President Biden on Wednesday asked Congress for a three-month federal gas-tax holiday. Aimed at providing relief from high gas prices brought on by Russia’s invasion of Ukraine, the policy is already drawing skepticism.
If Congress approves the tax holiday, current federal fuel taxes of 24 cents per gallon for gasoline and 18 cents per gallon for diesel would be suspended through September. While these taxes contribute to the federal Highway Trust Fund, Biden has also asked Congress to find alternative sources of funding so it’s not affected, according to a White House fact sheet.
Average gas prices have increased $2 per gallon since Russia’s invasion of Ukraine began, according to the White House. After tipping past $5 per gallon a week ago, the national average pump price is down to about $4.96 for regular gasoline, but California stands at $6.37.
The White House, Washington, D.C. [Creative Commons license by dcjohn]
But a long list of skeptics believe a gas-tax holiday isn’t the right policy to address this. When certain states have suspended their gas taxes in the past, it’s actually led to higher fuel prices, according to a recent study from the Wharton School at the University of Pennsylvania cited by Bloomberg.
When Maryland instituted a one-month tax holiday, prices went down initially, but then spiked after the tax holiday expired April 17, according to the study. The study found that prices ended up higher than they would have been without the tax holiday, which cost Maryland an estimated $100 million, according to Bloomberg.
The United States Public Interest Research Group (U.S. PIRG) also came out against the federal gas-tax holiday, arguing that it sidesteps the main issue of reducing oil dependence.
Traffic in Atlanta, Georgia during rush hour (via Wikimedia)
“The current gas price spike is just the latest reminder that that our dependence on oil leaves us all over a barrel,” U.S. PIRG environment campaigns director Matt Casale said in a statement. “We need more than a gas tax holiday—we need real transportation solutions that do not further deepen our dependence on cars and oil over the long haul.”
There’s also no guarantee that tax savings will make it to consumers’ pockets, the American Society of Civil Engineers noted in a press release. The group cited analysis from the American Road and Transportation Builders Association. The Association’s advocacy group— the Transportation Investment Advocacy Center—found that, on average, one-third of an increase or decrease in state gasoline taxes is passed to consumers through retail price changes on the day a tax-rate change takes effect, with not significant impact after that.
The debate also overshadows the fact that current gas taxes aren’t adequate to fund road repairs. In 2018, the U.S. Chamber of Commerce advocated raising the gas tax 25 cents to fund road repair, something even tax-averse President Trump backed. Meanwhile, some states have looked for ways to tax electricity used to charge EVs like gasoline as a way to raise additional revenue from those vehicles.