While President Joe Biden has called for Congress to suspend federal gasoline and diesel taxes for three months, analysts are criticizing his proposal and predicting that it won’t draw sufficient support from U.S. lawmakers.
Suspension “would require congressional action, which is exceedingly unlikely,” said Tobin Marcus, a policy and politics strategist at Evercore ISI, in a note on Wednesday.
The rollout of a “politically oriented proposal that will not get enacted reinforces our belief that the White House sees little genuinely impactful that they are willing and able to do unilaterally on energy prices or inflation more broadly,” added Marcus, who worked as a Biden economic adviser when the veteran politician was vice president.
“We continue to get questions from investors about how Democrats will respond to inflation before the midterms, and this announcement suggests that few new ideas are forthcoming.”
Biden, for his part, said in a speech on Wednesday that “a gas tax holiday alone is not going to fix the problem, but it will provide families some immediate relief.”
“I call on the companies to pass along every penny of this 18-cent reduction to the consumers. There’s no time now for profiteering,” he also said.
The federal tax on gasoline RB00, -0.33% is 18.4 cents a gallon, while the federal levy on diesel fuel is 24.4 cents a gallon.
An analyst at Height Capital Markets was downbeat on the prospects for a gas-tax holiday in the House and Senate, but said it could offer clues on what’s ahead. Biden’s Democratic Party controls both chambers, but just barely.
“The gas-tax holiday is unlikely to pass but highlights future risk,” said Benjamin Salisbury, director of research at Height Capital Markets, in a note.
“Although the administration has thus far resisted the urge for more invasive interventions such as a summertime fuel formulation waiver, Jones Act waiver, Windfall Profits Tax or crude and/or product export ban, its willingness to push against senior Democratic leadership shows the urgency for the White House to be seen as responding to prices, which raises the risk that these policies come into play if political and/or price pressure deepens,” Salisbury added.
“We anticipate the president will continue to try to jawbone down prices, including pressure on oil producers and refiners, with low-probability, high-impact risk of executive action if the situation worsens.”
Top Democratic lawmakers have sounded skeptical about a gas-tax holiday.
Rep. Peter DeFazio of Oregon, the chairman of the House Transportation and Infrastructure Committee, said in a statement on Tuesday that it’s a “shortsighted proposal that relies on the cooperation of oil companies to pass on minuscule savings to consumers.”
“Suspending the federal gas tax will not provide meaningful relief at the pump for American families, but it will blow a multibillion-dollar hole in the highway trust fund putting funding for future infrastructure projects at risk,” added DeFazio, who isn’t seeking re-election.
“We should deliver relief directly to American families struggling to make ends meet by ending price gouging and profiteering, not by passing a well-intentioned but ill-conceived policy that undermines the long-term positive impacts of the Bipartisan Infrastructure Law. That’s why I introduced the Stop Gas Price Gouging Tax and Rebate Act, which would tax the oil industry’s obscene 2022 profits and return the revenue back to Americans,” the Oregon lawmaker also said.
In late April, House Speaker Nancy Pelosi, a California Democrat, made a similar point, saying there was “no guarantee” that companies would pass on the savings to consumers, and the resulting shortfall in the Highway Trust Fund would have to get covered with other funding.
Pelosi was noncommittal on Wednesday, saying in a statement: “We will see where the consensus lies on a path forward for the president’s proposal in the House and the Senate.”
Biden said in his speech on Wednesday that lawmakers should be able to suspend the federal gas tax without affecting that highway fund, because tax revenues are up this year, and the deficit is down.
A White House statement said he’s “calling on Congress to make sure that a gas tax holiday has no negative effect on the Highway Trust Fund.”
In his remarks, Biden also reiterated his call for major U.S. refiners to get more gas to pumps, noting his energy secretary, Jennifer Granholm, was slated to meet with many of the refining companies on Thursday.
In addition, the president stressed that oil prices CL00, -0.50% have slipped and urged operators of gas stations to lower their prices.
“This is a time of war. Global peril. Ukraine. These are not normal times. Bring down the price you are charging at the pump to reflect the cost you are paying for the product. Do it now. Do it today,” he said.
A top Republican lawmaker criticized Biden’s proposal for a gas-tax holiday.
“This ineffective administration’s big new idea is a silly proposal that senior members of their own party have already shot down in advance,” said Senate Minority Leader Mitch McConnell, the Kentucky Republican, in a floor speech.
Also sounding dubious on a gas-tax holiday, former Obama administration economics adviser Jason Furman warned that “most of the 18.4-cent reduction would be pocketed by industry — with maybe a few cents passed on to consumers.”
“The government cannot decide who gets the benefits of a tax cut, it gets split between the two parties based on the responsiveness of supply and demand,” said Furman, a Harvard professor, in a tweet.
Greg Valliere, chief U.S. policy strategist at AGF Investments, wasn’t impressed either. “There are many reasons why this is a bad idea, but the major flaw is that it has very little chance of winning enactment. Republicans are dismissive of the idea, and Democrats are divided,” Valliere said in a note.
Other flaws, according to Valliere, include the fact that Democrats have called it a gimmick — and that a break of 18 cents a gallon could be viewed as trivial.