Biden’s gas tax cut could help Democrats, but could make rising inflation worse

President Joe Biden is considering a gas tax holiday to provide much-needed relief for Americans, many struggling to afford rising gas prices. However, suspending the federal gas tax could exacerbate one of Biden’s biggest headaches – rising US inflation.

Oil prices have skyrocketed in recent months, mainly due to Russia’s invasion of Ukraine, with the White House scrambling to find ways to reduce costs at the pump. Biden told reporters on Monday that he expected to make a decision on implementing the gas tax holiday by “the end of the week,” adding that his administration is also considering sending gas rebate cards.

Such a move would still need to make its way through Congress, but it could reduce prices at the pump by as much as 18 cents a gallon. However, the problem with the tax cut is that it won’t do much to correct the supply shock that has driven higher prices. In fact, it may make it worse.

David Fiorenza, Professor of Economics at Villanova University newsweek That declining prices would give people “more discretionary money to spend on food, vacations, day trips, entertainment, and even to save money or pay off debt.” He also cautioned that “fueling the economy with extra money will lead to inflation” and will exacerbate the current situation.

“It’s happened with stimulus money,” Fiorenz said. “It is the result of both [the Biden and Trump] The administration is putting money in the pockets of the consumers.”

President Joe Biden said his administration is considering temporarily suspending the federal gas tax to help Americans at the gas pump. Biden speaks to members of the press ahead of Marine One departure from the White House on June 17, 2022 in Washington, DC
Alex Wong / Getty

A report by the Committee for a Responsible Federal Budget made the same argument earlier, saying that suspending the federal tax for a period of 10 months could actually boost consumer demand amid supply chain disruptions related to the ongoing pandemic. could.

So, while a federal tax holiday may provide immediate, short-term relief to drivers at the gas pump, it could make America’s current inflation problem more severe than ever.

In addition to boosting demand, Loyola Marymount University economics professor James Devine pointed out that gas tax cuts, while not part of government spending, could still widen the deficit, which would then increase inflation. They told newsweek That tax holiday could also cut infrastructure investment, which could also contribute to long-term inflation.

With regular gasoline costing around $5 per gallon, nearly $2 more than a year ago, rising fuel costs have become more of an economic problem for the nation. It has turned into a major political setback for the Biden administration as Democrats seek to capture the House and Senate in this midterm election. Biden ordered a release of 1 million barrels of oil a day, but the federal government’s response has done little to drive gas prices down.

Those costs have also resulted in growing concern among Americans, a majority who say the economy will be the top issue driving their votes in the mid-November period.

“Tax cuts like this are mostly aimed at easing the pain of drivers,” Devine said. “And, to be cynical, on helping [Democratic Party] In the mid-term elections.”

“Even though the tax cut will have little effect this year, it may have a symbolic effect, suggesting to voters and politicians that such a tax cut is a good thing.” He added.

The idea that the federal gas tax holiday is seen as more symbolic than anything else has been floated not only by economic experts. Biden’s own former boss, former President Barack Obama, said as much when presidential candidates John McCain and Hillary Clinton favored implementing one, dismissing the move as a political “gimmick” to win votes. Gave.

“We’re debating a gimmick that will save you half a tank of gas all summer long so everyone in Washington can pat their back and say they’ve done something,” Obama said in 2018. It’s not an idea designed to get you through the summer, it’s designed to get them through the polls.”

Wayne Winegarden, a senior fellow at the Pacific Research Institute, echoed that if the Federal Reserve doesn’t adjust the additional spending on the gas rebate card, the measure will “put additional pressure on the federal budget and widen the deficit.”

“It is up to the Federal Reserve to address monetary policy issues, which leaves the Biden administration to address supply-side issues,” Winegarden said. “The gas tax holiday and gas exemption do not remove the fundamental disincentive to bring more oil and natural gas to the market permanently.”

The better solution, according to Winegarden, is to open up to US drilling, something that would contradict Biden’s commitment to moving America toward green energy.

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