Biden's Gas Tax Cut Could Help Democrats, But Make Surging Inflation Worse

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President Joe Biden is considering a gas tax holiday to provide much needed relief for Americans, many who have been struggling to afford rising gas prices. However, suspending the federal gas tax could exacerbate one of Biden’s greatest headaches—America’s surging inflation.

Oil prices have skyrocketed in recent months, largely because of Russia’s invasion of Ukraine, sending the White House scrambling to find ways to bring down the cost at the pump. Biden told reporters on Monday that he hoped to have a decision on implementing a gas tax holiday by “the end of the week,” adding that his administration is also considering sending out gas rebate cards.

Such a move would still need to make its way through Congress, but it could lower prices at the pump by as much as 18 cents a gallon. The problem with a tax cut, though, is it won’t do much to fix the supply shock that has spurred the high prices. In fact, it could make it worse.

David Fiorenza, an economics professor at Villanova University, told Newsweek that decreasing prices will provide people with “more discretionary money to spend on food, vacations, day trips, entertainment and even save money or pay down debt.” He also cautioned that “fueling the economy with excess money will cause inflation” and further exacerbate the current situation.

“This is what happened with stimulus money,” Fiorenza said. “It is a result of both [the Biden and Trump] administrations pouring money into consumers’ pockets.”

President Joe Biden said his administration was considering temporarily suspending the federal gas tax to help Americans at the gas pump. Biden speaks to members of the press prior to a Marine One departure from the White House on June 17, 2022, in Washington, D.C. Alex Wong/Getty

A report from the Committee for a Responsible Federal Budget previously made the same argument, contending that suspending the federal tax for a 10-month period could actually drive up consumer demand amid ongoing pandemic-related supply chain disruptions.

So, while a federal tax holiday could provide immediate, short-term relief to drivers at the gas pump, it may also make America’s current inflation problem more dire than it already is.

Aside from driving up demand, James Devine, an economics professor at Loyola Marymount University, pointed out that a gas tax cut, while not part of government spending, could still increase the deficit, which would then in turn add to inflation. He told Newsweek that the tax holiday could also lead to cutbacks in infrastructure investment, which could also contribute to long-term inflation.

With regular gasoline costing roughly $5 a gallon, nearly $2 higher than it was a year ago, soaring fuel costs have become more than just an economic problem for the nation to address. It has snowballed into a massive political setback for the Biden administration as Democrats seek to hold onto the House and Senate this midterm election. Biden ordered the release of up to 1 million barrels of oil a day, but the federal government’s response has done little to drive gas prices down.

Those costs have also resulted in a growing concern among Americans, the majority who say the economy will be the top issue driving their votes come November’s midterms.

“This kind of tax cut is mostly aimed at easing the pain of drivers,” Devine said. “And, to be cynical, at helping the [Democratic Party] in the midterm elections.”

“Even though the tax cut would have a very small impact this year, it might have a symbolic effect, suggesting to voters and politicians that such tax cuts are a good thing.” he added.

The idea that a federal gas tax holiday is seen as more emblematic than anything hasn’t only been floated by economic experts. Biden’s own former boss, former President Barack Obama, said as much when presidential candidates John McCain and Hillary Clinton supported implementing one, dismissing the move as a political “gimmick” to win votes.

“We’re arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something,” Obama said in 2018, adding that “this isn’t an idea designed to get you through the summer, it’s designed to get them through an election.”

Wayne Winegarden, a senior fellow at the Pacific Research Institute, echoed that if the Federal Reserve does not accommodate additional spending of gas rebate cards, the measure would “put additional pressure on the federal budget and increase the deficit.”

“It is up to the Federal Reserve to address the monetary policy issues, which leaves the Biden Administration to address the supply-side issues,” Winegrden said. “Gas tax holidays and gas rebates do not remove the fundamental disincentives to sustainably bring more oil and natural gas to market.”

The better solution, according to Winegarden, is to open U.S. drilling, something that would run contrary to Biden’s commitment to moving America toward green energy.