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Three Better Alternatives to Biden’s Gasoline Tax Holiday

US President Joe Biden has called on Congress to suspend the federal gasoline tax through September in order to reduce the impact of surging energy prices on Americans. But three alternative policies would better target people in need without inadvertently subsidizing already profitable oil firms.

NEW YORK – US President Joe Biden has proposed a three-month suspension of the 18.4-cents-per-gallon federal tax on gasoline. The move – which would require approval by Congress – is intended to provide relief to American families struggling with the 60% increase in gasoline prices from about $3 per gallon before the Russian invasion of Ukraine to nearly $5 per gallon now. But better policy options are available.

Congressional opposition aside, Biden’s proposal has several potential drawbacks. First, it is not well targeted. The outcomes of individual US states’ gas-tax holidays suggest that the savings would be only partly passed on to consumers in the form of lower prices at the pump. The rest of the foregone tax revenue would boost the bottom line of oil companies that are already reaping windfall profits from high international oil prices. Furthermore, relatively affluent Americans would likely benefit the most from lower gasoline prices, while only a small portion of the gains would go to low- and lower-middle-income households that need the most help.

Second, high oil prices have raised energy costs across the board. A small reduction in the gasoline price from $5 per gallon to, say, $4.80 is not that helpful when the rest of the household energy bill remains high.

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