Explainer: Biden’s U.S. fuel tax exemption plan isn’t easy gas price relief

US President Joe Biden calls for a federal gasoline tax suspension as he addresses gasoline prices during remarks in the South Court auditorium of the Eisenhower Executive Office Building at the White House in Washington, United States, June 22, 2022. REUTERS/Kevin Lamarque

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WASHINGTON, June 22 (Reuters) – U.S. President Joe Biden wants Congress to suspend the federal fuel tax for three months to help bring down record gasoline prices that threaten some of his fellow Democratic congressional candidates of November 8. Read more

Here are the main issues surrounding a fuel tax exemption:

WHAT ARE THE FEDERAL FUEL TAXES?

The federal fuel tax is 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel, a level that has not changed since 1993. At that time, gasoline cost approximately $1.05 a gallon, compared to just under $5.00 today, which means it’s a much smaller component of the overall price at the pump now.

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But it is still an important source of public revenue. Congress first mandated it in 1932 during the Great Depression as a way to help revitalize the economy. It mainly pays for the construction of highways and bridges, works that keep businesses running by avoiding transportation delays. Part of the tax also goes to projects like public transit.

According to the White House, waiving the federal fuel tax through September, as Biden proposes, would cost the Highway Trust Fund $10 billion, but could be funded from other areas of the budget.

HOW MUCH DO STATES TAX ON FUEL?

Biden also called on state and local governments to suspend their own fuel taxes. US state fuel taxes are on average higher than federal taxes, averaging more than 31 cents per gallon for gasoline and nearly 33 cents per gallon for diesel, according to the Energy Information Administration. California, Illinois, and Pennsylvania all have the highest gasoline taxes, over 58 cents per gallon.

Alaska has the lowest at around 9 cents per gallon, while Texas, a major oil producing and refining state, has a gasoline tax of 20 cents per gallon.

As gasoline prices rose this year after Russia invaded Ukraine and the world emerged from the worst of the COVID-19 pandemic, some states, including Maryland, Georgia and Connecticut, have already reduced fuel taxes.

A review this month by researchers at Wharton, the University of Pennsylvania’s business school, found that 72% of the tax cut was passed on to consumers in Maryland, but only 58% 65% of savings were passed on to consumers in Georgia. The researchers said suppliers may capture some of the economic benefits if prices at the pump do not fall by the full amount of the suspended tax.

If a fuel tax exemption were passed by Congress, it might not help consumers much. The temporary reduction in fuel prices, for example, could simply stimulate demand by causing drivers to consider longer trips and avoid carpooling and public transport. This, in turn, could mean that prices return to where they were, or even higher.

“This is actually going to fuel more demand and is actually bullish for oil,” Amrita Sen, co-founder and director of research at Energy Aspects, a research consultancy, told CNBC on Wednesday.

WHAT ARE THE CHANCES OF BIDEN’S PLAN PASSING IN CONGRESS?

In February, six moderate Democrats in the Senate, some of whom were up for re-election in November, introduced a bill to suspend the gas tax. But the bill faced opposition from Republicans, including the party’s Senate leader Mitch McConnell, because it didn’t also suspend the tax on diesel used by many trucks.

Biden’s request “died on arrival,” Sen. John Thune, the second House Republican, said Wednesday.

However, even some of Biden’s fellow Democrats have been skeptical of the federal tax break. House Speaker Nancy Pelosi said in March that oil companies would simply raise fuel prices and reap a profit. Pelosi stopped committing to the plan on Wednesday. “We’ll see where the consensus is on the way forward for the president’s proposal in the House and Senate,” she said in a statement.

Senator Tom Carper, a Democrat from Biden’s Delaware state, tweeted Tuesday that “suspending the primary way we pay for infrastructure projects on our highways is a short-sighted and ineffective way to provide relief. “, adding that other options to reduce energy costs should be explored.

Opposition from senior Democrats could mean Biden’s proposal fails.

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Reporting by Timothy Gardner; edited by Grant McCool

Our standards: The Thomson Reuters Trust Principles.

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