Yahoo Autos Gas tax holiday relief will likely be mild, short. Americans should brace for higher prices
It’s unlikely Americans will feel any significant or lasting relief from President Joe Biden's proposal Wednesday for a three-month federal gas tax holiday.
The average national gas price fell this week for the first time in nine weeks, slipping below the key $5 per gallon for regular unleaded, according to GasBuddy. The decline was in line with a tumble in oil prices to about $110 per barrel, from $122, on fears the global economy is slowing and may fall into recession, AAA said.
But an easing in gas prices last week doesn’t mean the coast is clear. The world still has lower-than-usual stockpiles of oil and gas and stretched refining capacity to transform oil into consumer products, and consumption remains strong. AAA predicts car travel will set a record with 42 million people hitting the road this July 4 weekend despite historically high gas prices.
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Strong demand could make it backfire
The gas tax holiday, which would suspend the 18.4-cent federal tax on each gallon of gas and 24.4 cents on each gallon of diesel fuel for gas producers (not consumers), would require congressional approval. Biden would need 60 votes – at least 10 from Republicans – in the evenly divided Senate to overcome any filibuster.
If passed, experts see such a move as only providing mild temporary relief, if any, for consumers. The Penn Wharton Budget Model from the University of Pennsylvania estimated that a 10-month federal gas tax holiday would lower average per-capita gas spending by $16 to $47, depending on demand.
Key words: depending on demand.
“While a gas tax holiday may provide temporary relief from record-setting prices for some consumers, it may also drive demand even higher, thereby stoking inflation,” said John Leer, chief economist at research firm Morning Consult.
Biden also is encouraging states to suspend their gas taxes, but that’s also unlikely to provide relief for consumers for more than a day or so.
On average, one-third of an increase – or decrease – in state gasoline tax rates is passed through to consumers in the retail price on the day the change takes effect, with no significant impact after that time, according to a June 2020 study by the ARTBA Transportation Investment Advocacy Center.
