Is too much inflation crushing your summer vacation plans? President Joe Biden has a holiday for you — at the gas pump. Biden is set to request from Congress a three-month, emergency relaxation of the federal tax on gasoline. By removing that tax of 18.4 cents per gallon, and right before the July 4th peak of driving season, Biden hopes to be credited for saving you three or four bucks every time you fill up.
Martin A. Sullivan of Tax Analysts writes that there are four good reasons for a gas tax. First, as a user fee for road repairs, one that conforms to the user-pays principle (though EV drivers skate, for now). Second, as an incentive to drive less, reducing road congestion. Third, as an effective tax on carbon emissions; 18.4 cents a gallon equates to an implied carbon price of $20 per ton of carbon dioxide emitted. Fourth, a gas tax can insulate from price shocks, by marginally reducing demand for a volatile commodity.
Sullivan marvels that given all those things a gas tax is good for, it would be counterproductive to undo them. A tax holiday would do the opposite of what we need at a time of historically tight markets for petroleum — it would encourage more driving, more congestion, more emissions, and less cash set aside for highway repairs. Even if all else stays equal, and all the savings is passed down to the consumer, removing the tax only hurts the adjustments that the country needs to make in moving to a low-carbon economy.
“If our sole goal is to tame inflation, lawmakers should rule out a gas tax holiday, tax incentives for alternative energy, and extensions of child credits,” writes Sullivan. Indeed, raising taxes would do more to fight inflation, by discouraging driving. “That’s not gonna help those lawmakers win any elections, but it is the bitter truth.”
R&I – FS
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