The silly way to cut gasoline prices

Rick Newman · Senior Columnist

Wed, Feb 16, 2022, 12:52 PM 4 min read

Democrats are getting panicky about gas prices, which have risen 39% during the last year to a national average of $3.58 per gallon. The last time gas prices were this high was 2014, when Barack Obama was president and Republicans made major gains in the midterm elections, strengthening their control of the House and flipping control of the Senate from Obama’s Democrats.

High gas prices could punish Democrats again in the 2022 midterms, especially if they creep even higher during the next several months. So a handful of Democrats now want to temporarily suspend the federal gas tax, which adds 18.4 cents to the cost of every gallon. The idea is that retailers would promptly lower their prices by the full amount of the gas tax, saving drivers $1.84 on every 10-gallon fill-up.

Nobody should believe it. For one thing, the votes aren’t there to suspend the federal gas tax, which funds highway construction and maintenance. Senate Republicans oppose a suspension — and so do some Democrats, including notorious swing vote Joe Manchin of West Virginia. Democrats only have a one-vote majority in the Senate, so a single holdout can sink party legislation, as Biden and his Congressional supporters learned when Manchin torpedoed Biden’s signature “build back better” legislation in December.

Democrats will keep talking about a gas-tax holiday, however, because they want voter-motorists to know they’re on the case. Expect to hear a lot about it from Democrat senators in tight reelection races, such as Mark Kelly of Arizona, Maggie Hassan of New Hampshire, Raphael Warnock of Georgia and Jacky Rosen of Nevada.

“The discussion of a gas-tax holiday among some Senate Democrats shows the collective anxiety over rising energy costs,” Beacon Policy Advisors explained in a February 16 analysis. “Democrats will make any gesture, including empty political ones, to try to convince concerned voters that they are taking some sort of action.”

Biden hasn’t joined in the call for a gas-tax suspension, although White House spokesperson Jen Psaki said on February 15 that “all options are on the table.”

But there aren’t many options. Biden has already released 50 million barrels of oil from the U.S. strategic reserve in an effort to lower oil prices, the main contributor to the cost of gasoline. When he made that announcement on Nov. 23, the price of West Texas crude was $78 per barrel. It’s now $95. Well, nice try.

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Global supply and demand sets the price of oil, and U.S. presidents have almost no power to intervene. Since private-sector firms control most U.S. oil production, the president can’t order up more oil the way the Saudi monarchy or Russian President Vladimir Putin can in their own countries. Tensions over the Russia-Ukraine standoff are probably adding an extra $5 or so to the current price of oil, as a “fear premium” should a Russian invasion disrupt energy markets through sanctions, boycotts or military damage to energy infrastructure.

If Congress did ever suspend the federal gas tax, drivers would probably wonder where the savings went. Oil producers, refiners and retailers that sell the gasoline would all try to capture that 18.4-cent per gallon windfall for themselves, which might not leave any savings for consumers.

The market for gasoline is competitive and prices would probably fall over time. But the moment a tax suspension went into effect, every player in the supply chain would try to keep prices intact so that they — not the next party downstream — captured the savings. If a gas-tax holiday fattened Big Oil’s bottom line while producing paltry savings for consumers, it would be an overt and embarrassing failure.

The gas tax finances the Highway Trust Fund, which is already short of money. Biden is going around the country bragging about the infrastructure bill he signed last November, which will funnel billions of dollars to states and cities for road and bridge projects. It would be disingenuous, at a minimum, to tout one type of infrastructure plan while defunding another.

Climate activists point out the cognitive dissonance of some Democrats pushing for a green-energy transformation while also pushing to cut the cost of carbon energy. Valid point.

The final problem with suspending the gas tax would be reinstating it at some point. In Washington-speak, this would amount to a “tax hike,” because in some selective period of time, you’d be going from no tax to some tax. Republicans would hammer Democrats for raising gas taxes, and while the logic is specious, it would work with some voters, as much misinformation seems to do.

There could be good news around the corner for Democrats. The odds of de-escalation in Ukraine seem even, at least, with the odds of a Russian invasion and chaotic aftermath. That could bring a bit of relief to oil and gas prices. And high oil prices typically incentivize more production, which optimizes profits for drillers but also brings down prices, eventually. The market tends to work better than the politicians.

Rick Newman is a columnist and author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.