petroleum reserves and suspended a ban on summer sales of higher-ethanol gasoline blends to try to mitigate price hikes at the pump, fueling frustration among climate activists who are still unhappy about the collapse of Mr. Biden’s climate and Social issues are package.
Economists have widely dismissed the idea of suspending the gas tax as ineffective and a waste of public funds. The reason? The state gas tax is now such a small part of the price at the pump, at less than 5 percent of the total cost, that consumers may not even realize it.
“I don’t think it affects people’s willingness to buy more, nor does it save them much money,” said Garrett Golding, an economist at the Federal Reserve Bank of Dallas. “It sounds like something is being done to lower gas prices, but there isn’t much of it.”
Congress has not increased the state gas tax since 1993. But he never abolished the tax either. Taxes on gasoline and diesel now provide the bulk of federal funding for highway construction and maintenance — $36.5 billion in 2019 — although spending has exceeded earmarked revenues in recent years.
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That means Mr Biden’s latest move to address a policy vulnerability could undermine funding for one of the legislation’s most important achievements during his tenure: investment in infrastructure.
Mr Biden, who has publicly debated the idea of a tax holiday in recent days, tried to allay those concerns on Tuesday.
“Look, it’s going to have some impact, but it won’t impact major road construction and major repairs,” Mr. Biden told reporters, adding that the administration has ample road maintenance capacity.
The tax suspension would cost around $10 billion. Senior administration officials said Mr Biden would require Congress to dive into other pots of money to make up the loss, which it has been doing for many years as gas tax revenues have not kept pace with highway construction and maintenance.
But as global oil demand and a fragmented market have pushed prices higher, experts have questioned how much the gas tax exemption would benefit consumers.
“Whatever you thought about the merits of a gas tax holiday in February, it’s a worse idea now,” Jason Furman, chairman of the Council of Economic Advisers under President Barack Obama, said. Posted on Twitter, arguing that the oil industry would likely pocket most of the savings.
Consider a middle example: Even if all the benefits were passed on to consumers, if the federal gas tax were suspended, the owner of a Ford 150 that drives 20 miles per gallon and drives a thousand miles per month would save about $9 – that costs a decent ham sandwich these days.
Progressives and energy pundits have advocated alternative ways to offset gas price shocks or capture some of the skyrocketing profits oil companies and refiners have reaped while supply remains limited. In her 2008 presidential campaign, as inflation-adjusted prices were approaching an even higher point, Hillary Clinton proposed combining a gas tax exemption with a levy on oil company profits.
But of all the weak tools at the federal government’s disposal to lower gas prices, the tax hike is the most salient.
“That’s what voters care about. That’s what politicians care about,” said Erich Muehlegger, an associate professor of economics at the University of California, Davis. “Things like a windfall tax on oil companies might be attractive from a political perspective, but we don’t necessarily think they will have an immediate impact on gas prices.”
The research of dr. Muehlegger has found that drivers adjust their consumption more to changes in gasoline prices than to market-based changes of a similar magnitude, in part due to the media attention generated by these changes.
States have more power to lower gas prices as their taxes and fees have risen steadily, to an average of 38.07 cents a gallon. So far, three states have passed and completed gas tax holidays: Maryland, Georgia and Connecticut. New York suspended its tax earlier this month and Florida will suspend its tax for the month of October.
However, gasoline manufacturers and distributors would most likely reap some of the benefits. Analysis by economists using the University of Pennsylvania’s Penn Wharton Budget Model showed that in states that have completed gas price holidays, between 58 and 87 percent of the suspended gas tax value was passed on to consumers, while suppliers absorbed the rest. A government suspension would be so much smaller that it could be masked by the volatile underlying oil price, which has fallen over the past week.
Mr. Biden also plans to target oil companies on Wednesday, demanding they expand refining capacity to cut costs at the pump, just days after they accused executives of making profit and “paining” the aggravate consumers. Although refiners have struggled to keep up with growing demand, global refiners have increased capacity by less than 1 percent.
The administration could also expand refinery capacity by relaxing permitting requirements to reopen a site in St. Croix, in the Virgin Islands, that has a poor environmental record. But that action would likely meet a backlash from environmentalists already frustrated at having some of the president’s sweeping climate initiatives being brushed aside.
Michael K. Wirth, the chief executive officer of Chevron, one of seven refiners the White House invited to a meeting this week to discuss cutting their prices, dismissed Mr Biden’s criticism on Tuesday. Rather than just blaming companies, cutting the high price of gas would require a “change of approach” from the government, he said.
“I didn’t know they would hurt her feelings so easily,” Mr. Biden said. “Look, we need more refining capacity. This notion that they don’t have oil to drill and produce is just not true.”