Home FinanceEnergy & Environment Why Biden’s federal gas tax exemption would be bad for America

Why Biden’s federal gas tax exemption would be bad for America

by YAR

Is too much inflation crushing your summer vacation plans? President Joe Biden has a vacation for you: at the gas station. Biden is ready to ask Congress for an emergency three-month relaxation of the federal gas tax. By eliminating that 18.4-cent-per-gallon tax, and just before the peak of the driving season on July 4, Biden hopes to get credit for saving him three or four dollars every time he fills up.

It’s not a huge savings. The federal gas tax has not changed since 1993 and is not indexed for inflation. Still, according to the Congressional Budget Office, it brings in $45 billion a year, covering nearly all of last year’s $47 billion in federal highway spending. As Energy Secretary Jennifer Granholm said on CNN: “Part of the challenge with the gas tax, of course, is that it funds highways.” Ultimately, Congress will have to find another pocket to invest in to replace the estimated $10 billion in highway funding. The measure would essentially eliminate a user fee that is levied on those who drive the most and instead socialize the cost among all federal taxpayers, including electric vehicle drivers who dodge the gas tax today.

Biden pushed the idea in February, but Sen. Mitch McConnell derided it as a gimmick. As Jason Furman, an economics professor at Harvard University, tweeted Tuesday: “Whatever his opinion is on the merits of a gas tax break in February, it’s a worse idea now. Refineries are even more constrained now, so supply is almost totally inelastic.”

President Barack Obama rejected a gas tax exemption during the 2008 oil price spike, writing in his memoir: a promised land, “… I was sure that consumers would not see much of a benefit. In fact, gas station owners were just as likely to keep prices high and increase their own profits as they were to pass the savings on to motorists.”

Importantly, there is no real mechanism to make sure the savings go where they are meant to go: to regular people, rather than to demonized oil companies. Alex Muresianu of the Tax Foundation notes that a tax break “could worsen the supply-demand mismatch” by spurring higher gasoline demand and, in turn, higher prices, adding counterproductively to general inflation problems.

Gilbert Metcalf, an economics professor at Tufts University, summed it up in an email exchange. “As much as I understand the Biden Administration’s desire to ease the pain of higher prices, a gas tax exemption is a terrible idea. In addition to giving up valuable revenue, it will increase demand and only drive up gas prices. That, in turn, will push oil prices up a bit; is not what we want to do if we want to stifle Russia’s main source of export earnings. To lower prices, we need to boost supply, not demand. Working with the Saudis is unpleasant but important given the importance of fighting inflation and supporting Ukraine.”

Martin A. Sullivan of Tax Analysts writes that there are four good reasons for a gas tax. First, as a user fee for road repairs, which fits the user-pay principle (although EV drivers skid, for now). Second, as an incentive to drive less, reducing road congestion. Third, as an effective tax on carbon emissions; 18.4 cents per gallon equates to an implied carbon price of $20 per ton of carbon dioxide emitted. Fourth, a gasoline tax can insulate itself from price shocks by marginally reducing demand for a volatile commodity.

Sullivan marvels that, given all the things a gas tax is good for, it would be counterproductive to undo them. A tax break would do the opposite of what we need at a time of historically tight markets for oil: it would encourage more driving, more congestion, more emissions, and less money for road repairs. Even if everything else stays the same, and all the savings are passed on to the consumer, removing the tax only hurts the adjustments the country needs to make to move to a low-carbon economy.

“If our only goal is to control inflation, lawmakers should rule out a gasoline tax break, alternative energy tax incentives, and extensions of credits for children,” Sullivan writes. In fact, raising taxes would do more to combat inflation by discouraging driving. “That’s not going to help those legislators win any elections, but it’s the bitter truth.”

Naturally, lawmakers at the state level are considering their own tax breaks, with the potential to save their people much more. State gas taxes range from 9 cents a gallon in Alaska to more than 50 cents in Pennsylvania, Illinois and California. Connecticut, Georgia, Maryland, New York and Florida have already cut their gas taxes. Pennsylvania is considering lowering its tax from 57.6 cents a gallon, the highest in the country, with the idea of ​​replacing lost revenue with the state’s tax surplus. Likewise, Minnesota could afford to suspend its 28.6-cent tax thanks to a $9.3 billion surplus last year. California politicians seem more interested in reducing rebate checks to citizens to make sure the savings go directly to voters rather than oil companies. Indiana, which has already been paying people $125/month checks under an “automatic tax refund law,” is thinking of increasing that to $350 per person, per month.

MORE FROM FORBESGet ready for gas at $8 a gallon

As bad as a gas tax exemption is, it’s better than other self-defeating energy policies the administration has been considering lately.

Biden has been criticizing oil refining companies for not producing more gasoline and wants them to “justify making $35 billion in the first quarter.” Over the weekend, Biden said, “I want an explanation as to why they’re not refining more oil.” The administration has threatened to use the Defense Production Act to somehow force refiners to provide more fuel. Refineries respond that they are running near full capacity but are producing less fuel than before the pandemic because low prices two years ago forced plants to close or convert. A Phillips 66 plant in Louisiana has been under repair since Hurricane Ida last September, others are switching to producing renewable diesel fuel. Last year, Biden’s EPA removed permits that would have allowed the continued operation of the 200,000 barrel-per-day Limetree Bay refinery in the US Virgin Islands. Lyondell Basell plans to close its 263,000-bpd Houston refinery by the end of year. Does Biden want to nationalize the old refineries and subsidize his economy?

And then there is the idea of ​​curbing domestic oil and fuel exports. The concept is that if we stop sending our oil and gasoline abroad we should have enough at home. A terrible idea, writes Manav Gupta, an analyst at Credit Suisse. He reckons the US exports about 2 million barrels a day of gasoline, jet fuel, and diesel, and another 2.5 million bpd of fuel oil, propane, propylene, and other petroleum products. Banning these exports would break all kinds of contracts and “would likely lead to massive product shortages globally. This would have a greater impact on the global supply of products than the Russian invasion of Ukraine.” If the US were to suspend exports to Canada, Mexico, Brazil, Korea, perhaps they would cut off their trade with the US, which “would be seen as an unreliable supplier.” The US oil export ban ended in 2015 through an act of Congress, signed by Obama. Biden doesn’t have the votes to push him today.

Progressives in Congress have already introduced bills that would impose an extraordinary tax on oil companies on their profits from high oil prices. Reasonable people see that as an affront to an industry that saw the price of its products fall to zero just two years ago. Confiscating the lead would be a sure disincentive for US frackers to drill more, which is what we need at a time when inventories are at five-year lows, the restriction on Russian exports is just beginning, and the Strategic Petroleum Reserve It is running out. at a rate of 1 million bpd. (Also, if you really want to see windfall profit margins, look at Apple and Microsoft.)

Remember that the surest solution to high prices is high prices. In fact, a quick look at the oil futures markets would lead you to believe that high gas prices are just temporary. West Texas Intermediate oil futures are at $91.70 a barrel a year from now, and below $70 in 2027. This implies market faith that a combination of peace in Ukraine, economic recession and growth in the offer to significantly reduce oil prices. Very soon, the best strategy for Biden could be to simply do nothing and hope for the best.

Presidential inaction would be preferred by oilmen like Bud Brigham, chairman of publicly traded Brigham Minerals, which drills in the Permian Basin. He laments that Biden’s measures, specifically the release of oil from the Strategic Petroleum Reserve, are “harmful to markets and national security” because they interfere with price signals and “proportionately reduce the necessary supply response, even by reduce the cash flows available to our industry. to reinvest.” Brigham says, “A hostile political narrative neutralizes capital investment.”


MORE FROM FORBESGet ready for gas at $8 a gallon

Source link

Related Articles

Leave a Comment

The Float