The tax pause would be a “temporary stunt,” said Ed Mortimer, vice president of transportation infrastructure at the U.S. Chamber of Commerce, which routinely lobbies for greater federal investments in infrastructure. He said it would undermine the new infrastructure law but offer “no promise of actually helping lower prices for consumers or improving the economy.”
Senate Majority Leader Mitch McConnell (R-Ky.) on Thursday echoed those thoughts, suggesting the idea was a gimmicky way around a problem of Democrats’ own creation. In a speech on the Senate floor, McConnell said after enacting “anti-energy policies” and “triggering an historic run of inflation,” now Democrats are “suddenly talking about gas prices. And there’s a bold, creative plan: temporarily suspending the gas tax to the tune of 18 cents.”
“And just to make the political games transparent, they want this to expire right after the midterms. as soon as the next Congress is sworn in,” he added.
The idea emerged last week after a handful of vulnerable Democrats, led by Democratic Sens. Maggie Hassan of New Hampshire and Mark Kelly of Arizona, introduced a bill that would suspend the federal gas tax until the end of the year — notably, past the midterm elections. Democratic senators discussed the issue at their caucus lunch this week, and the idea is also under discussion
The bill’s proponents focus on the impact of inflation on working families, a pain point for Democrats going into the election. “People are feeling a real pinch on everyday goods, and we must do more to help address rising costs, particularly the price of gas,” Hassan said in a statement.
But Democrats are divided about whether the holiday is worth it, and some question whether companies would even pass the savings on to consumers.
Congressional infrastructure advocates, especially, are aghast.
House Transportation Chair Peter DeFazio blasted the idea, saying the tax holiday would do little but “blow a $26 billion hole in the Highway Trust Fund.”
DeFazio said the pause would also fail to address the root of motorists’ misery: oil companies “raking in record profits” and OPEC “manipulat[ing] supply to drive up prices.”
The bill includes a provision that would require the Treasury Department to ensure that the tax savings are passed on to consumers. But DeFazio dismissed that as toothless, saying “it is likely the oil companies will add the forgone federal tax to their coffers in whole or part.”
Some studies bear out DeFazio’s concerns. A June 2020 report by the American Road and Transportation Builders Association — a trade group of roadbuilders that has a vested interest in keeping federal gas tax receipts flowing to states — found that prices at the pump barely register the difference when states raise or lower their own gas taxes.
According to ARTBA’s modeling, state tax rates fell by an average of 1.4 cents per gallon between 2013 and 2018. But consumers saw less than half a cent difference.
In addition, the U.S. Energy Information Administration predicted last week that gas prices would decline by 57 cents per gallon during the next year, bringing prices closer to the historic lows experienced during the worst of the pandemic. That alone would have a far greater impact on gasoline prices than any tax holiday.
Gas prices are at their highest point in eight years, driven most recently by anxieties over a potential Russian invasion of Ukraine, which experts expect would push per-barrel oil prices above $100. When it comes to the price of a gallon of gas, politicians are perhaps the most sensitive of all, and Democrats are scrambling for ways to keep it from climbing even higher.
But experts say a tax holiday’s modest relief for consumers would further devastate the already shaky Highway Trust Fund, a federal pot of money that has failed to keep up with decades of inflation and growing infrastructure needs. Congress last raised the gas tax in 1993, and Biden’s administration has shown no appetite for hiking it again.
Before the passage of the infrastructure law in November, Congress had struggled for more than a decade to figure out how to invest adequately in transportation while the user fees the nation relies on to fund highways and transit were declining. Lawmakers have staved off the solvency crisis by making a series of transfers from the Treasury into the trust fund, including one totalling $118 billion in the Infrastructure Investment and Jobs Act.
But the law also counts on the trust fund receiving $217 billion over the next five years, of which about 60 percent would generally come from from gas taxes.
“If you’re looking at a three-legged stool here, and one of the legs is from the general fund transfer of $118 billion, you are then going to be removing one or two of the other legs that are the Highway Trust Fund receipts,” said Joung Lee of the American Association of State Highway and Transportation Officials, which represents state departments of transportation. “So, it doesn’t work.”
It’s also sure to mobilize asphalt and concrete interests, as well as business groups like the Chamber of Commerce. ARTBA shot a letter to Senate leaders within hours of the gas tax holiday bill’s introduction, calling it “shortsighted and misguided.”
“User fees are just one component of a complex pricing scheme that includes consideration of the price of crude oil and other factors,” ARTBA President and CEO David Bauer wrote in the letter.
The politics are complicated, as well — a suspended tax will need to be reinstated eventually, risking a political backlash for whoever is in charge.
ARTBA’s Bauer also warned that pausing the gas tax now could “establish a precedent that the federal gas tax should be suspended during times of economic distress or when fuel prices are deemed too high,” which would “surround the largest single source of revenue for federal highway and public transportation investment with disruptive uncertainty.”
The White House has been noncommittal about the idea, saying publicly that “all options are on the table” for lowering gas prices, in the same breath mentioning the December release of oil from the Strategic Petroleum Reserve and the administration’s communication with oil-producing nations.
In the end, it’s up to Congress. Suspending the tax would require action on Capitol Hill, which seems destined to fail — at least half a dozen Democratic senators have told POLITICO they oppose the idea.
