A gas tax holiday would be politically popular. It would also allow the White House to show that Biden is taking tangible action to address one of the biggest headaches facing families.
Yet suspending the gas tax would involve trade-offs that serve to validate why Obama and others have bashed such a move as a gimmick — and why it may not get through Congress.
It won’t solve the underlying problem
First, a gas tax holiday would do nothing to fix the supply shock driving up prices, not just for gasoline but diesel and jet fuel, too.
“The risk is that at a time when the supply-and-demand balance that sets prices is already extremely out of balance, it would enable more Americans to hit the road,” said Patrick DeHaan, director of petroleum analysis at GasBuddy.
Suspending the gas tax also would effectively encourage the use of gasoline — running counter to the Biden administration’s ambitious climate goals that call for moving away from fossil fuels.
Adding to inflation?
Mark Zandi, chief economist at Moody’s Analytics, told CNN in a phone interview that a gas tax holiday would not be helpful and could even be inflationary, forcing the Fed to raise rates more aggressively.
“I’m not a fan. You want people to drive less and use less gas. This works against that objective,” he said. “It’s not well-targeted.”
Zandi also expressed concern that energy companies may not pass along the entire savings from a gas tax holiday.
The Moody’s economist served as an economic adviser to McCain during the 2008 race when the Arizona Republican endorsed a gas tax holiday.
“I probably lost that battle,” Zandi said.
Another problem with a gas tax holiday today: Revenue raised from this levy helps finance the Highway Trust Fund, which is already short on funding. The federal gas tax hasn’t been increased since 1993, when gas was selling for just over $1 a gallon.
Unless those funds are replaced from other sources, suspending the gas tax would sap resources for building and repairing highways at a time when the price tag on those projects is going up due to soaring costs for construction materials and labor.
Marc Goldwein, senior policy director at the Committee for a Responsible Budget, said a gas tax holiday would be a “mistake,” in part because pushing up demand would lift prices.
“It would be partially self-defeating, not that meaningful for prices at the pump and costly for the federal government,” Goldwein said.
And yet Biden officials say the president is seriously weighing it as an option.
Treasury Secretary Janet Yellen said last weekend a gas tax holiday is “certainly worth considering.”
If Biden and Congress do go this route, they will face a problem down the road when the tax holiday expires. “It’s going to be very unpopular when prices snap back up by 18 cents a gallon,” GasBuddy’s DeHaan said.
And that raises the specter of a temporary gas tax suspension morphing into a permanent holiday.