Is a gas tax holiday a good idea?

Economic policy is pretty much at the top of a long list I’m abjectly ignorant about. :smiley: But I don’t see how the proposed gas tax holiday is in any way a good thing - or anything other than pandering theater. Anyone able to educate me?

As little faith I have in my elected officials, I have even less faith that private corporations will do anything for the public good that is not consistent with maximizing profits. And from what I can tell, there is no mechanism for forcing fuel companies from passing the savings along to consumers in the price at the pump.

Nor do I understand how cheaper gas is necessarily desirable in addressing inflation. Instead, it seems as though it would increase demand, both in freeing up $ that would otherwise be sent on gas, and freeing up travel to stores/vacations.

My personal thought is that gas prices should be even higher, reflecting the true environmental/political externalities. I’m not overly persuaded that that would unfairly impact the poorest people who own old cars and have long commutes to poor-paying jobs.

Finally, I know that recent decades seem to reflect that we can spend countless billions/trillions on just about anything we wish, with no relationship to income. But I thought the gas tax was actually supposed to be useful in maintaining our transportation infrastructure. But - ho hum. I guess that is just a few more billions our kids and grandkids will have to pay back…

Yeah this is the true test of our willingness to accept climate change, and we are failing. The hard truth is that if we want to avoid the catastrophic effects of global warming, we are going to have to suffer some pretty severe economic hardship. If we can’t handle the economic shock of $5.00/gal gas without crying uncle, there is no way we are going to make it to carbon neutral before we put every speck of carbon laid down in the carboniferous period back into the atmosphere from whence it came.

No, a gas tax holiday is a bad idea overall. High prices for gas is a very good thing to break our petroleum addiction.

However, it is also a political calculation. High gas prices are far tougher on poorer people. If they vote against the Dems, Biden can get even less done which will also hurt the environment.

Correct, lowering prices will increase demand, all else being equal. It applies to gasoline, as well.

It’s a very limited move, since the gas tax is pretty low, so it makes up a rather small fraction of the price of gas.

But it’s a good move by Biden politcally. He gets to point out that he’s fighting inflation, even if it dies in Congress, which it’s very likely to do.

Define “good idea.”

Economically? No, not really.

Ecologically? Absolutely not.

Politically? Yeah, probably, because people are stupid.

You just know the suppliers would raise the price by an amount equal to the tax that’s being holidayed and pocket the difference.

It’s not a good idea because it…

  1. Is a political stunt by Biden. There’s not much he can really do but this makes it look like he’s doing something. People are idiots and always expect the president to solve their problems, especially the people who believe the government should do less.
  2. Won’t help much. The federal gas tax is 18¢ per gallon, about 3.6% of today’s retail prices. It will save you about $3.25 per fill-up, and when I was commuting to work every day that would be about $170 a year. That will help some low-income people but it’s not enough to keep you from being evicted.
  3. Will reduce federal revenue, and that will have to come from somewhere. Ultimately that is a price that will be paid by the same people who will be saving money at the pump. If the government doesn’t replace it with other revenue, then there will have to be some other change in fiscal policy to offset it (i.e., increasing the debt), and the economic impact of that is a little over my head but it ain’t good.
  4. Is the federal government messing with natural global free-market forces.

Maybe, but maybe not. Changing taxes on commodities with low elasticity does not usually change the retail price much anyway. For prices to stay up, all oil companies would have to collude through conscious parallelism, but they do that now anyway. However, the oil companies are probably just sensitive enough their public image that if the POTUS drives a suspension of the gas tax for The Good Of The People Of America, and the prices don’t go down, those people are going to know they’re being fucked by the oil companies. They would be sacrificing long-term viability of their industry for short-term profits.

It can be if the gas tax was very high. For example many European countries maintain usually quite high gas taxes, for a number of reasons. This can sometimes be upward of 50% of the pump price. Many of these countries will reduce a portion of these taxes in times of high oil prices to promote more stability in pump price. I think in that context it is fairly reasonable, the normal robust level of collections and the high rate of taxation mean that reducing or holidaying the tax can have a big impact.

In the U.S. gas taxes are extremely low, I think Federal is only like $0.18/gallon. The highway funds that are supposed to be funded by the gas tax are chronically underfunded and require regular infusions from general revenue, we’re actually supposed to have a well funded highway trust fund paid for in large part by gas taxes. We do not because we have kept them artificially frozen at low levels for decades.

This means that the things the gas tax are supposed to fund are chronically poorly funded in the United States, and the gas tax makes up a very small part of the pump price. Thus, a gas tax holiday will have little impact on pump price and make an already poorly funded area of infrastructure potentially even worse funded. Seems like a loser idea to me.

This gets back to the request for one-handed economists. One the one hand we want to reduce gas consumption and the quickest way to do that is to raise prices…on the other hand this will hurt poorer people disproportionally and we don’t want to do that.

Of course, this could be (somewhat) done with a tax that targets people by income, such as expanding food stamps and similar benefit programs to allow gasoline purchases…upping the amount of the benefit accordingly.

If we really wanted to help poor people we’d be restructuring our city planning and transportation systems so anyone who can’t or doesn’t want to drive or own a car can make that choice without sacrificing their livelihoods. The amount of money most people spend on their car can mortgage an additional $100K in housing, for example. Transit and cycling infrastructure is where a lot of the gas taxes in Europe go. We can’t do that however because something something freedom mumble mumble war on cars maga.

Is there a definitive answer to what is causing these high prices? Is it an actual supply & demand problem or is it just corporate greed? I have not been able to discern which it is, as everything I see online is either about record oil company profits or bad choices made by Obama to kill supply.

If it’s just corporate greed then HELL NO. I do not want to use tax money to subsidize corporate greed.

It’s a good idea as short term relief for artificially high gasoline prices. It is currently very low and normally has little effect on gasoline usage but in the current situation the price of gasoline is creating hardships and even this minor relief will help.

Now in the future a high gasoline tax would be a good idea if part of a plan to address climate change. I wouldn’t expect any such plan to be all that well thought out or executed but a gas tax as a portion of a plan should be more than an arbitrary amount unrelated to other steps.

I won’t claim “definitive” but…

  1. Start of the summer travel season
  2. Pent-up post-COVID travel demand
  3. Return to work post-COVID
  4. Ukraine invasion and sanctions against Russian crude
  5. Overall price inflation
  6. American fetishization of huge pickup trucks and SUVs

All of the above together seem to act as multiplying factors rather than just additive factors. There is certainly some profiteering going on too, since price spikes never go down as fast as they go up.

The core answer for high gas prices is the price of oil is up and the “crack price” which is the refinery price, is up as well due to soaring demand for refined petroleum products.

The price of oil is a big component, typically, in the price at the pump, but it isn’t the only major component. In this situation, the early spring surge was largely driven by soaring crude oil prices tied to the war in Ukraine. That is still a factor, but crude prices have actually cooled off some since then–WTI Crude has fallen to under $100/barrel. But the crack spread–a term referring to how much a barrel worth of refined petroleum products costs versus a barrel of crude, is up to $55. So that means a $100 barrel of oil is having its outputs sold at basically a total cost of $155. The historical average crack spread from 1970 to 2019 was $10. Refining companies are seeing record profits during this time.

But while it would be simple to say “ah hah, there are the villains, to the gallows with them”, price is being used to essentially decide who gets the refined products. There is a genuine shortage in refinery capacity, and price is how, in a time of shortage, you determine how things get distributed. It would be difficult to fix this problem in our economic system–at least in terms of a government response.

Thank you @jjakucyk and @Martin_Hyde

Totally agree and they could have started 50 years ago with the first gas crisis. I’m gen X born in '71 and if the people in charge back then had some vision things could be totally different today. They could have had an entire generation to change things.

But no, they went all in on more cars more highways more sprawl. I think this is now the 5th major gas price spike since I started driving in '87, it’s at least the 3rd time I’ve heard talk about a gas tax holiday.

I’m an old man now but it’s clear to me the status quo is not working and it’s time to make some major changes.