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On Wednesday, President Joe Biden will call on Congress to suspend taxes on federal gasoline and diesel for three months — a move aimed at easing the financial strain on gas stations and laying bare the political toxicity of election-year high gas prices.
The Democratic president will also call on states to suspend their own gas taxes or provide similar relief because they are not authorized to speak publicly, according to administration officials who spoke on condition of anonymity.
At issue is the federal gas tax of 18.4 cents a gallon and the diesel federal tax of 24.4 cents a gallon. If the gas savings were passed on entirely to consumers, people would save about 3.6 percent when they refuel when the national average price is about $5 a gallon.
But many economists and lawmakers on both sides are skeptical of the idea of a gas tax holiday.
Barack Obama called the idea a “gimmick” during his 2008 presidential campaign, allowing politicians to “say what they did.” He also warned that oil companies could offset tax breaks by raising prices.
High oil prices pose a fundamental threat to Biden’s electoral and policy ambitions. They caused confidence in the economy to drop to lows, which augured badly for the defense of Democrats’ control of the House and Senate in November.
Biden’s past efforts to lower natural gas prices — including releasing oil from the U.S. strategic reserve and increasing ethanol blending this summer — yielded little savings, a risk that carries over to the idea of a natural gas tax holiday.
Biden acknowledged that gasoline prices have consumed the public’s enthusiasm as he tries to convince people that America can still move to a clean energy future. In an interview with The Associated Press last week, Biden described a country already nursing some of the psychological trauma from the coronavirus pandemic, which is now worried about how to afford gasoline, food and other necessities.
“If you notice, before gas prices started going up,” Biden said, “it was a lot better, they were a lot more optimistic.”
There is little the president can do to address prices set by global markets, profit-driven companies, consumer demand and the aftershocks of Russia’s invasion of Ukraine and the ensuing embargo. The underlying problem is a shortage of oil and refineries that produce gas, a challenge that the tax holiday will not necessarily solve.
Mark Zandi, chief economist at Moody’s Analytics, estimates that U.S. inflation has been 8.6 percent over the past 12 months, with much of that coming from higher commodity prices caused by the Russian invasion and continued disruption from the coronavirus.
“In the near term, it is critical to contain the rise in oil prices,” Zandi said last week, suggesting that Saudi Arabia, the United Arab Emirates and a nuclear deal with Iran could help boost supply and lower prices.
Republican lawmakers have sought to put more of the blame on Biden, saying he has created a hostile environment for domestic oil producers to produce less than pre-pandemic levels.
Senate Republican Leader Mitch McConnell mocked the idea of a gas tax holiday in a speech in February. “They spent a whole year waging a holy war on affordable American energy, and now they want to cover the consequences with a bunch of taxpayer dollars,” he said.
Democratic House Speaker Nancy Pelosi has previously expressed doubts about the value of a moratorium on federal gas taxes.
Government officials said $10 billion in gas tax relief would be paid and the highway trust fund would remain intact, even though gas taxes are an important source of revenue for the fund. Officials did not specify any new revenue streams.
The president also called on energy companies to accept lower profit margins to boost oil production and gasoline refining capacity.
That has heightened tensions with oil producers: companies that Biden believes make “more money than God.” That sparked a series of events, with the head of Chevron, Michael Wirth, writing to the White House, saying the administration was “largely trying to criticize and sometimes discredit our industry.”
Asked about the letter, Biden said of Voss: “He’s a little sensitive. I didn’t know their feelings could be hurt so quickly.”
Energy companies are scheduled to meet with Energy Secretary Jennifer Granholm on Thursday to discuss ways to increase supply.
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