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Biden wants a gas tax holiday. Some economists say that's a bad idea

A motorist pumps gasoline at an ARCO gas station in Los Angeles, Sunday, June 12, 2022.
Damian Dovarganes
/
AP
A motorist pumps gasoline at an ARCO gas station in Los Angeles, Sunday, June 12, 2022. Consumers are angry gas prices are so high and polls show they blame President Biden for it.

President Biden is set to announce on Wednesday that he wants Congress to give consumers a break on the federal gas tax for the summer months.

That would mean the government would stop collecting the tax — 18 cents per gallon on gas and 24 cents per gallon on diesel — until the end of September, the peak driving period for people heading out on summer vacations.

But economists say the move might not make that big a difference to drivers — and could actually backfire on the economy.

"It would be very unlikely that gas prices would fall by more than a dime because of this change. And oil company profits would go up by billions of dollars," said Jason Furman, who served as a top economic adviser to former President Barack Obama and is now at the Harvard Kennedy School.

There's no guarantee the tax savings would be passed on to consumers

Biden also plans to call on state governments to take similar actions with their own gas taxes, to give consumers relief. He wants oil refiners to boost their capacity so there's more gasoline on the market — another way to bring down prices.

But there's no way to force those tax cuts to be passed through to consumers.

And if the tax holiday encourages more spending, that could actually hurt the economy by providing a stimulus at a time when the government wants to curb inflation, said Carola Binder, an associate professor of economics at Haverford College.

"By making gas cheaper that allows people to buy more of it," Binder said. "It's giving them a tax cut and that gives them more to spend elsewhere. So that is going to lead to more inflationary pressures elsewhere."

Inflation is the biggest problem for Democrats in elections this fall

Biden and his Democratic party are in a tough political spot heading into November midterm elections. Republicans blame him for high gas prices and out-of-control inflation. Polls shows Americans are very dissatisfied with how Biden is handling the economy.

So there is a real demand for him to do something. Senior administration officials told reporters that a gas tax holiday won't fix all the problems, but they say it will provide families a little help while they work on more permanent solutions.

Copyright 2022 NPR. To see more, visit https://www.npr.org.

Franco Ordoñez is a White House Correspondent for NPR's Washington Desk. Before he came to NPR in 2019, Ordoñez covered the White House for McClatchy. He has also written about diplomatic affairs, foreign policy and immigration, and has been a correspondent in Cuba, Colombia, Mexico and Haiti.
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