Biden’s gas tax break would do little good and cost a lot
It can give you votes in the November legislative elections, but it favors the richest and delays the green transition
This year, Americans could get a gift to go along with their summer vacation. President Joe Biden wants Congress to authorize him to suspend the federal gas tax through the end of September in an attempt to shave a few cents off the price at the pump and cushion the impact of rapidly rising consumer prices. This may give Biden and his party a boost in popularity ahead of the November elections, but it would come at too high a cost.
The increase in gasoline prices is noticeable and affects the pocket. But the consumer benefit of its repeal is not huge. The federal tax is only 18.4 cents per gallon. Most states impose a higher tax, so Biden asks them to suspend it as well. Pennsylvania, for example, charges more than three times the federal tax.
Even if Biden gets his way, retailers and refiners will pocket some of the revenue. According to the Wharton School of the University of Pennsylvania, only 70% of the savings realized in recent state gasoline moratoriums in Connecticut, Georgia and Maryland were passed on to consumers. The Wharton researchers estimate that longer federal holidays, from March to December, would only save consumers between $16 and $47 per capita.
However, the ineffectiveness of tax holidays is less worrying than the large counterparts they entail. One of them is that benefits would accumulate unfairly. Richer Americans own more cars and drive more. The highest income quintile spent about four times as much on fuel in 2013 as the bottom quintile. Presumably that distribution remains largely the same now as it was then.
Biden came into office in 2021 promising a clean energy revolution. However, shielding consumers, especially the better-off, from high gasoline prices prolongs the shift in demand away from polluting fossil fuels. Higher gas prices help the marginal commuter consider public transportation, or an electric vehicle, or more efficient. In the short term, the increase in demand for gasoline –because it is a little cheaper– could create upward pressure on the prices charged by producers.
What the tax holidays could do, of course, is accelerate Biden’s Democratic Party approval ratings, in time for the November congressional elections. American consumers often blame incumbent administrations for high fuel prices. But as with any type of vacation, the return to reality will be painful.
