Jun 22, 2022 - Politics & Policy

Biden calls on Congress to suspend federal gas tax


Photo: Alex Wong/Getty Images

President Biden will on Wednesday call on Congress to suspend the federal gas tax for three months, ask states to do the same and demand that oil and gas companies boost production and pass on any savings directly to consumers, according to administration officials.

Why it matters: Democrats know that $5 dollar-a-gallon gas is a daily — and politically deadly — reminder that the country's annual inflation rate has soared to 8.6% under Biden's watch.

  • Temporarily eliminating the federal gas tax is one of the few available options that Biden and Congress have to address gas prices, which have risen by approximately $2 a gallon since Russia began massing troops on Ukraine's border last year.
  • Convincing Saudi Arabia to pump more oil is another prong in the White House strategy to bring down prices, driving Biden’s visit to the kingdom next month.
  • But economists from both parties have been deeply skeptical for years that suspending the tax can actually lower prices at the pump.

By the numbers: Biden officials claim that eliminating state and federal taxes, as well as convincing oil and gas companies to pass on any savings to consumers, can lower the price of gas by about $1 per gallon.

  • A three-month suspension of the 18.4-cent-a-gallon tax on gas (24.4 cents for diesel) will cost the government approximately $10 billion. Revenue from the tax is dedicated to the Highway Trust Fund to help build federal roads and bridges.
  • Biden wants Congress to divert other revenue toward the trust fund to ensure that long-term infrastructure projects are funded.

The big picture: In addition to blaming Vladimir Putin, Biden has been suggesting that the oil and gas industry is also responsible.

  • "We're going to make sure everyone knows Exxon’s profits," Biden said at the Port of Los Angeles last month. "Exxon made more money than God last year."
  • Biden has summoned the leaders of seven major oil and gas companies — Marathon Petroleum, Valero Energy, ExxonMobil, Phillips 66, Chevron, BP and Shell — to Washington on Thursday to meet with Energy Secretary Jennifer Granholm.

What we're watching: Biden seems comfortable antagonizing the very industry leaders he needs to increase domestic oil production.

  • On Tuesday, Michael Wirth, the CEO of Chevron, wrote to Biden to request he take a more collaborative approach and offer less "political rhetoric."
  • Asked about Wirth's letter, Biden was dismissive: "He's mildly sensitive. I didn’t know they’d get their feelings hurt that quickly," he told reporters.

What they're saying: "A federal gas tax holiday is basically a tax cut," said Justin Wolfers, a professor of public policy and economics at the University of Michigan, who derided the idea in 2008 when Sen. John McCain called for one. "And is a tax cut what you want to do when you're facing inflation this high?"

  • "Cutting the federal gas tax is something every administration faced with high gasoline prices has considered but none has done before," said Bob McNally, the president of Rapidan Energy Group. "Little bang for the buck."

The other side: "Having a federal gas tax holiday along with states following suit could be a 10% savings for hard-working Americans,” said Robert Wolf, former CEO of UBS Americas and an Obama economic adviser.

  • “While many economists call it a gimmick, if President Biden aligns the timetable to the heightened driving months like this summer, then it can truly help offset some of the direct rise caused from the Ukraine-Russia crisis."
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