What Would a Gas Tax Jubilee Do?

Yesterday President Biden floated the idea of suspending the federal gas tax as a tactic for providing consumers some relief at the pump. Unfortunately, that tax jubilee wouldn’t accomplish much as this piece at Politico by Tanya Snyder points out:

The hard realities: Even if Congress was in a mood to cooperate with Biden’s plan, most studies show that only a small portion of the savings from halting the tax would make its way to consumers. Meanwhile, the tax pause would take money away from Biden’s signature infrastructure law — and it probably wouldn’t offer his party much help with voters in November. It does, however, give Biden some cover to appear as if he’s at least trying to tackle an issue that’s hitting Americans in the pocketbook.

The reason for that is two-fold. First, the jubilee wouldn’t even roll prices back to where they were last month. Second, the gas taxes go into the federal highway fund and are used for maintaining the interstate highways.

As Ms. Snyder points out the degree to which such jubilees are passed on to consumers varies from state to state:

The University of Pennsylvania’s Wharton School examined the impacts in the states that have paused their gas taxes in the last few months and found that in Maryland, 72 percent of tax savings were passed onto consumers, compared with 58 percent to 65 percent in Georgia and 71 percent to 87 percent in Connecticut. Still, the Wharton researchers found that “these price reductions were often not sustained during the entire holiday.”

And the dollar amount Wharton put on the savings from a potential gas tax holiday at the federal level was meager. In March, they found that suspending the federal gas tax through December would save the average person between $16 and $47 on gas while lowering federal tax revenue by about $20 billion.

and it is possible that the tax jubilee could have perverse consequences:

Drivers would easily forget the small savings in the gas tax amid daily fluctuations in fuel prices, which can “drop or surge by 10 to 20 cents a gallon in a single [trading] session,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. It could even backfire: “The problem with an 18 cents a gallon gas tax holiday is that it juices up demand when the supply-and-demand balance is already tilted toward tight supply.”

Furthermore, if the reduction in federal gasoline tax revenue is offset by deficit spending, it would exacerbate part of the reason we’re experiencing the present general inflation.

All of which goes to demonstrate that policy is hard.

Just in case you’re curious the gas taxes we pay here in Chicago are

Jurisdiction	Tax
Federal	18.4
Illinois	39.2
Cook County	6.0
Chicago	8.0
Total	71.6

All taxes are levied in cents per gallon.

The situation with the state tax is complicated and, as should be expected, highly political. The statutory state gas tax is scheduled to rise from 19 cents per gallon to 39 cents per gallon on July 1 but Gov. Pritzker has delayed the tax increase, forcing gas station owners to put stickers on the pumps claiming that Gov. Pritzker reduced taxes thereby turning every gas pump into a campaign advertisement. It’s an election year. The station owners are responding by putting an additional sticker on the pumps explaining what is happening in more detail.