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Don't Expect A Suspension Of The Federal Gas Tax To Bring A Windfall of Savings

federal gas tax savings
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EDITOR'S NOTE:

Any relief we receive from Biden’s federal gas tax holiday will be largely symbolic but not real. It’s a kind gesture, suspending federal revenue from gas taxation, but it’s too small and likely won’t last for very long. 

 

The numbers: While motorists can spend hundreds of dollars a month filling up their tanks (actual expense will vary, of course), the tax holiday can save them a little under $20 a month. Specifically, every motorist would save $0.18 per gallon. The relief from high prices may be helpful, but it’s too minuscule to make a real difference.

Our thought bubble: Many Americans, particularly those sitting on the partisan side opposite Biden, are clamoring for the president to do something about the runaway rising prices. Yet, given the war in Ukraine and the general imbalances between supply and demand, there’s very little he can do about it. Inflation may be the political death knell for the Biden administration. Still, it’s also revealing as to the number of Americans who fail to understand the fundamental economic dynamics that brought us to our current crisis (sadly, not unlike Biden himself).

A suspension of the federal gas tax would deliver a degree of relief at the pump, but don't expect a windfall of savings, Nathan writes.

Why it matters: Drivers have been reeling from $5-a-gallon gas — more in some states — at a time when other prices have also been soaring.

  • President Biden is weighing a suspension of the 18.4 cents per gallon tax, which has been steady for 29 years and contributes to the Highway Trust Fund.

The big picture: The average driver of a large SUV — one of the most popular vehicle types in the country — would save about $4.60 a week, according to calculations by GasBuddy.

  • That's about $239 a year, though it's hard to envision the gas tax suspension lasting that long.
  • Altogether, it would equal savings of about $70 million per day for American drivers, GasBuddy analyst Patrick De Haan tells Axios.

The impact: Based on $5 gas, a gas tax holiday would equal savings of less than 4% per gallon.

Yes, but: Cheaper gas could have a countervailing effect by increasing demand and then driving retail prices back up, De Haan warns.

  • A tax suspension "could exacerbate the imbalance between supply and demand that has led us to record high prices," De Haan says.

Keep in mind: Suspending the gas tax would also deprive the nation's infrastructure of critical dollars for improvements.

The bottom line: A federal gas tax holiday might gather bipartisan support in Washington, but it won't make a big dent at the pump.

Originally published by Axios.

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