Gas Tax Holiday?

it likely won't do much.

Photo by SLT

Via the NYT: Biden Will Push Congress for a Three-Month Gas Tax Holiday.

While I understand the potential symbolic nature of this move, it strikes me (like the strategic release of oil from national reserves) as a cliched move that will have only a negligible effect on gas prices and really do little politically for Biden and his party. Meanwhile, it will likely boost oil company profits a tad and decrease revenue to the treasury.

During a speech on Wednesday afternoon, Mr. Biden will ask Congress to lift the federal taxes — about 18 cents per gallon of gasoline and 24 cents per gallon of diesel — through the end of September, just before the fall midterm elections, according to senior officials speaking on the condition of anonymity to discuss the announcement on Tuesday night. The president will also ask states to suspend their own gas taxes, hoping to alleviate the economic pain that has contributed to the president’s diminishing popularity.


Economists have generally dismissed the idea of suspending the gas tax as ineffective and a waste of public resources. The reason? The federal gas tax is now such a small slice of the price at the pump, coming in at less than 5 percent of the total cost, that consumers might not even notice.

On the one hand, every little bit helps, I suppose, but who gets excited about a 5% off coupon?

Beyond that, the volatility of gas prices is such that it isn’t like there is any guarantee that this week’s 18-cent reduction isn’t gone a week or so later. And while I understand that any future rise would be lower than it would have been, it is still ultimately negligible and certainly, the political effects will be minimal at best.

And there is the real problem that oil companies will likely not adjust their pricing to meet the 18-cent reduction.

In many ways this kind of underscores the relative lowness of federal gas taxes, which haven’t been raised since 1993. States have been more proactive in this arena:

States have more power to lower gas prices, since their taxes and fees have been steadily rising, to 38.07 cents per gallon on average. Three states have so far passed and completed gas tax holidays: Maryland, Georgia and Connecticut. New York suspended its tax at the beginning of this month, and Florida will lift its tax for the month of October.

Quite frankly, all of this underscores the lack of real power that the president has on this topic, despite the blame the holder of the office receives (as with the sticker, hilariously misplaced in my mind, in the photo above).

In my view, a tax holiday likely does almost nothing for consumers, does practically nothing for Biden’s approval or the electoral fortunes of his party, and has the added benefit of costing the federal treasury about $10 billion in funds that are supposed to be dedicated to repairs and maintenance of our highways. So, quite the winner of a policy move, yes?

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Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter


  1. Sleeping Dog says:

    Hmmm, didn’t some old English guy write a play about this?

    Oh yes, much ado about nothing.

  2. Kathy says:

    I’ve two words:

    Windfall Tax

  3. Scott says:

    Maybe the objective is to shift blame and responsibility to Congress and its ineffectiveness.

  4. Lounsbury says:

    Short term theatre. Perhaps necessary.

    However, the policy issue for the USA is addressing naive green energy policy rather infected by activist magical thinking, and avoiding a rather mega-sized Gilets Jaunes type problem, as transitioning costs have been naively ignored.

    @Kathy: Windfall tax as a way to further penalise hydrocarbon assets while driving retail prices higher? If yes, a brilliantly perverse own-goal

  5. Gustopher says:

    During a speech on Wednesday afternoon, Mr. Biden will ask Congress to lift the federal taxes — about 18 cents per gallon of gasoline and 24 cents per gallon of diesel — through the end of September, just before the fall midterm elections,

    Oh, how nice, a sudden memorable spike in gas prices right before the midterms, in a year when the Republicans will be screaming about gas prices.

    This is actually worse than doing nothing.

  6. Gustopher says:

    @Lounsbury: Perchance the elderberries have turned?

  7. Just nutha ignint cracker says:

    While I should agree on the point about $10 billion removed from the federal receipts (after all, I am a conservative and moreover opposed to deficit spending as a principle), in real terms $10 billion isn’t even a drop in the bucket of the projected deficit, let alone the budget in total. That the money is dedicated to highway/transportation makes it a little bigger deal, but, fungibility to the rescue, the outlay is already notched in.

  8. Kathy says:


    I’m sure you have a very convincing narrative. Mine is that 40+ years of trickle down, small government, deregulation, and low taxes have gotten us stagnant wages, lower living standards, catastrophic medical debts, and a lot of capital accumulated by those with tons of money.

    So, Windfall Tax.


    the worse thing is that a small reduction in a high price is sensed less than a small increase to an already high price.

    Say you are used to paying $50 for X gallons already. A reduction to, say $47.50 doesn’t seem like much. an increase form $47.50 to $50 feels like a lot.

  9. steve says:

    Much ado about nothing? Reminds me of my favorite Shakespeare joke. (Yes, they exist)

    Which Shakespeare plays go along with the following measurements? 3 inches, 6 inches, 9 inches and 12 inches?

    Much Ado About Nothing
    As You Like It
    A Midsummer’s Night Dream
    Taming Of The Shrew

    Sorry, it really is much ado about nothing. I am going to buy more or less gas if it is $5.20 vs $5.38? Nope.


  10. Kurtz says:


    further penalise hydrocarbon assets

    “Further penalize” assets that get billions annually in subsidies is an odd choice of words.

  11. Daryl and his brother Darryl says:

    This is counterproductive.
    1st – we did this in CT. It amounted to a short-term savings and then prices continued to rise.
    2nd – the tax is going to have to be re-instated at some point and that will likely be just before the mid-terms.

    The best thing we could do is send Putin back to Russia.

  12. wr says:

    @Lounsbury: So nice to finally have someone here who will always fight for the oil companies and who isn’t embarrassed to insist that maximizing their already enormous profits is really good for all of us.

  13. Gustopher says:

    Since crude oil prices are not very high, there’s a lot of claims that this is a refinery capacity problem.

    It might be better to use the defense production act (?) to try to get refineries back online.

    I’m very much reminded of the baby formula shortage, where maintenance was ignored until the main plant was churning out moldy formula, it got shut down and then nothing happened to get that plant operational for a while. Too much concentration in too few places.

    (Or the owners are deliberately creating problems… if you were a gas refinery, would you want less business this year, or greater taxes next? I don’t know that’s happening, but over concentration makes us vulnerable to those threats as well)

  14. Lounsbury says:

    @Kathy: There is the problem, innumeracy and political Just-so-stories based on emotional reaction and appeal, superficial reaction (really not different than the MAGA reaction, only channeled differently), rather than understanding where real productive asset problems are perfect ways to make problems worse.

    @wr: My dear dim whinger, I care little for “the oil companies”, my actual job is the development and investment in renewable energy, at the scale of gigawatt capacities – the “Oil Companies” are generically my market enemies – competitors. However I do rather care for economic coherence in policy and avoidance of self-damaging idiocy particularly that which can damage the long-term trajectory of replacing them. “The oil companies” are nice political witch to burn, but are not in fact a single thing. ‘The Oil Companies’ making profits is incoherent factually, really a nice Lefty version of conspiracy pizza parlours. Rather a core issue is what part of the value chain of hydrocarbons is a constraint to supply and the why. And specific parts of that value chain have been significantly under-invested leading to binding physical constraints.

    An incoherent lashing out to penalise “The Oil Companies” with windfall tax is rather like Trump’s inane tariffs – self-damaging, short-termist populism, reinforcing near-term problems and endanerging via superfical emotionalism long-term transition.

    @Kurtz: Parroting Lefty aphorisms does not lead to good understanding. Indeed there are plenty of indirect subsidy to many forms of petrol usage – demand support, subsidy to demand, which is of course fundamentally perverse – as is Biden suspending the gas tax chez vous, supporting demand in the face of supply constraint. Such does not equal direct subsidy to hydrocarbon assets – and regardless the challenge is the transition and near-term physical processing constraints from a decade of under investment throughout developed markets in processing capacity. In the interest of “energy transition” but without enough attention to transition timing. All fine, understandable, however, with risk as the Russian adventure has shown.

  15. DK says:

    This is lame theater. Instead, this is the time to use the bully pulpit to stress the need for energy diversification, to push for EV adoption and mass transit.

    Biden knows he can’t do anything about the global oil cartel responding to record post-pandemic demand with price gouging and manipulation. Why tacitly accept responsibility? This won’t move gas prices or voters, who need to understand our fossil fuel addiction and refusal to stop driving is the problem.

    AAA reports a record number of Americans will take road trips on July 4. In the midst of climate disastsr and while complaining about gas prices. Madness.

    Well, don’t blame me: I voted for Hillary.

  16. Just nutha ignint cracker says:

    @Lounsbury: TL/DR: I have my own beliefs; I don’t need yours.

    (Of course, it could be that we’re all looking at opposite sides of the same coin, but that idea doesn’t shed any more lightg among the various shades of smoke either.)

  17. Sleeping Dog says:

    Lots of rumors, truths and attitude being kicked around on this. Conveniently the NY Times has an article up on why gas prices are so high. Conveniently, the NYT has an article up today on just this subject. The TL/DR is that there is little that government can do in the short term.

  18. Kurtz says:


    “Lefty aphorism” to the extent my comment was one = true in this case.

    I deliberately left the description of subsidies vague as a means to get an idea of how you would respond.

    In fact subsidies that target production increased from 2017-2019, after falling for five years. Secondly, and more to the point, it still amounts to billions of dollars, and that doesn’t include indirect subsidies or demand-side interventions.

    See, that’s the issue when your first response is always some form of ‘oh, you Lefties…’ it keeps you from engaging anything, but still allows you to pitch a slightly bigger tent with every word.

  19. Lounsbury says:

    @Just nutha ignint cracker: Beliefs has rather nothing to do with it on my side, although on Left of course Big X (oil, etc) cartel is a rather standard bogeyman regardlessof facts. Data does however tell. Downstream investment in processing has broadly stagnated, on institutional investment pullback from hydrocarbons for over a decade, and stymied on regulatory. That has left no slack for events like Russian invasion (or any large producer catastrophe).

    Maundering as populists love to do about Bug Oil rather prevents a real response.


  20. JohnSF says:

    Incidentally current price of diesel in the UK average:
    £2/litre = $8/gallon (very rough conversion)
    UK petrol (gas) lags diesel, but will probably breach £2 within a few weeks.

    Welcome to the future, guys.

  21. JohnSF says:

    Further, reason diesel is more expensive than petrol here is largely due to failure to sustain local refinery capacity required, leading to need to compete for short supply trans-Europe, and also use of now unavailable refined and part-refined Russian product.

    See also idiotic shut down of UK primary gas storage facility due to short-sighted energy policy.

    And don’t even get me started on the cockups of the German energiewende.

    In other words: @Lounsbury: may not always be the most diplomatic of commenters. 🙁
    But he has a point here, folks.

  22. Kathy says:


    Here’s the thing:

    If oil company X pumps oil from its fields and refines it to gasoline, then their cost for oil is whatever it costs to produce and transport, regardless of whether a barrel trades in the international market at $1 or $1,000. If they then sell gas at prices that wind up costing consumer $5 per gallon, they are making windfall profits.

    Now, they could avoid the tax by selling their oil to a competitor, say, or to an oil company in another country.

    So it’s complicated.

    It doesn’t mean it would kill off oil production, or drive gas prices higher.

  23. JohnSF says:

    There’s a case for a windfall tax.
    BUT there’s also a case for getting the companies to invest massively in new infrastructure.
    It’s a question of determining what and how, and the incentive structure.
    Problem is, all other things being equal, companies will often tend to maximise ROI in ways that can ignore externalities (paperclips!).
    And the problem with politicians setting external correctives is: politicians! And their gain-maximising incentives.
    Thus democracies turn up in 2022, a decade late and a trillion dollars short.

  24. Michael Cain says:

    Almost before Biden spoke, our state governor and one of the legislators that runs the Joint Budget Committee made statements that we wouldn’t be suspending our state gas tax. Basically, “Balanced budget requirement, so cutting $165M in revenue means there has to be a $165M cut in spending.” Absent some tortuous rearrangements, it would come out of local road repairs. No one in the legislature wants to tell the local governments in their district, “You know that money you thought you would have to realign the street that’s been a problem for years? Not so fast…”

  25. Kathy says:


    these days, buybacks and dividends take the place of investment.

  26. JohnSF says:

    And that is why the necessity for a a government that thinks strategically re. climate, energy security and the wider economy.
    Any taxes need to be crafted to shape incentives to align with long-term objectives, not to pander to the investor/rentier class, to the politicians own interests, or the short term desires of the voters for that matter.
    Can be tricky.

  27. Just nutha ignint cracker says:

    @JohnSF: No it’s not; it’s easy. 1)Taxes are bad. 2) The market automatically provides what we need because what we need and what we want match 100%. 3) Any time the market fails, revert back to point 2).