With gasoline prices in the US breaching $5 per gallon for the first time, president Joe Biden on June 22 asked Congress to suspend federal gasoline taxes for three months. The suspension is one of the few options open to the federal government to lower the cost of gas, short of begging Saudi Arabia to drill more, since US production is already close to maxed-out.
The trouble is: The tax holiday won’t save drivers much. The federal gas tax is 18.4 cents per gallon, less than 4% of the current gasoline price. The tax is fixed, so as the price of crude oil rises, the tax accounts for a proportionately smaller share of the total retail gasoline price. The more expensive gas gets, in other words, the less a tax break matters.
According to a March study from the University of Pennslyvania, an eight-month suspension would reduce per-capita gasoline spending by not more than $47—while reducing federal tax revenue by $20 billion. In his request to Congress, Biden asked lawmakers to find an alternate source of revenue for the federal fund that pays for highway infrastructure, which is normally fed by gas taxes.
A gas tax holiday isn’t guaranteed
In addition to being an annoyance for drivers, high gas prices are a potent political symbol—a number posted on thousands of billboards around the country, which Biden’s Republican opponents in Congress frequently wield to critique him. To that extent, anything Biden can do to move the needle on gas prices could help Democrats in the November Congressional midterm elections. As a result of the politics and the paltry benefit for drivers, though, the policy has scant support among Republicans. Even some leading Congressional Democrats are opposed—which means the proposal may be dead on arrival.