U.S. president touts gas tax holiday amid surging energy prices

Washington, U.S. | Xinhua | The White House has proposed a gasoline tax holiday in a bid to bring down record energy prices. But economists doubt such a move will have any major impact.

“Such a tax holiday might reduce gas prices by up to 18 cents a gallon but will still leave gasoline prices at a painfully high level,” Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua.

U.S. President Joe Biden on Wednesday called on Congress to suspend federal gas tax for 90 days, giving families “just a little bit of relief,” as Americans are frustrated by the nation’s soaring gas prices.

As of Thursday, U.S. gasoline prices stood at 4.94 U.S. dollars a gallon, just a hair lower than last week’s cost of just over 5 dollars – the highest in U.S. history.

Prices are sky high partly due to sanctions on Russia, a major energy provider, and critics said the administration’s energy policies are a major contributor. The White House, meanwhile, blames U.S. oil companies.

“I call on the companies to pass this along — every penny of this 18-cents reduction — to the consumers. This is — there’s no time now for profiteering,” said Biden.

The White House said earlier that the July 4 holiday weekend – when millions of Americans drive to beaches, mountains and other getaways – is a target to announce new steps to cut record gas prices.

Biden’s proposal also comes in the lead-up to November’s midterm elections, and the president politically needs to be seen taking action to bring relief from painful gasoline prices.

The president’s effort is unlikely to gain traction with lawmakers, as even members of his own party – such as House Speaker Nancy Pelosi – could be reluctant to support it.

Pelosi, as well as some other Democrats, has argued that the tax savings might not go to consumers, but get passed to oil companies.

It is far from clear, however, that he will succeed in getting this measure through Congress, with Republicans dismissing it as a gimmick, Lachman said.

Senate Minority Leader Mitch McConnell accused Democrats of playing “political games,” arguing that the proposed measure is aimed at boosting Democrats’ prospects and would soon expire after the midterm elections.

“President Biden is calling for another ineffective stunt to mask the effects of Democrats’ inflation. The latest bad idea would barely put a dent in the soaring gas prices on his watch,” McConnell said on Twitter.

“Here is a better idea: What if Democrats stop waging war on affordable American energy?” McConnell said.

Andrew Lipow, president of Lipow Oil Associates, a consulting firm, noted that a gas tax holiday will bring down prices to the tune of 18 cents a gallon, because that’s how much the consumer is paying in a federal excise tax.

Such a tax holiday could amount to a mere band-aid solution, critics said.

Indeed, gas prices in Maryland went down slightly when the state halted the gas tax for 30 days, from March to April, “And then when the gas tax was reinstated, they went right back up,” Lipow told Xinhua.

Another question the administration faces is how long such a gas holiday would last.

“Keep in mind those taxes are used to pay for roads and other infrastructure, so they (the government) would have to come up with the money elsewhere to make up for that shortfall,” Lipow said.

Lipow said the one thing that administration actually could do would be to “ease the type of environmental regulations on the type of gasoline that is sold in the U.S. during the summertime” since that could increase supply.

Brookings Institution Senior Fellow Barry Bosworth told Xinhua the move is “on balance, a shortsighted political action.”

The expansion of base energy supply is constrained by uncertainty about the longer-term outlook given the recent turmoil of COVID-19 and the conflict in Ukraine, Bosworth said.

The government should focus on reducing that uncertainty and promoting alternative supplies and conservation measures with a coherent longer term policy framework, Bosworth said.

The energy market will remain very tight for some time and winter demand in Europe should be a big concern, Bosworth said.

Dean Baker, senior economist at the Center for Economic and Policy Research, told Xinhua the reason prices are high is because the United States has an inadequate supply and the price effectively rations demand.

“This story doesn’t change if we get rid of the tax,” Baker said.

Efforts to cut the federal tax gas comes in the lead-up to a meeting this week between Energy Secretary Jennifer Granholm and oil executives.

Granholm told CNN on Sunday that suspending the gasoline tax could cause some federal funds to stop going toward projects under Biden’s bipartisan infrastructure law, which the president signed into law last year.

Aside from the tax not helping much to significantly bring down gas prices, economists said a gas tax holiday would not alleviate inflation, which stands at a 40-year high.

“It would not make much of a dent in inflation,” Lachman said.

Inflation is also unlikely to spare the Democrats from a big loss in the midterm elections with inflation now the number one economic issue, Lachman added.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a budget watchdog group, criticized the proposed measure, urging the administration to fight inflation by lowering deficits, not boosting them.

“A gas tax holiday would modestly reduce prices at the pump but exacerbate overall inflationary pressures and increase demand for an energy source already short in supply,” MacGuineas said in a statement, arguing that such a policy is not a solution.

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Xinhua