Gas Tax Holiday Could Backfire On Democrats

Senior Democrats in Congress are weighing whether to temporarily suspend the federal gasoline tax in a bid to quash mounting consumer frustration that some fear could cost the party their narrow congressional majorities in November.

The Gas Price Relief Act was introduced last week by Sens. Mark Kelly of Arizona and Maggie Hassan of New Hampshire, two vulnerable Democrats seeking reelection. It would suspend through January 2023 the federal gasoline tax of roughly 18¢ per gallon.

To offset the lost tax revenue in the interim, the bill would require the Treasury Department to transfer general fund money into the Highway Trust Fund to keep it solvent. 

A recent estimate from the Committee for a Responsible Federal Budget (CRFB) found that the measure, if passed, would reduce gas tax revenues by $20 billion. The tax holiday would advance the insolvency date of the Highway Trust Fund from 2027 to 2026, CRFB researchers found.

There are other pitfalls to the holiday, too. 

While a gasoline tax holiday might provide some temporary relief, much of the benefit would flow through to oil producers, refiners, retailers – and would likely lead to higher consumer prices in other sectors of the economy. 

The CRFB has warned that the move could increase gasoline demand in an already over-stimulated economy. That means the holiday would likely boost inflation in 2023 once it ends. The move would also undercut the Biden administration’s efforts to address climate change, since it would hike U.S. consumption of gasoline. 

Democrats facing tough midterm challenges this fall, including Sens. Debbie Stabenow of Michigan, Raphael Warnock of Georgia, Catherine Cortez Masto of Nevada, and Jacky Rosen of Nevada, have applauded the tax holiday. It has also won early approval from some House Democrats.

The measure is also reportedly being weighed by the White House, which is worried that a potential Russian invasion of Ukraine would further drive up energy prices for U.S. consumers by increasing the cost of crude oil, which accounts for the bulk of gasoline prices at the pump. 

Remember, oil is a global economy. Russia is one of the three largest oil producing nations in the world, alongside Saudi Arabia and the United States. Its production has a significant impact on the global price of oil, and that price in turn governs the price of gasoline.

Benchmark oil prices now trade around $95 per barrel. Pump prices for regular unleaded are now above $3.50 a gallon on average in the U.S. – their highest level in seven years.

Asked about the temporary gas tax suspension during a White House briefing on Tuesday, Biden press secretary Jen Psaki declined to rule out such a move, only telling reporters that “all options are on the table.”

The truth is that Biden doesn’t have any real options – at least not in the short term.

West Virginia Democrat Sen. Joe Manchin on Tuesday told reporters he was “uncomfortable” with the idea of a federal gasoline tax holiday, which Manchin said could hurt funding to repair federal highways.

That sentiment was echoed by Republican Sen. Lisa Murkowski of Alaska, who said of the effort, “It may give you momentary relief. It’s not anything that works to address the bigger problem.”

Team Biden, despite its executive actions designed to restrict fossil fuels and pressure from environmentalists to more aggressively target the sector, has encouraged the OPEC cartel and domestic producers to drill for more oil. It has also released oil from the U.S. Strategic Petroleum Reserve. But nothing has worked.

Benchmark Brent crude has risen more than 35 percent since Dec. 1, 2021, and today is flirting with $96 per barrel.

There are no more tools left in Biden’s toolbox.