Latest Dem desperation: How about a gas-tax holiday to fight inflation?

Latest Dem desperation: How about a gas-tax holiday to fight inflation?
AP Photo/Alex Brandon

Let’s rephrase the question. It’s more accurately posited thusly: How about another pointless and temporary measure that does nothing about the structural causes of inflation? That’s precisely what desperate Democrats are proposing as the political heat for inflation hits the boiling point.


It’s like the stimulus bill, only dumber:

The White House and top Democratic lawmakers are beginning to weigh a new push for a federal gas tax holiday, potentially pausing fees at the pump as part of a broader campaign to combat rising prices.

The early deliberations come days after a group of vulnerable Senate Democrats introduced a bill that would suspend the gas tax of roughly 18 cents per gallon for the rest of the year, which party lawmakers are expected to discuss at a lunch Tuesday. Asked about the proposal, the White House signaled that “all options are on the table,” as the administration tries to ease the growing financial burdens facing Americans during a period of high inflation.

For now, the White House has not offered any official, explicit endorsement of the policy. Behind the scenes, top aides have debated whether it would provide meaningful relief — or ultimately serve to benefit the producers of gas more than the consumers of it. Some senior officials also fear the policy might be difficult to end later, since no politician would want to be seen as raising prices, according to two people familiar with the matter who spoke on the condition of anonymity to describe the discussions.

This is just as useless as the earlier release from the Strategic Petroleum Reserve, although this would have a bit more effect on prices … briefly, anyway. The White House made a very big deal about releasing the equivalent of less than three days’ consumption of crude oil in the US as an inflation-fighting measure in November. Prices decreased a few pennies a gallon for about a couple of weeks before catching back up rapidly over the holidays.


How much impact did that have on gas-price inflation? Not much and not long:

With the federal gas tax at 18.4 cents per gallon, the immediate impact of a tax holiday would be more significant than the SPR release. Or would it? It might end up backfiring by spiking demand, much like the stimulus bill did, wiping out any price reduction almost immediately. In fact, the same liberal economist that sent up warning flares over the March 2021 stimulus bill and its inflation-wave potential also has nothing good to say about this proposal either, not to mention the hypocrisy it would create for Biden’s overarching energy policy:

But Larry Summers, a former treasury secretary and top White House economist under prior Democratic administrations, called the idea of a gas tax holiday “short-sighted, ineffective, goofy, and gimmicky.” A high-profile critic of the Biden administration on the issue of inflation, Summers said the policy’s impact is at best unclear because it may boost demand in other parts of the economy.

“It’s terrible policy at a moment we’ve labeled climate change as an existential threat,” Summers added.

“Short-sighted, ineffective, goofy, and gimmicky” perfectly describes the Biden administration’s economic policy as a whole, unfortunately. It started with the completely unnecessary stimulus in March 2021, before the funds from previous stimulus bills had been fully distributed. It applies in spades to Biden’s response to the supply-chain crisis, proposing that some extra shifts on the docks would make an impact on a logistics snarl that continues to this day. Biden’s goofy insistence that another monetary-supply-expanding massive spending bill would solve inflation hits all of Summer’s adjectives as well.


Furthermore, we have a long series of gas-tax holidays to study for effective economic relief. Over fifteen years ago, the Tax Foundation — an organization not known for its opposition to tax cuts — called it “a poor response“:

While gas tax holidays are popular with lawmakers, they are generally poor economic policy. Tax holidays appear to provide a simple way to offer tax relief to consumers during times of high prices at the pump. However, not all forms of tax relief are created equal.

Some types of tax relief—including gas tax holidays—introduce costly economic distortions into the economy in the process of lowering tax burdens because they favor some industries and products over others. In contrast, broadly based and permanent tax relief does not favor particular industries or buying behavior, providing tax relief without harming the overall efficiency of the economy.1 There is a growing body of research that suggests tax holidays are a costly and inefficient way to offer tax relief to consumers compared with more broadly based and permanent types of tax relief.

As economist John Hood remarked in a different context, temporary gas tax holidays aren’t primarily designed to cut tax burdens. They’re designed to create announcements of tax cuts.

Clearly, that benefits lawmakers who are under pressure from a public upset over prices at the pump. However, from a policy standpoint it is a poor response compared with the many other types of tax relief that are available.


Kiplinger’s called it a dumb proposal when it came from the other side of the aisle in 2008:

We were quick to dismiss the gas tax holiday idea when John McCain first suggested it two weeks ago. But we were wrong to think it had no legs. We didn’t figure on Hillary Clinton seizing hold of McCain’s idea as a way to appeal to the blue collar workers whose support has kept her chances alive.

Only Barack Obama is giving voters the straight-talk they deserve, rightly dismissing the idea as a short-term ploy that does more harm than good. …

Second, suspension of the 18.4 cents-a-gallon tax for four months would, at most, save the average motorist the cost of about one tank of gas. More likely, it would lead to a drop in prices for just a few days, then demand would increase (or greed would) and prices would climb back up and eliminate the savings, but with the extra money going into the pockets of the oil companies, not the blue collar workers McCain and Clinton are trying to please. In the meantime, the highway trust fund would lose $9 billion that is sorely needed to repair roads and crumbling bridges — not to mention the loss of jobs and other economic impacts that would be caused by scrapping projects.

In other words, not only is this idea “short-sighted, ineffective, goofy, and gimmicky,” it’s also been long discredited as a response to rapid increases in gas prices or inflation. Unfortunately, Biden and his fellow Democrats have no other responses to offer except goofy gimmicks and discredited economic policies, because those are the end result of the kind of command-economy approaches that Democrats keep implementing, and from which they keep producing economic failures.


Addendum: King Joe sides with Summers on this idea:

Worth noting, too: all four of those Senate Dems face tough re-election campaigns in this red-wave cycle.

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