President Biden appealed to Congress on Wednesday to suspend the federal gas tax, saying it was critical to reducing the pain Americans feel at the pump. “I promise you I am doing everything I can to bring down the price of energy,” Biden said, as images of oil pumps and gas stations flashed on the wall behind him.
But the notion of a gas tax exemption received instant criticism, not only from members of both parties on Capitol Hill, but even from many officials within the administration who said privately that it would likely do little to significantly lower gasoline prices. gasoline.
Senior Treasury Department officials expressed doubts about the gasoline tax exemption, and at least two top White House economists also expressed reservations privately, according to two people familiar with the internal deliberations who spoke on condition of anonymity to reveal conversations. delicate.
Biden’s determination to forge ahead despite these domestic concerns reflects his struggle to navigate an economic outlook that, despite some signs of strength, deeply worries many voters. From declaring inflation “transient” to describing a recession as “not inevitable,” White House officials have switched from one message to another.
They have also urgently sought political measures to lower costs for Americans, despite having few obvious political tools to slash the price of gasoline. Even as Biden urged Congress on Wednesday to pass the tax break, called on states to suspend their own gasoline taxes and demanded that oil refineries produce more fuel, he acknowledged the limitations of his policy prescriptions.
“I fully understand that a gas tax exemption alone will not fix the problem,” Biden said. “But it will give families immediate relief, just a little bit of breathing room, as we continue to work to lower prices for the long term.”
How would a gas tax exemption work?
Biden asked Congress to suspend the federal gas tax of 18.3 cents per gallon, and the diesel tax of 24.3 cents per gallon, for three months, a request that comes just before July 4, when expects millions of Americans to travel for the holidays. The average cost of a gallon of gasoline came in at nearly $4,955 a gallon nationally on Wednesday, down from its record of more than $5 a gallon earlier this month, according to AAA.
But the president’s request is likely to face stiff opposition on Capitol Hill, including from leading members of his own party who have already made it clear they oppose suspending the gas tax. It’s unclear what Biden plans to do, if anything, to corner lawmakers into supporting the policy.
Speaking to reporters Wednesday, House Majority Leader Steny H. Hoyer (D-Md.) emphasized that he “sympathizes” with the president’s request and that lowering gas prices is a “good goal”. But Hoyer joined other Democrats in expressing concern that it may not “have the desired effect in terms of the retail price.”
And he said Democratic leaders “don’t know” if they have the votes to move forward and they haven’t counted yet.
“[Rep. Peter A.] DeFazio… [Speaker Nancy] Pelosi, myself, we’ve all expressed reservations about it. But the president of the United States has proposed it,” Hoyer added later. “We will look at it. We all agree that the price at the pump is hurting American workers.”
But Biden is facing the reality that the seemingly intractable problem of rising prices threatens to overshadow his agenda and any Democratic political messaging. Many inside the White House have concluded that the president must at least show that he understands the suffering of Americans and that he is doing everything he can to help, even if everything doesn’t work out in the short term.
Some vulnerable Democrats celebrated Biden’s announcement.
“I introduced my bill months ago to end the federal gas tax and have never stopped working to provide relief to Georgia families at the pump,” tweeted Sen. Raphael G. Warnock (D-Ga.), who is facing a tough fight for re-election in November. on Wednesday. “I am pleased that the president supports this idea and finally listens to me and my colleagues about taking this crucial step.”
Still, that’s not a universal opinion. Eswar Prasad, an economist at Cornell University, said top Treasury Department officials have made it clear in internal discussions that they believe Americans will likely see only limited benefits from a gas tax exemption, even if Congress were to enact a.
“Treasury has been approaching this from an analytical perspective, and people there realize that the direct economic benefits to consumers are likely to be quite limited, while the budget implications would be significant,” said Prasad, who served as a civil servant in the International Monetary Office. Fund, citing conversations with several high officials.
Treasury officials “expressed concerns to the White House that this is not the optimal strategy for addressing inflation and the political benefits are likely to be quite limited,” Prasad said.
In his remarks on Wednesday, Biden said that if all the recommended actions were taken together — suspending gasoline taxes by Congress and the states, and increasing production by oil refiners — Americans could save up to $1 per gallon at the pump.
Speaking to reporters this week, Treasury Secretary Janet L. Yellen offered moderate support for the idea and the notion that consumers benefit when the gas tax is lifted.
“Several states in the US have reduced their gas taxes, and I think the research suggests that there is a reasonably high pass-through when a state does so at prices at the pump, not full, but reasonably high,” Yellen said. . “At the federal level, we have a lower gas tax than at the state level. The evidence is more mixed.”
He added: “Consumers are really affected by higher gas prices. It has been a burden on American households. And I think even though it’s not perfect, it’s something that should be under consideration.”
Members of both parties also expressed concern about the consequences of suspending the gas tax just months after Congress passed an estimated $1.2 trillion bill to improve the nation’s infrastructure. Many federal road and highway programs are funded through a trust fund that comes from fuel tax revenues.
“The suspension of the federal gas tax will not provide significant relief at the pump for American families, but it will put a multi-billion dollar hole in the highway trust fund, putting funding for future infrastructure projects at risk,” DeFazio (D- Ore.), the top lawmaker on the House’s main transportation committee, said in a statement before the White House announced his request.
Republicans, who generally support tax cuts of all kinds, dismissed Biden’s proposal as an election year stunt.
“This ineffective trick will join President Biden’s other ineffective trick on gasoline prices: emptying the Strategic Petroleum Reserve that we need in the event of a true national security crisis,” Senate Minority Leader said on the Senate floor. , Mitch McConnell (R-Ky.). flat.
Republicans may also be hesitant to hand Biden a victory on an economic issue that deeply concerns voters five months before the midterm congressional elections.
But Robert Wolf, the former chief executive of UBS Americas and an economic adviser to Obama, has defended the move, including during meetings last week at the White House with top officials. Wolf said he met with Ron Klain, chief of staff, Brian Deese, director of the National Economic Council, and Heather Boushey, a member of the Council of Economic Advisers, to discuss the gasoline tax exemption, among other economic issues.
“There are so many tools that you have to fight rising gasoline hikes,” Wolf said. “We had three things happening at once that are really once-in-a-decade-type events. We have a combination of the oil embargo of the 1970s, the Persian Gulf War of the 1990s, and the post-recession of 2008-2009. Gas prices skyrocketed with all three, and we have them all at once. We really have had the perfect storm.”
Wolf added that concerns about budget shortfalls for infrastructure projects could be eased.
“We’ve already gotten trillions for Covid relief and tens of billions for the Ukraine war,” he said. “Are you telling me we can’t do something for Americans working at the gas pump?”
Boushey, defending the policy on Twitter, cited research from the University of Pennsylvania that found consumers benefited in states that instituted a gas tax exemption, though the impact of a federal tax suspension would be more limited. “A federal gas tax exemption could help, particularly if states do the same,” she tweeted, sharing analysis of Penn Wharton’s budget model.
While a federal gas tax exemption could be popular with drivers and could give Biden a small political boost, economists also say it risks exacerbating the problem. The artificial lowering of prices sends a signal to consumers to drive more, which could be a problem at a time when there is still a serious shortage of fuel.
“We want fewer people to use less gasoline because there is a shortage of gasoline, and this would only encourage more use of it,” said Mark Zandi, chief economist at Moody’s Analytics.
He said he “sympathizes with the problem they’re trying to address,” but that a gas tax exemption is “way off the mark” in terms of lowering gas prices.
It’s also unclear whether gas companies, which have been a regular target of Biden’s criticism in recent months, will eat up their own profits simply because the president says they need to provide relief to consumers at the pump. Energy Secretary Jennifer Granholm is scheduled to meet with oil company executives on Thursday to seek solutions to gas price hikes, though Biden will not meet with the executives in person.
Biden also tried to put a moral tone on the issue Wednesday, attributing the rise in gasoline prices to Russian President Vladimir Putin’s war against Ukraine. “It wasn’t just Putin’s invasion of Ukraine, it was the refusal of the United States and the rest of the free world to let Putin get away with something we haven’t seen since World War II,” Biden said.
And even if a gas tax exemption isn’t very effective, it’s important for Biden to convey his empathy with the struggles of Americans, his supporters said.
“I think they know it’s not going to have a huge impact on prices,” said Dean Baker, a liberal economist and White House ally. “It looks like you’re doing something, but actually you’re not, I think they know.”