Saturday, April 13, 2024

Biden Aims to Spur Inflation w/ Gas-Tax Holiday While Failing to Address Supply Issues

'They’ve spent an entire year waging a holy war on affordable American energy, and now they want to use a pile of taxpayers’ money to hide the consequences...'

(Headline USA) President Joe Biden on Wednesday will call on Congress to suspend federal gasoline and diesel taxes for three months—an election year move meant to placate the outraged public while failing to address underlying supply issues that have contributed to rampant inflation and an ongoing fuel crisis.

That crisis is largely self-wrought based on Biden’s day-1 efforts to impose greater restrictions and regulations on an industry that—under his predecessor, former President Donald Trump—had earlier attained U.S. energy independence and even led America to become a leading exporter of petroleum products.

Biden—who has been begging some of the nation’s greatest geopolitical adversaries to help ease gas shortages—will also call on states to suspend their own gas taxes or provide similar relief, the White House said.

At issue is the 18.4 cents-a-gallon federal tax on gas and the 24.4 cents-a-gallon federal tax on diesel fuel. If the gas savings were fully passed along to consumers, people would save roughly 3.6% at the pump when prices are averaging about $5 a gallon nationwide.

The per-gallon price of gas has gone up nearly 200% since Biden took office.

It’s unclear, though, if Biden could push such a proposal through Congress, where many lawmakers, including some in his own party, have expressed reservations. And even many economists view the idea of a gas tax holiday with skepticism.

Barack Obama, during the 2008 presidential campaign, called the idea a “gimmick” that allowed politicians to “say that they did something.” He also warned that oil companies could offset the tax relief by increasing their prices.

Biden energy adviser Amos Hochstein pushed back on Wednesday, claiming consumers could save about 50 cents per gallon if Congress and the states heed the president’s call.

“That’s not a gimmick,” Hochstein, senior adviser for global energy security at the State Department, said on CNN. “That’s a little bit of breathing room for the American people as we get into the summer driving season.”

Biden’s past efforts to cut gas prices —including the release of oil from the U.S. emergency reserves and greater ethanol blending this summer—have been criticized for their shortsightedness while effectively doinge little to produce savings at the pump.

Those same risks carry over to the idea of a gas tax holiday, which might actually increase inflation by imposing artificial relief that encourages more consumption with the same amount of supply.

That, in turn, would lead the Federal Reserve to more interest-rate hikes, tacking on extra surcharges to consumer borrowing and spending elsewhere in the economy. The shock would then be amplified once the taxes resumed in three months, barring any changes in the supply-chain.

Biden has acknowledged how gas prices have been a drain on public enthusiasm when he is trying to convince people that the U.S. can still pivot to a clean-energy future.

“If you notice, until gas prices started going up,” Biden said, “things were much more, they were much more optimistic.”

Those prices, however, have been on the rise since almost immediately after he took office, suggesting that his leadership (or lack thereof) might also be a contributing factor in public optimism.

Biden has denied any responsibility for the price hikes, attributing them to the ongoing war between Russia and Ukraine, for which he also bears indirect—if not direct—responsibility.

Dismissing the possibility of an increase in U.S. gas exploration, the president maintains that he can do remarkably little to fix prices that are set by global markets, profit-driven companies, consumer demand and other global issues.

Yet, the underlying problem is a shortage of oil and refineries that produce gas—a challenge a tax holiday cannot necessarily fix.

Mark Zandi, chief economist at Moody’s Analytics, estimated that the majority of the 8.6% inflation seen over the past 12 months in the U.S. comes from higher commodity prices.

“In the immediate near term, it is critical to stem the increase in oil prices,” Zandi said last week, suggesting that Saudi Arabia, the United Arab Emirates and a nuclear deal with Iran could help to boost supplies and lower prices.

But all of those have their own implications on foreign policy, projecting U.S. desperation and weakness in the tumultuous Middle East that would allow adversaries to use their fuel supplies as leverage.

Senate Minority Leader Mitch McConnell, R-Ky., mocked the idea of a gas-tax holiday in a February floor speech. “They’ve spent an entire year waging a holy war on affordable American energy, and now they want to use a pile of taxpayers’ money to hide the consequences,” he said.

Because the budgetary spending for the current fiscal year is already appropriated, funds diverted to the so-called tax holiday would, in effect, increase the federal deficit rather than return money to taxpayers’ pockets.

Congressional Democrats largely appeared cool to the idea of a gas tax holiday, which Speaker Nancy Pelosi, D-Calif., and others have long claimed would simply allow oil companies to reap additional profits with no guarantee the savings would be passed along to consumers at the pump.

Rep. Peter DeFazio, D-Ore., chairman of the House Transportation and Infrastructure Committee, said late Tuesday that he is urging colleagues to see the gas tax holiday “for what it is: a short-sighted proposal that relies on the cooperation of oil companies to pass on miniscule savings to consumers.”

But Dan Kildee, D-Mich., said he is a longtime supporter of a federal gas tax holiday.

“I admit to some frustration because I think it would have been more effective if we had done this a few months ago,” Kildee said. “But it’s never too late to do the right thing.”

One Democratic aide, who insisted on anonymity to frankly discuss the situation Wednesday, said it appears unlikely the proposal could pass the House without first clearing the evenly split Senate.

Administration officials said the $10 billion cost of the gas tax holiday would be paid for and the Highway Trust Fund kept whole, even though the gas taxes make up a substantial source of revenue for the fund. The officials did not specify any new revenue sources.

The president has also called on energy companies to accept lower profit margins to increase oil production and refining capacity for gasoline.

This has increased tensions with oil producers: Biden has judged the companies to be making “more money than God.”

That kicked off a chain of events in which the head of Chevron, Michael Wirth, sent a letter to the White House saying that the administration “has largely sought to criticize, and at times vilify, our industry.”

Asked about the letter, Biden said of Wirth: “He’s mildly sensitive. I didn’t know they’d get their feelings hurt that quickly.”

Energy companies are scheduled to meet Thursday with Energy Secretary Jennifer Granholm to discuss ways to increase supply.

Adapted from reporting by the Associated Press

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