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President Biden on Wednesday appealed to Congress to suspend the state gas tax, saying it’s crucial to ease the pain Americans are feeling at the gas pump. “I promise you I’ll do whatever it takes to bring energy prices down,” Biden said as images of oil pumps and gas stations flickered on the wall behind him.
But the idea of a gas tax exemption drew immediate criticism — not just from members of both parties on Capitol Hill, but even from many officials within the administration, who privately said it would likely do little to bring gas prices down significantly.
Senior Treasury Department officials have expressed doubts about the gas tax exemptions, and at least two senior White House economists have also privately expressed reservations, according to two people familiar with the internal deliberations, who spoke on condition of anonymity to disclose sensitive conversations.
Biden’s determination to move forward despite these internal concerns reflects his struggle to confront an economic landscape that, despite showing some signs of strength, is of great concern to many voters. From declaring inflation “temporary” to describing a recession as “not inevitable,” White House officials have swung from message to message.
They have also desperately sought policies to bring down Americans’ costs, even though they have few obvious policy tools to drastically reduce the price of gas. Even as Biden on Wednesday asked Congress to pass the tax exemption, which asked states to suspend their own gas taxes and required oil refiners to produce more fuel, he acknowledged the limitations of his policy regulations.
“I fully understand that a gas tax holiday alone will not solve the problem,” Biden said. “But it will bring immediate relief to families, just a little breathing room while we continue to work to bring prices down over the long term.”
How a gas tax holiday would work
Biden asked Congress to suspend the 18.3-cent-a-gallon federal gas tax — and the 24.3-cent-a-gallon diesel tax — for three months, a request that comes just before July 4, when millions of Americans expected to go on vacation. The average cost of a gallon of gasoline nationwide hit nearly $4,955 a gallon on Wednesday, down from a record high of more than $5 a gallon earlier this month, according to AAA.
But the president’s motion is likely to face stiff opposition on Capitol Hill, including from top figures in his own party, who have already made it clear they oppose a gas tax suspension. It remains unclear what Biden plans to do, if anything, to get lawmakers to back the policy.
Speaking to reporters Wednesday, House Majority Leader Steny H. Hoyer (D-Md.) stressed that he was “sympathetic” to the president’s request and that cutting gas prices was a “good goal.” But Hoyer joined other Democrats in expressing concern that it “may not have the intended effect in terms of retail price.”
And he said Democratic leaders “didn’t know” if they had the votes to move it forward and hadn’t counted them yet.
“[Rep. Peter A.] DeFazio [Speaker Nancy] Pelosi, myself, we’ve all expressed reservations about it. But the President of the United States suggested it,” Hoyer later added. “We’ll take a look. We can all agree that the price at the pump hurts working Americans.”
But Biden faces the reality that the seemingly unsolvable problem of rising prices threatens to overshadow his agenda and any political message from Democrats. Many in the White House have come to the conclusion that the President must at least show that he understands the plight of Americans and will do whatever it takes to help, even if things don’t work out in the short term.
Some vulnerable Democrats celebrated Biden’s announcement.
“I submitted my bill months ago to suspend the federal gas tax and have never stopped working to bring gas pump relief to Georgia families,” tweeted Sen. Raphael G. Warnock (D-Ga.), the faces a tough re-election campaign in November on Wednesday. “I am pleased that the President supports this idea and is finally listening to me and my colleagues to take this decisive step.”
However, this is not a universal view. Eswar Prasad, an economist at Cornell University, said top Treasury Department officials have made it clear in internal discussions that they believe Americans are likely to reap limited benefits from a gas tax exemption, even if Congress enacted one.
“The Treasury is approaching this from an analytical perspective, and people there recognize that the direct economic benefits to consumers are likely to be fairly limited, while the budgetary impact would be significant,” said Prasad, an official at International Monetary was Fund, citing discussions with several senior officials.
Treasury Department officials “raised concerns with the White House that this is not the optimal strategy for fighting inflation and that the policy benefits are likely to be quite limited,” Prasad said.
In his remarks on Wednesday, Biden said if all of his recommended actions were taken together – gas tax suspensions by Congress and states and an increase in production by oil refiners – Americans could save up to $1 a gallon at the pump.
Treasury Secretary Janet L. Yellen spoke to reporters this week and offered measured support for the idea and notion that consumers would benefit from gas tax suspension.
“Some states in the US have lowered their gas taxes, and I think the research suggests that if a state applies it to prices at the pump, there’s a pretty high pass-through — not full, but pretty high,” he said Yellen. “At the federal level we have a lower gas tax than at the state level. The evidence is more mixed.”
She added: “Consumers are really suffering from higher gas prices. It was a drain on American households. And I think while it’s not perfect, it’s something to consider.”
Members of both parties have also raised concerns about the fallout from the gas tax suspension, just months after Congress passed a roughly $1.2 trillion bill to improve the country’s infrastructure. Many federal road and highway programs are funded through a trust fund derived from fuel tax revenues.
“The state gas tax suspension won’t meaningfully relieve American families at the pump, but it will blow a multibillion-dollar hole in the highway trust fund and jeopardize funding for future infrastructure projects,” said DeFazio (D-Ore.), the top Lawmakers on the House’s senior transportation committee said in a statement before the White House announced its request.
Republicans, who generally support tax cuts of all kinds, dismissed Biden’s proposal as an election-year gimmick.
“This ineffective stunt will join President Biden’s other ineffective stunt on gas prices: draining the strategic oil reserve we need in the event of a genuine national security crisis,” said Senate Minority Leader Mitch McConnell (R-Ky. ), in the Senate floor.
Republicans may also be reluctant to give Biden a win five months before the congressional election on an economic issue that is of great concern to voters.
But Robert Wolf, former CEO of UBS Americas and economic adviser to Obama, has advocated for the move, including in meetings with top officials at the White House last week. Wolf said he met with Ron Klain, the chief of staff, Brian Deese, director of the National Economic Council, and Heather Boushey, a member of the Council of Economic Advisers, to discuss the gas tax holiday, among other economic issues.
“There are only so many tools you have to combat the increased gas migration,” Wolf said. “Three things happened to us at the same time, which are really unique events. We have a combination of the 70’s oil embargo, the 90’s gulf war and the post-recession of ’08-’09. Gas prices went up on all three and we got them all at once. We really had the perfect storm.”
Wolf added that concerns about budget constraints for infrastructure projects could be allayed.
“We’ve already raised trillions for Covid relief and tens of billions for the Ukraine war,” he said. “Are you saying there’s nothing we can do at the pump for hardworking Americans?”
Boushey, who defended the policy on Twitter, cited research from the University of Pennsylvania, which found that consumers in states that introduced a gas tax exemption benefited, although the impact of a federal tax suspension would be more limited. “A state gas tax exemption could help – especially if states follow suit,” she tweeted, sharing the analysis of the Penn Wharton Budget Model.
While a federal gas tax holiday could be popular with motorists and give Biden a small policy boost, economists also say it could exacerbate the problem. Artificially lowering prices sends a signal to consumers to drive more, which could be a problem at a time when serious fuel shortages still exist.
“We want fewer people to use less gas because there is a gas shortage, and that would only encourage more gas use,” said Mark Zandi, chief economist at Moody’s Analytics.
He said he has “sympathy for the problem they’re trying to address” but that a gas tax exemption is “very fringe” in terms of bringing gas prices down.
It’s also unclear whether gas companies, which have been a regular target of Biden’s criticism in recent months, will eat up their own profits just because the president says they need to relieve consumers at the pump. Energy Secretary Jennifer Granholm is scheduled to meet with oil company executives Thursday to seek solutions to gas price hikes, though Biden will not be meeting with executives in person.
Biden also tried to put a moral spin on the issue on Wednesday, blaming the gas price hike on Russian President Vladimir Putin’s war against Ukraine. “It wasn’t just Putin’s invasion of Ukraine — it was the refusal of the United States and the rest of the free world to let Putin get away with something we haven’t seen since World War II,” Biden said.
And even if a gas tax holiday isn’t very effective, it’s important for Biden to convey empathy with Americans’ struggles, his supporters said.
“I think they know it’s not going to have a big impact on prices,” said Dean Baker, a liberal economist and White House ally. “It looks like you’re doing something, but it’s not really — I think they know that.”