Biden’s Gas Tax Holiday Just A Drop In The Bucket? [Infographic]

Gasoline and diesel might soon reach U.S. gas stations free of federal taxes. A corresponding proposal was put forward yesterday by the Biden administration and would have to be decided upon by Congress. While federal tax on diesel fuel is approximately 24 cents per gallon, that number is around 18 cents to the gallon for regular gasoline. If the plan was to go ahead as introduced, the tax would be suspended for three months, creating a federal gas tax holiday through September.

However, federal taxes make up quite a small part of the gas price, as seen in data by the Energy Information Administration. This is even more true in relation to the high prices on gas that the U.S. is currently experiencing in the context of world market turmoil following the Russian invasion of Ukraine and ensuing embargoes. A release by the White House is also encouraging more states to suspend their taxes on gasoline, something that New York and Connecticut have already done.

The data by the IEA shows that in the late 1990s, when gas was around one dollar per gallon, a federal tax relief would have been somewhat significant, as federal taxes made up around 18% of the gas price then. With the average U.S. gas price officially surpassing the $5-per-gallon mark last Monday, that share is now a meager 4% and barely visible in the graphic.

Considering state taxes as well as federal taxes on gas, tax per gallon varies between 87 cents in California and 34 cents in Arkansas. Considering the latest gasoline prices in these states, a hold on all taxes would also only lower them by between 8% and 14%.

Any relief counts?

While these shares are rather low, motorists in a pinch would arguably be happy about any relief at the pump, however small. Yet, lessons from countries that have already implemented gas tax holidays show that even the smallest gesture might evaporate rather quickly. Germany suspended the majority of gas taxes on June 1, technically lowering gasoline prices by around 16% on the day of implementation. Fuel prices dipped as a result but rose again quickly, in the case of diesel fuel—whose price was lowered by 8% and which is a popular choice even for regular cars in the country—surpassing the pre-tax holiday price once again by late June.

Renowned economists have concluded that the renewed rise is factoring in the tax concessions and that prices—as numbers from neighboring France show—would simply be even higher if taxes hadn’t been lowered. Nevertheless, suspicion to whether oil companies have been pocketing the difference in price has been running high, with the German economy ministry planning to expand the authority of antitrust watchdogs to get to the bottom of the issue.

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Charted by Statista