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Editorial: Suspending gas tax a gimmick, not a solution

The issue: Suspending the federal gasoline tax does nothing to address the sources of inflation and will offer little relief to consumers. It will deprive infrastructure of funding or shift its cost to other tax sources.

Everyone is feeling the pain at the pump. Record-high gas prices, especially as the summer travel season gets into full swing, are one of the most obvious signs of inflation. And gas prices — which impact the cost of producing and shipping goods and services — get the blame for making inflation even worse.

So, in the middle of an election year, and already plagued by low poll numbers, President Joe Biden is grasping for a gimmick in order to bring gas prices down.

Last week, Biden proposed a three-month suspension of federal gas and diesel taxes.

“It doesn’t reduce all the pain but it will be a big help,” Biden said. “I’m doing my part. I want Congress, states and industry to do their part as well.”

The vast majority of economists, however, don’t think suspending the federal gas tax will be “a big help” at all. Economists agree on few things, but suspending the gas tax is one of them, and they tend to think it’s an election-year ploy.

Currently, the federal gasoline tax is 18.4 cents per gallon, while the federal tax on diesel fuel is 24.4 cents per gallon. The Associated Press did the math: “If the gas savings were fully passed along to consumers, people would save roughly 3.6% at the pump when prices are averaging about $5 a gallon nationwide.”

But there’s no reason to think all the savings would be passed on. Inflation is running hot for two reasons: First, there’s all the money floating around after two decades of record-low interest rates and two years of emergency pandemic spending. Second, there are supply shocks brought about as the world economy — unevenly and with fits and starts — gets back on track after pandemic-caused shutdowns.

Gas prices are high in part because of those supply shocks, and the supply issues won’t disappear just because the federal gas tax goes on hiatus. But any decline in the price of gas will result in people buying more of it — canceling out the effect of suspending the gas tax.

In short, the president’s gas tax holiday proposal is a supply side solution to what is at least partly a demand side problem.

What’s more the gas tax is the closest thing the United States has to a true use tax. Revenue from the gas tax goes to pay for a lot of transportation infrastructure, but it mostly pays for roads and bridges. That’s only fair: The more you drive, and the more you use those roads and bridges, the more you pay for their upkeep.

Yet the costs of building and maintaining all of those roads and bridges do not disappear just because the federal gas tax goes on a summer vacation. Instead, the burden of maintaining the nation’s infrastructure shifts to general revenues — or, worse, the roads and bridges simply end up neglected.

In Alabama, Biden’s insistence that states also suspend their gas taxes would come just as the state is using the revenue from its recent gas tax increase to make long overdue improvements to roads and bridges. Just last week, the “Rebuild Alabama” sign went up on U.S. 31 marking a paving project between Athens and Tanner.

These projects cost money, and that money comes from the gas tax or — somewhere else. One way or another, however, the bill will come due.

The main thing Biden could do right now is stop threatening to put the oil companies out of business as the nation transitions to a “green economy.” The green transition will and should come, but it cannot be forced, and in the meantime, the economy is dependent on fossil fuels. But oil companies aren’t going to invest capital in refining capacity if they think the federal government is going to close them down before they get their investment back.

– From The Decatur Daily

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