Biden’s Federal Gas Tax Holiday: Would It Help Or Hurt New Jersey?

NEW JERSEY — The three-month federal gas tax holiday President Joe Biden proposed Wednesday could dent historically high gas prices in New Jersey and provide some immediate relief at the pumps.

New Jersey averaged $4.97 per gallon as of Wednesday — a cent more than the national average — a cent above the national average, according to AAA. A federal gas tax holiday would take off 18.4 cents per gallon. But critics — including former President Barack Obama — have said federal gas tax holidays would be relatively ineffective.

If President Biden enacts the holiday, which would also require action from Congress, it would mark a major shift from his Democratic predecessor and past boss. Obama called the tactic a "gimmick" when he campaigned for the office in 2008.

"We're arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something," Obama said. "Well, let me tell you, this isn't an idea designed to get you through the summer, it's designed to get them through an election."

The move could be more psychological than effective in an economy battered by the highest inflation in 40 years, saving motorists a couple of bucks every time they fill up. On average, U.S. drivers use about 600 gallons of gasoline annually, which translates to a savings of about $10 a month.

Put another way, the federal gas tax is only about 3 percent of the nearly $5 Americans are paying for a gallon of gas.

Several states have enacted gas-tax holidays amid surging prices at the pump. Connecticut did so for three months, Georgia for 10 weeks and Maryland for a month. New York passed legislation to suspend its gas tax for the rest of the year, while will lift its tax in October.

It's difficult to measure the effectiveness of the state gas-tax holidays, according to Penn Wharton Budget Model analysts. That's because several factors impact gas prices, including the cost of crude oil, refining and distribution expenses, and profits.

But the Penn Wharton Budget Model's estimates showed a majority of savings from states with gas-tax holidays went to consumers, instead of service stations or others in the energy sector. However, the price reductions were often not sustained during the tax-holiday periods in Connecticut, Georgia and Maryland.

But a federal gas-tax holiday would carry some risks. The supply shock has been a contributing factor in driving up prices, and the elimination of the tax would push demand in the wrong direction, according to experts.

"The risk is that at a time when the supply-and-demand balance that sets prices is already extremely out of balance, it would enable more Americans to hit the road," said Patrick DeHaan, GasBuddy's director of petroleum analysis, told CNN.

U.S. Treasury Secretary Janet Yellen said Monday that a gas-tax holiday could address inflation, even if the result is "not perfect."

But suspending the gas tax could reduce revenues, according to a February analysis from the Committee for a Responsible Federal Budget. The money supports the Highway Trust Fund, of which more than three-fifths of revenue comes from the federal gas tax.

Additionally, suspension of the tax could worsen inflation, which rose 8.6 percent nationally from May 2021 to last month — the fastest increase since December 1981.

"While the gas tax holiday may reduce prices at the pump, it will further increase demand for gasoline and other goods and services at a time when the economy has little capacity to absorb it," the CRFB said. "The result could be even higher rates of inflation in 2023."

President Biden again on Wednesday accused oil companies of price gouging and encouraged them to return refineries to full production. In a letter to oil producers last week, Biden said historically high profits for refining oil into fuel are "not acceptable" during a time of war. Oil and gas executives will gather at the White House Thursday for an emergency meeting with Energy Secretary Jennifer Granholm.

"We want to try to start that conversation and get something done … we are willing to help them," White House press secretary Karine Jean-Pierre said last week. The administration wants to hear solutions from the energy companies themselves, Jean-Pierre said, adding that "maybe there’s a way that we can help them meet that capacity."

Congress would have to approve the federal gas tax holiday. Democratic Rep. Earl Blumenauer (OR-3) wrote in a letter to Biden that "while there is undoubtedly a need to provide American consumers relief from spiking costs, there is no guarantee a gas tax suspension would reduce prices at the pump or stem the broader inflation affecting the global economy."

He added the holiday "may only increase oil companies' bottom lines."