President Biden is grasping at straws to reduce gasoline prices because he refuses to let the American people have access to oil and gas on their lands or modify regulations to encourage new refineries to be built. Instead, he has asked Congress to pass a gasoline tax holiday lifting the 18.4 cent federal tax on a gallon of gasoline and the 24.4 cent tax on a gallon of diesel through the end of September, which he hopes will make Americans vote for his favored people this November. Biden also demanded that companies pass on the benefits of the tax holiday to consumers, and asked states to suspend their gasoline taxes. The administration estimates that if states also suspend their gasoline taxes and oil companies step up refining, gasoline prices could fall by at least $1 a gallon. But because the federal gasoline tax makes up less than 4 percent of the total cost of gasoline per gallon, consumers probably will not see the federal tax change as significant, which is why he needs states to join in and is demanding refineries produce more.

It is unclear what refineries can do to help out President Biden. Because of Biden’s policies, onerous regulation and the realities of investment decisions when the government is saying they will end your business, the United States lost about 1 million barrels per day of refining capacity since the COVID pandemic began. Refineries are also converting to biofuel facilities where government policies and regulation encourage the improvement of their revenues through subsidies and mandates. The remaining operating petroleum refineries, which the Energy Information Administration indicates have a capacity of 17.94 million barrels per day, are producing at record rates of over 90 percent, supplying Americans with gasoline, diesel and jet fuel, among other petroleum products.

There is a small amount of idled refinery capacity, 0.4 million barrels per day, that Biden wants to have operable, but he has not provided any reason for the industry to bring those facilities back online. Rather, he has indicated that he wants to do away with fossil fuels, which makes companies reluctant to invest. The supply situation is so dire, refineries in India are raking in profits by buying oil at a discount from Russia and selling finished petroleum products to Western countries, including the United States. India and China have both added refineries in recent years to meet growing demand, while the United States was shuttering capacity.

Source: S&P Global

Congress has never lifted the gasoline or diesel tax, which supply the majority of the Highway Trust Fund—federal funding used to build and maintain highways—which in 2019 totaled $36.5 billion. For more than a decade, those revenues have fallen short of federal spending on highways and other public works, prompting transfers from the Treasury’s general fund to the trust fund to make up the difference. Despite the fact that outlays of the fund have exceeded dedicated revenues in recent years, Congress has not increased the federal gasoline tax since 1993. Biden’s request to suspend the fuel tax for three months will cost the Highway Trust Fund roughly $10 billion in forgone revenue that must come from someplace else.

State Experience

Some states, such as New York, Connecticut, and Georgia have already suspended state fuel taxes, and other states are also considering consumer rebates and direct relief. Maryland suspended its state tax of 36.1 cents per gallon on gasoline and 36.85 cents per gallon on diesel from March 18 to April 16, 2022. Georgia lifted its state fuel taxes for 10 weeks from March 18 until May 31, consisting of a tax of 29.1 cents per gallon on gasoline and a tax of 32.6 cents per gallon on diesel. Connecticut suspended its state tax on gasoline of 25 cents per gallon from April 1 to June 30. In each case, the tax holidays were relatively short, and the state taxes were higher than the federal gas tax of 18.4 percent.

Recent research at the University of Pennsylvania looked at the experience of the three states. The researchers found that the suspensions of state gasoline taxes in the three states were mostly passed onto consumers in the form of lower gasoline prices, but that the reduced-price levels were not sustained during the entire tax holiday. In Maryland, 72 percent of tax savings were passed onto consumers, in Georgia, 58 percent to 65 percent of the tax savings were passed onto consumers, and in Connecticut, 71 percent to 87 percent of the tax savings were passed onto consumers. However, as the market adjusted over time, the consumer benefit faded as can be seen in the graph below.

Gasoline Prices In Maryland, Georgia, Connecticut And The Rest Of The Country


Gasoline prices will decline if the demand falls, as it did during the COVID pandemic or if supply increases as it did when U.S. oil companies used hydraulic fracturing to produce oil from shale deposits. A gas tax holiday does not decrease demand nor raise supply because it is designed to be temporary. Further, not all the tax decrease ends up in the pockets of the consumer. And, as one can see from the above graph the prices in Maryland and Connecticut ended up slightly higher than the average of the other states after the tax holiday ended. (Georgia’s tax holiday did not end until the end of May.)

President Biden refuses to do what is necessary to truly lower gasoline and diesel prices because he has stated repeatedly he wants to put an end to fossil fuels. Companies will not invest under that environment because it makes no economic sense. Americans need and want fossil fuels to live a comfortable life. Biden’s policies will only result in economic damage and a lower living standard for Americans. The country does not need band-aids; it needs policies and regulations that encourage companies to make investments that benefit Americans. So far, President Biden has been taking actions to drive up the price of gasoline while talking about reducing them, as in the case of the suspension of the gas tax.

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