Federal gas tax cut follies — why suspending the gas tax remains a bad idea

In spring 2008 as the American people were grappling with increased fuel prices, something unusual happened on the presidential campaign trail.

Sen. Hillary Rodham Clinton (D-N.Y.) and Sen. John McCain (R-Ariz.), the presumptive GOP nominee, sought to capitalize on the situation when they both endorsed a proposal to suspend the 18.4-cents-per gallon federal gas tax for the summer travel season.

Fellow candidate Sen. Barack Obama (D-Ill.) came out strongly against the idea, saying: “We’re arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something. Well, let me tell you, this isn’t an idea designed to get you through the summer, it’s designed to get them through an election.”

Obama was right. The Bush administration shared his view and the plan ran out of gas. But in Washington, such proposals are never truly buried in the policy graveyard.

Legislation introduced Feb. 9 by six U.S. senators facing re-election this fall proposes to suspend the federal gas tax until the end of the year. The action, which came less than 90 days after Joe Biden signed the historic Infrastructure Investment and Jobs Act, could have the unintended consequence of unraveling the new law’s revenue base, while simultaneously not achieving their desired outcome: immediate price relief at the gas pump.

A June 2020 analysis from the Transportation Investment Advocacy Center shows that 29 states both increased and decreased their motor fuel user fee rates from 2013 to 2018. A total of 113 adjustments were made, ranging from one-time increases approved by state legislatures to automatic changes for variable rates based on formulas written into law.

Of the 113 changes, the rate increased 75 times and decreased 38 times. Notably, the report found that on average, just one-third of an increase or decrease was passed through to consumers in the retail price on the day that change took effect. Its impact quickly evaporated over time.

Moreover, the U.S. Energy Information Administration’s “Short-Term Energy Outlook” Feb. 8 has projected a 57-cent-per-gallon decline in gasoline prices over the next year, driven by market factors.

The Senate bill could also establish an alarming precedent for future congresses to suspend the federal gas tax during times of economic distress or when fuel prices are deemed too high. Such a practice would shroud the largest revenue source for federal highway and public transportation investment in disruptive uncertainty for states eager to make infrastructure improvements.

No wonder that economist and former U.S. Treasury Secretary Larry Summers has dubbed such a gas tax holiday “short-sighted, ineffective, goofy and gimmicky.”

The bipartisan infrastructure law President Biden signed with fanfare last November aims to make up for decades of chronic underinvestment in our highway, bridges, and public transit systems.

Suspending the gas tax was a bad idea in 2008. It is still a bad idea in 2022. The best way to save the American people money is to make new infrastructure improvements that will reduce the lost time and wasted fuel that comes from being stuck in traffic, and improve road conditions to prevent the next pothole-induced flat tire.

Dave Bauer is the president and CEO at the American Road & Transportation Builders Association.