ALEXANDRIA, Va.—U.S. President Joe Biden has called on Congress to temporarily suspend the federal gas tax for three months, reports CNBC.
“Specifically, he is calling on Congress to suspend the federal gas tax for three months, through September, without taking any money away from the Highway Trust Fund,” said the White House in a statement. “And he is calling on states to take similar action to provide some direct relief, whether suspending their own gas taxes or helping consumers in other ways.”
The federal gas tax is 18.4 cents per gallon, and the federal diesel tax is 24.3 cents a gallon. Some experts say that a suspension could provide consumers with immediate relief at the pump, while others say that the relief could keep the demand for fuel high and exacerbate the country’s tight supply.
Jeff Currie, global head of commodities research, Goldman Sachs, told CNBC that a gas tax holiday will ultimately lead to higher demand from consumers, and it’s often said that in commodity markets the fix for high prices is high prices. Cutting prices is a temporary measure that won’t address fundamental market imbalances, he said.
The Wall Street Journal reports that drivers are starting to cut back on gas purchases. Fuel sales at gas stations were down 8.2% in the first week of June compared with the same week a year ago, according to OPIS. This is the 14th consecutive week that fuel sales have been down year over year.
Consumers are rethinking their driving habits. Filling up a tank for some Americans cost more than $100, which is 14 hours of after-tax income for certain low-wage workers. The high cost of gas combined with food and housing cost increases has Americans weighing how to spend their money.
A Washington Post poll showed that 44% of respondents between April 21 and May 12 said they have only partially filled their car’s gas tank, and that number jumps to 61% for drivers with incomes below $50,000. Drivers are making more frequent trips to gasoline stations to top off their tanks instead of filling up all at once.
The Washington Post poll also found that more than six in 10 drivers are choosing to drive less, and three in 10 said they are driving at reduced speeds.
Last week, Biden called on refiners to increase output, but the industry says the White House has unfriendly policies, and they can’t boost output even if they wanted to, citing issues like labor shortages, reports CNBC.
Refineries have reduced their capacity to about 800,000 barrels a day since the pandemic began, reports the Journal. However, a number of refineries have been shut down over the past two decades, and the existing refineries are running at near capacity.
“When refineries are already stressed to capacity the additional demand that the gas tax holiday will unleash will manifest itself almost entirely in the form of higher prices for producers instead of savings for consumers,” Jason Furman, professor of economic policy at Harvard and former chair of the Council of Economic Advisers under President Barack Obama, told CNBC. “I don’t think any expert thinks this is a remotely good idea.”
U.S. presidents have very little control over gas prices, as gas prices are largely dictated by oil prices and oil prices are dependent upon supply and demand. Currently, crude oil is trading above $100 a barrel, which means high prices at the pump.
In 2021, the convenience and fuel retailing industry paid or collected $159 billion in taxes, or 23% of all sales dollars, according to NACS State of the Industry data.
The goal of gas tax relief is to reduce costs for consumers, an intended result that convenience stores naturally support. When customers spend less money on gas, they are more likely to spend more money elsewhere, including inside the store. But it gets much more complicated, and sometimes, relief at the pump isn’t seen immediately after a gas tax holiday is enacted. Here are three significant complications that relate to how immediately tax relief translates to the price at the pump.
The Convenience Matters podcast episode “What’s the Tipping Point for Gas Prices?” explores how much pain at the pump that consumers will tolerate and what’s ahead for the summer driving season.