What is a gas tax holiday? The federal proposal could offer short-term relief for drivers – Low Calorie Diets Tips

For months, sky-high gas prices have plagued Americans. The nationwide average price of a gallon of gasoline is just under a staggering $5 a gallon, AAA data shows.

But a significant policy change could soon bring some relief to drivers. President Joe Biden on Wednesday will ask Congress to pass a gas tax exemption that would run until the end of September.

The suspension of the federal gas tax, which stands at 18.4 cents a gallon, would bring down the price drivers pay at the pump almost immediately, experts told ABC News. However, they warned that the policy would cut funding for road and highway maintenance while exacerbating supply-demand imbalances and driving prices even higher in the long-term.

“As a driver, I take every discount I can get,” said Patrick De Haan, Energy Analyst at GasBuddy. “As an analyst, I think this could exacerbate imbalances that could lead to higher prices.”

What is the state gas tax?

The state gasoline tax, first levied in 1932 at 1 cent per gallon, accounts for part of the price drivers see at the pump. The tax gradually increased over the decades after it was enacted, reaching its current level of 18.4 cents a gallon in 1993. Since 1997, all federal gas tax revenues have gone to the Highway Trust Fund, the primary source of federal funding for highways. roads and bridges.

The state gas tax has never been suspended, although a gas tax exemption was proposed by presidential candidates John McCain and Hillary Clinton during the 2008 election campaign.

How would a gas tax holiday work?

A federal gas tax holiday, which would require legislation passed by Congress and signed by Biden, would suspend the tax for a temporary duration. Biden’s proposal on Wednesday calls for a suspension until September.

A handful of states — led by Democratic and Republican governors — have suspended their gasoline taxes to give drivers some financial relief. Biden on Wednesday will urge states to suspend their gas taxes if they haven’t already.

But the moves only reduce the cost by a fraction of the price. In New York, for example, this month Gov. Kathy Hochul suspended a tax of 16 cents a gallon. With an average price of $5 for a gallon of gasoline in New York, the tax break amounts to a 3.2% cost reduction, according to the AAA.

The suspension of the state gas tax would also reduce the cost of a $5 gallon of gasoline by less than 5%. However, consumers would probably prefer some relief to no relief at all.

President Joe Biden speaks at the Eisenhower Executive Office Building on May 10, 2022 in Washington.

Bloomberg via Getty Images, FILE

What are potential downsides of a state gas tax exemption?

There are two main potential downsides to a state gas tax exemption. First, it would deny the federal government a major source of funding for road and highway maintenance. U.S. roads received a D grade in a report by the American Society of Civil Engineers last year. Getting rid of the federal gas tax would likely do them worse, experts said.

Second, as the US struggles with an imbalance between low oil supply and high demand, a state gas tax exemption would partially undermine the role that increased prices are playing in falling consumer demand. In theory, if gas prices stay high or even rise, people will buy less gas, which should help balance supply and demand, thereby bringing prices down.

But a gas tax exemption would bring the price down almost immediately, which could increase demand and worsen the supply-demand balance even further, said De Haan, an energy analyst at GasBuddy.

“It would potentially lead to a surge in demand if it’s difficult for refiners to keep up with demand now,” he said.

What happens next?

If Biden decides to support a federal gas tax holiday, it would likely add momentum in Congress for legislation to pass it. However, the adoption of such a measure remains uncertain.

One such law, the Gas Price Relief Act, was proposed by Sen. Mark Kelly (D-AZ). It would abolish the gas tax by the end of the year and expressly stipulates that the price savings should be passed on to consumers.

In addition to Kelly, seven senators supported the bill. So far, no Republican senator has backed her.

Leave a Comment