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Biden wants a gas tax holiday. Some economists say that's a bad idea

President Biden pitched a three-month break on the federal fuel tax to help American drivers face the highest inflation in four decades, but critics said the proposal is unlikely to work.
Jim Watson
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AFP via Getty Images
President Biden pitched a three-month break on the federal fuel tax to help American drivers face the highest inflation in four decades, but critics said the proposal is unlikely to work.

Updated June 22, 2022 at 3:17 PM ET

President Biden said Wednesday that he wants Congress to give consumers a break on the federal gas tax for the summer months.

That would mean the government would stop collecting the tax — 18 cents per gallon on gas and 24 cents per gallon on diesel — until the end of September, the peak driving period for people heading out on summer vacations.

"By suspending the 18-cent ... federal gas tax for the next 90 days, we can bring down the price of gas and give families just a little bit of relief," Biden said.

It seems unlikely that there's enough support in Congress to make the change. But even if it were to happen, economists say the move might not make that big a difference to drivers — and could actually backfire on the economy.

"It would be very unlikely that gas prices would fall by more than a dime because of this change. And oil company profits would go up by billions of dollars," said Jason Furman, who served as a top economic adviser to former President Barack Obama and is now at the Harvard Kennedy School.

Gas prices are displayed on a sign in Washington on June 14. Consumers are angry gas prices are so high and polls show they blame President Biden for it.
Stefani Reynolds / AFP via Getty Images
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AFP via Getty Images
Gas prices are displayed on a sign in Washington on June 14. Consumers are angry gas prices are so high and polls show they blame President Biden for it.

There's no guarantee the tax savings would be passed on to consumers

Biden also called on state governments to take similar actions with their gas taxes. He wants oil refiners to boost their capacity so there's more gasoline on the market — another way to bring down prices.

But there's no way to force those tax cuts to be passed through to consumers.

And if a tax holiday encouraged more spending, that could actually hurt the economy by providing a stimulus at a time when the government wants to curb inflation, said Carola Binder, an associate professor of economics at Haverford College.

"By making gas cheaper that allows people to buy more of it," Binder said. "It's giving them a tax cut and that gives them more to spend elsewhere. So that is going to lead to more inflationary pressures elsewhere."

Congress was not enthused with the idea

Republicans panned Biden's plan. "What the administration, of course, is coming up with is yet another gimmick, another Band-Aid and something they know is dead on arrival up here in Congress," said Sen. John Thune, the No. 2 Senate Republican leader.

Democrats, who hold a slim majority in Congress, did not give Biden's idea a ringing endorsement, either.

Senate Majority Leader Chuck Schumer indicated it was unlikely such a bill would advance.

"Senate Democrats tried to pass it recently and it was blocked by Republicans. I believe the most important thing we can do to lower gas prices is crack down on Big Oil's manipulation of the gas market," he told reporters.

President Biden has said addressing inflation is his top priority. He wants Congress to give consumers a break on the federal gas tax during the summer months.
Drew Angerer / Getty Images
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Getty Images
President Biden has said addressing inflation is his top priority. He wants Congress to give consumers a break on the federal gas tax during the summer months.

Inflation is the biggest problem for Democrats in elections this fall

Biden and his Democratic Party are in a tough political spot heading into November midterm elections. Republicans blame him for high gas prices and out-of-control inflation. Polls shows Americans are very dissatisfied with how Biden is handling the economy.

So there is a real demand for him to do something. Senior administration officials told reporters that a gas tax holiday won't fix all the problems, but they say it will provide families a little help while they work on more permanent solutions.

In his remarks, Biden sought to explain that the price spike was caused by actions taken to punish Russia — a major oil exporter — after its invasion of Ukraine earlier this year.

And he said companies that refine oil and sell gasoline need to do more to help.

"This is a time of war, global peril, Ukraine; these are not normal times," he said. "Bring down the price you are charging at the pump to reflect the cost you are paying for the product. Do it now. Do it today. Your customers, the American people, they need relief now."

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