According to AAA, the average price of gasoline in the United States is, as of this weekend, $4.81/gallon and as high as $6.24 in California. With journalists and politicians alike bemoaning Americans’ “pain at the pump,” the White House has scrambled for solutions. In recent weeks President Joe Biden has released oil from the Strategic Petroleum Reserve, made overtures to petrostates like Venezuela and Saudi Arabia, and publicly chastised gas companies for failing to expand capacity, a line he echoed this weekend:
In late June Biden asked Congress to go further. At an estimated cost of $10 billion, Biden wants to suspend the $0.184/gallon federal gas tax for three months, and he asked states to do the same with their own taxes.
This approach is fundamentally flawed, offering negligible relief to financially pressed Americans while clashing with core principles of the Democratic Party. But in a rare instance of bipartisanship, the president’s congressional allies and enemies alike seem unmoved by his plea. That’s encouraging, but Congress should do more than reject Biden’s proposal; it should capitalize on the current moment to permanently reduce gasoline demand.
It’s understandable—sort of—how Biden landed on a uniquely ill-advised proposition. The war in Ukraine has limited global oil supply at a time when pandemic-weary Americans are eager to travel again, lifting demand and creating the conditions for the current price spike. Although gas purchases make up a small share of American household expenditures, trips to the pump provide an unwelcome reminder of inflation, which has been rising since last year. Predictably, Republicans have seized on gas prices as a weapon. Several vulnerable Democrats in Congress have asked the Biden administration for a so-called “gas tax holiday,” hoping to signal concern for drivers’ plight.
The political logic behind this strategy is dubious. In his memoir A Promised Land, former President Barack Obama cited his own opposition to a gas-tax suspension in 2008 as a key reason he won the Democratic nomination for president. Obama called the concept “a bit of political posturing … designed to give the impression of action without actually solving the problem.”
In 2008 the price of gas exceeded $5/gallon in current dollars, even more than it costs now, and the policy arguments for a gas-tax suspension are no better today than they were then.
For one thing, any benefit to individual families would be negligible. If the owner of a Ford F-150 (the most popular model in the U.S., getting 21 mpg) drives the national average of 13,500 miles per year, they will spend around $265/month on gas at today’s prices—of which the federal tax comprises roughly $10. Oil companies and gas stations are likely to pocket a chunk of the foregone tax revenue for themselves by upping prices, further reducing drivers’ savings.
Although the phrase “gas tax holiday” connotes a care-free windfall, the policy would actually blow a hole in the Highway Trust Fund, which funds roads and highways. That deficit eventually must be filled (the Fund has long flirted with insolvency). The most likely funding source would be general tax revenues drawn from all taxpayers, regardless of how much they drive. The result would be that heavy drivers ultimately pay a little less to finance the roads, highways, and bridges that they use, while those who drive little or not at all would pay more. Researchers has found that distance driven rises with income (and many low-income households don’t own a car), suggesting a wealth transfer away from the poor.
Worse, the money a person saves through a suspension of the gas tax scales with the distance they drive and the inefficiency of their vehicle. In effect, the Biden administration has proposed a policy that encourages Americans to drive additional miles in cars that get worse mileage—which leads to more greenhouse gas emissions, of which transportation is already the largest source in the U.S.
What should the feds do about the price of gas, then? Economics offers two options: Increase gasoline supply, by expanding oil production and refinery capacity, or reduce underlying gas demand. The Biden administration has focused on the first approach, despite its clear misalignment with efforts to combat climate change. The latter strategy is much more attractive. All else being equal, falling demand will reduce the price at the pump. Better yet, the country could develop healthy habits that make it less reliant on oil for years to come.
For instance, the administration and Congress could promote alternatives to driving, such as using mass transportation. A current shortage of workers is forcing many transit systems to reduce service; a federal infusion of funds could pay for bonuses that help retain critical staff while agencies recruit and train new employees. Or the federal government could follow the lead of Germany, which is offering a month of unlimited transit nationwide for just nine Euros. Admittedly, Germany’s transit network and service dwarf those of most U.S. cities, but could a comparable deal compel fewer Americans to drive in metropolitan Boston, New York, or Chicago? Quite possibly. And a steep discount on summertime Amtrak trips would appeal to many more.
The federal government could also target e-bikes as a substitute for driving, drawing a lesson from the city of Denver, which in April offered residents a $400 e-bike rebate. The city received over 3,200 applications in just 19 days, so many that officials had to temporarily pause the program. Last year the House of Representatives considered a bill creating a federal e-bike subsidy, but that proposal was rolled into the Build Back Better Act, which is now stuck in legislative limbo. If Congress wants to get creative, members could opt for a “e-bikes for clunkers” program, offering e-bike vouchers to those trading in a gas-powered car. (Lithuania and France have previously adopted comparable programs.)
Other approaches to reduce gas demand could come at modest public cost, such as providing pre-tax benefits to employees who commute by bike. Better yet, the White House and Department of Transportation could celebrate workplaces that provide parking cash-outs, which offer a refund to those who commute without driving, thereby saving their employer the cost of car parking. Or the feds could mount a public campaign encouraging Americans to ride transit or a bicycle, promoting climate-friendly modes that lack the multibillion-dollar marketing budget of the auto industry. Potential longer-term fixes include sweetening incentives for electric cars (currently constrained by supply chain challenges) and easing the federal bottlenecks that have held up implementation of New York City’s congestion pricing program.
Instead of taking steps such as these, the Biden administration has advanced an ineffectual policy proposal that conflicts with its own stated goals of halting climate change, supporting low-income households, and reducing traffic deaths (gas-guzzling SUVs and trucks are a key reason that U.S. roadway fatalities have been surging).
In reality, any federal push to alter gas prices will have a modest impact compared to market forces and geopolitics. The Biden administration may feel that tough-talking tweets are a political necessity at the moment, but they’re not likely to achieve much. Still, that’s better than a gas-tax suspension that moves the country in the wrong direction. A far wiser strategy would be to capitalize on the moment to adopt policies that untether the U.S. transportation system from its calamitous dependence on oil.
