What Is a Gas Tax Holiday? What Will It Mean for Gas Prices?

  • President Joe Biden is set to announce a three month gas tax suspension.
  • Officials have acknowledged it won't fix the gas price problem.
  • But it could help lower the price of gas per gallon by as much as $1.
gas tax holiday - What Is a Gas Tax Holiday? What Will It Mean for Gas Prices?

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President Joe Biden is proposing a gas tax holiday, a suspension of the current 18.4-cent gas tax. While this would not lower gas prices by that amount, it would lower the cost imposed on gas producers. The Biden administration intends for this to lower the cost per gallon that Americans are paying.

As InvestorPlace news writer Eddie Pan recently reported, gas prices are highest on the West Coast, with costs exceeding $6 per gallon in California and almost just under $6 in Nevada. But prices are high across the country with the U.S. averaging a whopping $4.955 per gallon. Let’s take a closer look at the gas tax holiday and what it would mean for American consumers.

Will a Gas Tax Holiday Drive Down Gas Prices?

Since gas prices began rising early in 2022, there have been many questions raised by consumers. Americans have wondered what is pushing as prices up, how far they will rise and for how long? But now that Biden administration has a solution on the table, one that has the potential to help curb the cost of gas for drivers from coast to coast. As The Hill reports: “Simply put, a federal gas tax holiday would temporarily suspend the 18.4-cent gas tax. It doesn’t, however, mean you’ll pay 18.4 cents less per gallon of gas at the pump.”

By itself, the gas tax holiday isn’t likely to lower prices much for consumers. But according to the New York Times, the Biden administration sees it as one step in a series of positive steps toward reducing gas prices. It foresees that “the suspension of the tax, a halt on state gas taxes and an increase in refining capacity by oil companies — would lower gas prices by at least $1 a gallon.”

This isn’t the first time a gas tax holiday has been broached as a possible means of curbing prices. In February 2022, Democratic Senators Maggie Hassan and Mark Kelly introduced the Gas Prices Relief Act, a bill aimed at suspending gas tax through the end of the year. The legislation focused on providing relief for American consumers as opposed to oil and gas companies. U.S. Treasury Secretary Janet Yellen recently described it as “an idea that’s certainly worth considering.”

There is evidence to suggest that a gas tax holiday could be effective at curbing prices. The Penn Wharton Budget Model, a common economic forecasting system, recently released a study of the states that have implemented individual gas tax holidays. It showed that drivers in Connecticut, Georgia and Maryland saved on gas as a result. “The majority of the savings went to consumers, instead of service stations and others in the energy sector,” NPR reports.

What to Expect

The proposed gas tax holiday comes at an opportune time for Americas. As InvestorPlace contributor Tim Briggam recently noted, gas prices are likely to continue rising as summer travel increases. But as fellow news writer Shrey Dua recently reported, a recession could help lower gas prices. “The logic behind a recession pushing down gas prices is based in economics” he notes.

When the economy falls, demand for things like travel tends to diminish. Should that happen, gas prices will naturally ease back down to reflect the shrinking gap between supply and demand.

Regardless of a recession, Biden clearly plans to move forward with the gas tax holiday. While it is uncertain how Congress will react, it is clear that the administration feels action must be taken to curb gas prices. And the gas tax suspension would likely be a positive first step.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2022/06/what-is-a-gas-tax-holiday-what-will-it-mean-for-gas-prices/.

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