Biden’s Federal Gas Tax Holiday: Would It Help Or Hurt Colorado?

COLORADO — The three-month federal gas tax holiday President Joe Biden proposed Wednesday would dent historically high gas prices in Colorado by 18.4 cents per gallon, providing some immediate relief at the pumps.

Nationally, Americans were paying an average of $4.96 a gallon for gas Thursday, according to AAA. In Colorado, the average price was $4.91 a gallon Thursday.

The move could be more psychological than effective in an economy battered by the highest inflation in 40 years, saving motorists a couple of bucks every time they fill up. On average, U.S. drivers use about 600 gallons of gasoline annually; that translates to a savings of about $10 a month.

Put another way, the federal gas tax is only about 3 percent of the nearly $5 Americans are paying for a gallon of gas.

Inflation is a big political problem for Biden and Democrats heading into the midterm elections. Biden on Wednesday reiterated an earlier call on states to suspend state gas taxes, which are typically larger than the federal levy.

Gas taxes vary widely by state, from the highest in Pennsylvania (57.6 cents), California (51.1), Washington (49.4), New Jersey (42.1) and Illinois (39.2), to the lowest in Alaska (8.95) Hawaii (16), New Mexico (17), Mississippi (18) and Arizona (18), according to data from the IGEN tax software company, as reported by Forbes.

The gas tax in Colorado is 22 cents per gallon. It’s the 11th lowest in the country, according to the IGEN data.

So far, four states have approved gas tax holidays, according to Penn Wharton Budget Model analysts at the University of Pennsylvania.

Maryland’s holiday lasted a little more than a month, Connecticut’s three-month holiday was set to expire this month but was extended through December, Georgia’s four-month holiday ends July 14, and New York’s seven-month holiday that began June 1 continues through the end of the year.

In a statement released Wednesday, Gov. Jared Polis commended Biden's action and urged Congress to take action.

"We would love to see the Congress finally suspend the federal gas tax to save people money," the statement read, in part. “The price of gas is controlled on the international global commodities market which has been driven up by Putin’s war in Ukraine so I am glad the President is doing what is in his power to help save people money now. This should fly through Congress and I would dare anyone to oppose suspending a 22 cent gas tax for three months that will provide some immediate relief at the pump.”

The Wharton Budget Model found the state gas tax holidays were effective. In Maryland, a 72 percent savings on gas was passed on to consumers. So far in Connecticut, consumers have seen savings of 71 percent to 87 percent. In Georgia, savings of 58 percent to 65 percent have been passed on to consumers.

Some analysts say gas tax holidays drive prices higher by encouraging people to drive more at a time of imbalance between demand and supply. Demand is up as Americans return to pre-pandemic driving levels, yet the supply has tightened, in part because of Russia’s invasion of Ukraine.

Biden again on Wednesday accused oil companies of price gouging and encouraged them to return refineries to full production. In a letter to oil producers last week, Biden said historically high profits for refining oil into fuel are “not acceptable” during a time of war. Oil and gas executives will gather at the White House Thursday for an emergency meeting with Energy Secretary Jennifer Granholm.

“We want to try to start that conversation and get something done … we are willing to help them,” White House press secretary Karine Jean-Pierre said last week. The administration wants to hear solutions from the energy companies themselves, Jean-Pierre said, adding that “maybe there’s a way that we can help them meet that capacity.”

The Committee for a Responsible Federal Budget, a Washington, D.C.-based nonprofit public policy group, said in a February analysis that suspending the federal gas tax would significantly cut Highway Trust Fund revenue. That group also puts the cost of the proposed gas tax holiday at $20 billion.

“While the gas tax holiday may reduce prices at the pump, it will further increase demand for gasoline and other goods and services at a time when the economy has little capacity to absorb it," the analysis said. "The result could be even higher rates of inflation in 2023."

Treasury Secretary Janet Yellen said a gas tax suspension is “not perfect” but could help offset inflation.

Congress would have to approve the federal gas tax holiday. Democratic Congressman Earl Blumenauer of Oregon wrote in a letter to Biden that “while there is undoubtedly a need to provide American consumers relief from spiking costs, there is no guarantee a gas tax suspension would reduce prices at the pump or stem the broader inflation affecting the global economy.”

He added the holiday “may only increase oil companies' bottom lines."

Biden’s old boss, President Barack Obama, bashed a gas tax holiday as a “gimmick” in his 2008 White House campaign.

“We're arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something,” Obama said at the time. “Well, let me tell you, this isn't an idea designed to get you through the summer, it's designed to get them through an election.”