Biden's Push on Gas Tax Relief Will Likely Fall to States

With gasoline prices soaring, President Biden is pushing for Congress to approve a three-month suspension of the federal gas tax this summer, while also urging states to roll back their gas taxes or look for other ways to provide motorists relief at the pump.

But with key congressional lawmakers on both sides of the aisle skeptical of the idea, it appears the president's plan for a federal gas tax holiday through the end of September is at best a long shot. That means Biden's proposal could mainly amount to an effort to get states to act on the issue. Already this year, at least five states have moved to temporarily suspend taxes on motor fuel, as others have put off gas tax or fee increases, or looked to send rebate payments to residents.

Biden pointed to some of these places during remarks on Wednesday.

"I'm calling on more states and local governments to take actions like these," he said. The president also suggested that the nation's "historic economic recovery" had left states on solid financial footing after the hit of the Covid-19 pandemic and that they're "now in a strong position to be able to afford" giving motorists a break.

But the outlook for state and local finances is complicated. State budgets have been in generally good shape over the past year or so, bolstered by strong revenues and federal aid, but economic turbulence is again rising with high inflation, stock market volatility and housing markets cooling as interest rates go up.

In other words, the boom times could soon be over for state budgets and recession risks are looming. And that raises questions about whether it's an ideal time to slice away revenue.

Another concern is that state gas taxes often go to support transportation projects. One of Biden's main wins so far during his term was signing a bipartisan infrastructure bill that will direct more federal dollars to public works, including roads, bridges and transit.

But states and local governments will also need to bring money to the table to make projects happen and eliminating gas taxes, even temporarily, undercuts an important stream of funding to do so. 

Do Gas Tax Holidays Really Help?

A range of experts have cast doubt on whether a gas tax holiday will provide much help to motorists, while also cautioning about the repercussions of lost government revenue. 

Howard Gleckman, a senior fellow at the Tax Policy Center, in an online post published Wednesday, described suspending the gas tax as "a terrible idea that, on the margin, will make inflation worse."

Even so, the idea continues to get attention from both Democratic and Republican leaders as this fall's elections approach.

The federal tax is 18.4 cents per gallon for gasoline and 24.4 cents for diesel fuel. Average gas prices nationwide were near $5 per gallon this week, up from around $3 per gallon a year ago. So even with an 18.4 cent discount, prices would remain high.

At the state level, gas taxes vary. For instance, Washington state's tax on gasoline is about 49 cents, whereas Mississippi's is around 18 cents.

States that have enacted gas tax rollbacks include Connecticut and New York, which both have Democratic governors, as well as Florida, Georgia and Maryland, where the governors are Republicans. In solidly blue California, lawmakers have been debating relief proposals. Biden noted delayed tax and fee increases in Illinois and Colorado.

Michigan Gov. Gretchen Whitmer, a Democrat up for reelection, issued a statement applauding the president's proposal and voicing her support for temporarily rescinding a sales tax on gas in her state.

"I am glad that President Biden is calling for a temporary suspension of the federal gas tax," she said. "If we suspend the Michigan sales tax on gas and also get this done, we can save families nearly 50 cents a gallon right now."

Long Odds for Biden's Plan in Congress

On Capitol Hill, the uphill battle that the president's plan faces was on clear display Wednesday.

Sen. John Thune of South Dakota called the proposal for a gas tax holiday a "Band-Aid," adding that it is "dead on arrival" in Congress. He, like other Republicans in recent months, have attributed the rise in prices to Biden administration policies.

"They can fix it, but they've got to start focusing on the real problem and not on gimmicks that they know are going nowhere," Thune said.

"We have taken American energy producers out of the game," he added.

The president has embraced an agenda focused on the transition to electric vehicles and cutting carbon emissions. But he rejected the notion that his administration is limiting oil production as "nonsense."

Energy Department statistics show that domestic oil production in March was around 11.6 million barrels per day, compared to around 11.9 million barrels during March 2019, before the pandemic hit and during Donald Trump's presidency.

There's a mix of reasons for the rise in prices, including Russia's invasion of Ukraine, which has stifled the flow of Russian oil to global markets. In addition, oil companies have moved slowly to increase output, while also channeling profits to investors, following the sharp drop in demand and collapse of oil prices early in the pandemic.

Gleckman, with the Tax Policy Center, highlighted estimates indicating that a federal gas tax holiday would save the typical U.S. motorist under $10 a month. He also noted that cost decreases from suspending the tax could raise demand for gas and, in turn, push up prices.

Gas tax collections go to the Highway Trust Fund, the main federal account used to pay for roads and transit. 

Biden is suggesting that it's possible to backfill the Trust Fund with other revenues to offset the roughly $10 billion cost to the federal government of lifting the tax through September. He pointed to already proposed legislation in both chambers of Congress containing plans along these lines.

"We'll still be able to fix our highways and bring down prices of gas," Biden said.

Even lawmakers in Biden's party haven't shown much enthusiasm for a national gas tax reprieve.

Senate Majority Leader Chuck Schumer, asked on Wednesday if he supported Biden's plan, pointed to Republican opposition as an obstacle in the evenly divided Senate, and blamed oil company "manipulation" of markets for driving up prices.

"We're going to focus on that issue," he said.

House Speaker Nancy Pelosi raised concerns earlier this year that adopting the policy would end up providing a break for oil companies that they wouldn't pass to consumers, while also eroding the Highway Trust Fund.

Biden on Wednesday called for oil companies to pass savings from any eventual gas tax holiday on to motorists. "There's no time now for profiteering," he said, also urging gas station owners to lower fuel prices when oil costs fall.