Biden floats gas tax holiday, but analysis shows it could worsen inflation

Under mounting pressure to dampen rising consumer prices, President Biden is considering a temporary suspension of the federal gasoline tax — but the move can only exacerbate record inflation.

“I hope to have a decision based on the data I’m looking for by the end of the week,” the president told reporters in Delaware on Monday.

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The gasoline tax exemption — which would require congressional action — would temporarily eliminate the federal gasoline tax of 18.4 cents per gallon. It aims to help consumers cope with higher prices at the pump amid record high fuel costs.

A gallon of gas averaged $4.96 nationwide on Tuesday, according to AAA. Although this is slightly down from the previous high of $5.01, it is an astonishing 61% jump from just a year ago when the average price was just $5.01. $3.07 per gallon. Gas prices are expected to rise as the country enters peak travel season and the Russian war in Ukraine threatens to further shake up the market.

A gas tank driver delivers 8,500 gallons of gasoline to an ARCO gas station in Riverside, Calif., Saturday, May 28, 2022. (AP Photo/Damian Dovarganes) (AP Photo/Damian Dovarganes/AP Newsroom)

But the Committee for a Responsible Federal Budget, a nonpartisan group advocating for federal budget cuts, previously argued that suspending the tax for a period of 10 months could actually increase demand for gasoline and other goods and services when the economy is already facing strong consumer demand and supply chain disruptions pandemic-induced supply.

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Although the gas tax exemption may reduce prices at the pump, it will further increase demand for gasoline and other goods and services at a time when the economy has little capacity to absorb it. “, said the blog. “The result could be even higher. inflation rate in 2023.”

Suspending the gasoline tax for 10 months would also cut revenue by about $20 billion, according to the CRFB.

President Biden talks about gas prices before leaving Los Angeles

President Biden speaks with reporters before boarding Air Force One at Los Angeles International Airport after attending the Summit of the Americas, Saturday, June 11, 2022, in Los Angeles. (AP Photo/Evan Vucci/AP Newsroom)

Money from the tax is used to pay the Highway Trust Fund, which covers expenses such as highway construction and public transit. More than $42 billion is expected to flow into the Highway Trust Fund this year – more than three-fifths of which comes from gas tax, according to the CRFB. A tax holiday would “significantly reduce” this income.

For months, prices for all kinds of energy – gasoline, diesel fuel, natural gas, petroleum and more – have been a major driver behind inflation, which jumped 7% in December, the highest level since 1982. Energy costs have soared more than 29% over the past year, in part due to a supply and unbalanced demand. Consumers are traveling more, but supply has not kept up with demand.

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Rising prices are eroding the strong wage increases Americans saw last year and are hitting the lowest-income households the hardest. An analysis of the University of Pennsylvania’s Penn Wharton budget model shows that rising energy prices cost the average American $1,200 more last year. The lowest income households spent about 11% of their total expenditure on energy in 2021, compared to 8% in 2020.

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