Biden calls for 3-month suspension of gas and diesel taxes
President Joe Biden on Wednesday called on Congress to suspend federal gasoline and diesel taxes for three months—an election-year move meant to ease financial pressures that was greeted with doubts by many lawmakers.
The Democratic president also called on states to suspend their own gas taxes or provide similar relief and delivered a public critique of the energy industry for prioritizing profits over production. Still, his announcement depends on the actions of lawmakers in Washington and in statehouses across the country to actually bring relief to consumers.
“It doesn’t reduce all the pain but it will be a big help,” Biden said, using the bully pulpit when his administration believes it has run out of direct levers to pull to address soaring gas prices. “I’m doing my part. I want Congress, states and industry to do their part as well.”
At issue is the 18.4 cents-a-gallon federal tax on gas and the 24.4 cents-a-gallon federal tax on diesel fuel. If the gas savings were fully passed along to consumers, people would save roughly 3.6% at the pump when prices are averaging about $5 a gallon nationwide.
Biden’s push faces uphill odds in Congress, which must act in order to suspend the tax, and where many lawmakers, including some in his own party, have expressed reservations. Even many economists view the idea of a gas tax holiday with skepticism.
The president said “states are now in a strong position to be able to afford to take some of these actions,” thanks to federal support from the 2021 COVID-19 relief bill, but there is also no guarantee that states will tap in into their budgets to suspend their taxes on gas or to deliver rebates to consumers, as Biden is requesting.
Barack Obama, during the 2008 presidential campaign, called the idea a “gimmick” that allowed politicians to “say that they did something.” He also warned that oil companies could offset the tax relief by increasing their prices.
Biden energy adviser Amos Hochstein pushed back on Wednesday, saying consumers could save about 50 cents per gallon if Congress and the states heed the president’s call and the oil industry doesn’t pocket the savings.
“That’s not a gimmick,” Hochstein, senior adviser for global energy security at the State Department, said on CNN. “That’s a little bit of breathing room for the American people as we get into the summer driving season.”
High gas prices pose a fundamental threat to Biden’s electoral and policy ambitions. They’ve caused confidence in the economy to slump to lows that bode poorly for defending Democratic control of the House and the Senate in November.
Biden’s past efforts to cut gas prices—including the release of oil from the U.S. strategic reserve and greater ethanol blending this summer—have done little to produce savings at the pump, a risk that carries over to the idea of a gas tax holiday.
Biden has acknowledged how gas prices have been a drain on public enthusiasm when he is trying to convince people that the U.S. can still pivot to a clean-energy future. In an interview with The Associated Press last week, Biden described a country already nursing some psychological scars from the coronavirus pandemic that is now worried about how to afford gas, food and other essentials.
“If you notice, until gas prices started going up,” Biden said, “things were much more, they were much more optimistic.”
The president can do remarkably little to fix prices that are set by global markets, profit-driven companies, consumer demand and aftershocks from Russia’s invasion of Ukraine and the embargoes that followed. The underlying problem is a shortage of oil and refineries that produce gas, a challenge a tax holiday cannot necessarily fix.
Mark Zandi, chief economist at Moody’s Analytics, estimated that the majority of the 8.6% inflation seen over the past 12 months in the U.S. comes from higher commodity prices due to Russia’s invasion and continued disruptions from the coronavirus.
“In the immediate near term, it is critical to stem the increase in oil prices,” Zandi said last week, suggesting that Saudi Arabia, the United Arab Emirates and a nuclear deal with Iran could help to boost supplies and lower prices. Republican lawmakers have tried to shift more blame to Biden, saying he created a hostile environment for domestic oil producers, causing their output to stay below pre-pandemic levels.
Senate Republican leader Mitch McConnell mocked the gas tax holiday as an “ineffective stunt” in a Wednesday floor speech. “This ineffective administration’s big new idea is a silly proposal that senior members of their own party have already shot down well in advance,” he said.
House Speaker Nancy Pelosi and other congressional Democrats have long worried that suspending the gas tax would simply allow oil companies to reap additional profits with no guarantee the savings would be passed along to consumers at the pump.
Rep. Peter DeFazio, the Democratic chairman of the House Transportation and Infrastructure Committee, said he would not support suspending the gas tax. “I’m going to be working against it. I have the largest committee in Congress, so we’ll see.”
DeFazio said a better course would be to tax oil companies on “windfall profits.”
House Majority Leader Steny Hoyer, D-Md., said he would look at the proposal because Biden has proposed it.
“What I’m not sure is that it in fact will have the intended effect in terms of the retail price, whether in fact we will save the consumer money,” Hoyer said. “Do I think we have the votes? We haven’t counted, so we don’t know yet.”
But Dan Kildee, D-Mich., said he is a longtime supporter of a federal gas tax holiday.
“I admit to some frustration because I think it would have been more effective if we had done this a few months ago,” Kildee said. “But it’s never too late to do the right thing.”
One Democratic aide, who insisted on anonymity to frankly discuss the situation Wednesday, said it appears unlikely the proposal could pass the House without first clearing the evenly split Senate.
Administration officials said the $10 billion cost of the gas tax holiday would be paid for and the Highway Trust Fund kept whole, even though the gas taxes make up a substantial source of revenue for the fund. The officials did not specify any new revenue sources.
The president has also called on energy companies to accept lower profit margins to increase oil production and refining capacity for gasoline.
This has increased tensions with oil producers: Biden has judged the companies to be making “more money than God.” That kicked off a chain of events in which the head of Chevron, Michael Wirth, sent a letter to the White House saying that the administration “has largely sought to criticize, and at times vilify, our industry.”
Asked about the letter, Biden said of Wirth: “He’s mildly sensitive. I didn’t know they’d get their feelings hurt that quickly.”
Energy companies are scheduled to meet Thursday with Energy Secretary Jennifer Granholm to discuss ways to increase supply.
—Associated Press writers Lisa Mascaro, Matthew Daly and Kevin Freking contributed to this report.
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.