Could gas prices get any higher? Yes, they can, and it is expected that gas and diesel prices will continue to increase. Federal officials are looking for ways to reduce pain at the pump as gas and diesel prices continue to soar.
As Americans get ready for a busy July 4th and summer vacation travel, all drivers need some relief at the pump. President Biden has asked Congress to place a three-month pause on federal gasoline and diesel taxes. The 18.4-cent federal gas tax, which helps fund infrastructure work, could be dropped if Congress votes to approve it.
This money is just a small amount of what consumers pay for a gallon of gas, and that is often eclipsed by state gas taxes, which are typically much higher. This three-month pause would also reduce diesel by 24.4-cents per gallon. Even if both taxes are dropped, gasoline prices will not dip below $4 per gallon.
Congressmen on both sides of the aisle are not likely to agree on this and to reject the White House effort to suspend the federal gasoline tax. Why would they do this to us? But there is more to this than what’s on the surface.
The big question is why the gas tax relief will not work.
Firstly, it wouldn’t solve the problem of rising fuel prices. It would just put a temporary Band-Aid on the problem.
Secondly, this "solution" could contribute even further to inflation. That's because the gas tax "holiday" has an end date that will have to be reversed in three-months, ensuring that prices at that time will have no direction to go but higher.
The Biden administration wants to implement this cut to the federal gas tax for 90 days beginning in July 2022.
Gimmick or Political Ploy?
The underlying problem is the supply. If you artificially lower prices, demand will increase, and drivers will drive more. To lower prices, increasing supply makes the most sense.
However, we are no longer energy independent. Overseas, OPEC and OPEC+ are producing more oil, but the price is higher. Both political sides agree that this is a short-term savings and not that much of a savings, at that.
Looking at a gallon of gas, here is what we pay for: 12% is taxes, 11% for distribution and marketing, 17% in refining, and 60% is crude oil costs.
What are the real savings to you? The federal gas tax is a flat 18.4-cents per gallon for gasoline and 24.4-cents per gallon for diesel. That makes it simple for drivers to figure out exactly how much they'll save from the tax cut if it is passed.
An average compact-size SUV, such as a Toyota RAV4 non-hybrid, would be a save about $23; a Honda Civic would save about $19.10; and a Ford F-150 would save about $35.50 — over the course of the three-month period. I understand that every dollar counts. Once the tax holiday ends prices will return to the higher prices and most likely higher than where they are today.
Another factor to consider: The gas tax holiday would deprive the highway trust fund of an estimated $10 billion in tax revenue. The government has to keep up the road maintenance. Our roads and bridges are in need of repair, and this loss of revenue would be made up from taxing people in other ways to pay for this cost.
So, “you can pay me now or pay me later.”
The Bottom Line
The Biden administration has already tried a variety of measures intended to drive down costs, including opening up the American Strategic Oil Reserve, and allowing 15% ethanol blend of gasoline year round. We have discussed this before, including the damage to many vehicles and possibly voiding your engine’s warranty. Regardless, the impact of including an ethanol blend hasn’t had a measurable effect on fuel prices.
Now the answer to the question — is this a gimmick?
There are good intentions behind the idea, but the impact to drivers in the end will cost everyone more at the pump, because we are not solving the problem at all. Cutting prices for three months will not create the systemic conditions we need to stabilize the energy prices and demands.
There is so much more to discuss on this, put your comments below and let’s start the conversation.
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