Experts see risk with little upside in Biden’s gas tax break

Experts are warning that President Biden’s proposed gas tax holiday would do little to defray pain at the pump and actively take a toll on infrastructure and the environment.

The 18-cent federal tax, which Biden has said should be suspended for three months amid steep gas prices, is “very little money” for individuals, said Beverly Moran, professor of law emerita at Vanderbilt Law School.  

“It just doesn’t make any sense. If the government wants to do something to help people who are having problems with their, you know, the cost of gas, they can send out another check to people,” Moran told The Hill in an interview. “They aren’t even considering how they’re going to stop companies from just eating up the difference … keeping the same price and just pocketing the tax.” 

Modeling by the Wharton School of Business at the University of Pennsylvania indicates that a gas tax suspension from July to September would only mean a per capita spending reduction of $4.79 to $14.31, depending on location, but would reduce overall government revenues by about $6 billion.

Progressive Democrats in Congress, meanwhile, are doubling down on their push for a windfall profits tax on oil companies which would be returned to consumers, arguing this would provide the greatest relief. 

“I think the gas tax is a smaller, somewhat half measure,” Rep. Jamaal Bowman (D-N.Y.), the sponsor of one of two oil windfall profits tax bills, told The Hill. “Decreasing the amount of taxes that fossil fuel or fossil fuel companies have to pay doesn’t necessarily mean that that’s going to lower costs. And it doesn’t mean it’s going to lower costs as much as we need to lower costs.”

Moran agreed that the idea would be more effective than a break in the gas tax.

“Last time there was a windfall profits tax, it was [the presidency of] Richard Nixon, and that says a whole lot, that now Richard Nixon is a liberal in United States politics,” she said.

“Yeah, there should be a windfall profits tax.”

On a Tuesday night call announcing the president’s official backing of a gas tax holiday, White House officials were noncommittal on the prospect of Biden also supporting a windfall profits tax. 

Ahead of Biden’s announcement, congressional proponents of such a tax, including Rep. Ro Khanna (D-Calif.) had expressed hope that Biden, who has sharply criticized oil companies for posting record profits amid the price surge, was on their wavelength.  

“The problem with repealing an 18 cents gas tax is it feeds into a far right narrative that the problem is government, not Big Oil gouging consumers,” Khanna tweeted Wednesday after Biden came out in favor of the suspension. 

Meanwhile, the idea of a gas tax pause has also drawn criticism over its potential effects on infrastructure and the environment.

In a letter last week, before Biden announced his support, Rep. Earl Blumenauer (D-Ore.) wrote that the revenues lost could threaten the goals of the bipartisan infrastructure bill Biden signed last year. 

“Delaying, or cancelling outright, the projects this legislation makes possible will waste a once-in-a-lifetime opportunity to rebuild and renew America, and leave future generations holding the bag for long overdue repairs and improvements,” he wrote. 

A suspension could also have environmental implications, according to Beia Spiller, transportation program director and fellow at Resources for the Future.  

“There’s a lot of evidence out there that shows that when gasoline prices increase, people choose to buy a more fuel-efficient vehicle than they had,” Spiller told The Hill in an interview. Even if a suspension was short-lived and had little effect on what consumers actually pay, she said, “you will have a short-run, change in demand relative to [if there was] no gasoline tax holiday… so if you didn’t have the gasoline tax holiday, we would see better changes and changes in driving patterns.” 

A further complication is the potential political hurdle of restoring the tax after suspending it, said Robert Weiner, a professor of international finance, economics and strategy at George Washington University.  

“If you have a gas tax holiday, it might be hard to put the gas tax [back] once the crisis has receded,” Weiner told The Hill in an interview. “In general, gas taxes are very unpopular. I think there’s a real risk that we will end up with a permanent holiday on the gas tax, and the roads won’t be as well-maintained as they are now because it’s not clear where the money will come from.” 

The gas tax holiday appears to stand little chance of passing Congress, where members on both sides have expressed skepticism.

The administration has taken several other steps aimed at reducing gas prices, including removing seasonal restrictions on the sale of higher-ethanol fuel blends and the largest-ever release of oil from the Strategic Petroleum Reserve.  

Ultimately, Weiner said, the only thing that may stabilize prices in the long term is a resolution to the conflict in Ukraine.

“The genie is basically out of the bottle,” he said, “The only way to put the genie back in the bottle is to have an end to the Ukraine conflict.” 

“Gas prices are high because there’s much less gasoline available,” Weiner added. “There’s less gasoline available because there’s an embargo on Russian oil, and it’s kind of as simple as that.”