What the federal gas tax could mean for prices at the pump

Fuel prices at a Chevron gas station in San Francisco June 9, 2022.

Bloomberg | Bloomberg | Getty Images

For months, drivers across the United States have faced staggering prices when they fill up their gas tanks.

Now, President Joe Biden is considering a new remedy — a federal gas tax exemption.

A gallon of gas now costs an average of $4.97, according to the AAA. That’s a slight improvement from earlier this month, when the national average crossed the $5 threshold for the first time. But prices are up from $4.59 a month ago and $3.07 a year ago.

However, in some states — such as Washington, Oregon, and Nevada — gas prices average more than $5.50 per gallon. In California, the current average is $6.38 per gallon.

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The federal gas tax is 18.4 cents a gallon, while states separately charge their own fees.

In February, the Senate Democratic. Maggie Hassan of New Hampshire and Mark Kelly of Arizona have proposed a bill that would suspend the federal gas tax through the end of the year.

The idea is getting new attention from the Biden administration, with Treasury Secretary Janet Yellen calling it “an idea definitely worth considering” in an interview Sunday with ABC News “this week.”

When asked about Yellen’s comments, Biden said Monday that he is considering it.

Gas tax savings for consumers will be minimal

The idea of ​​a temporary abolition of the federal gas tax has drawn some criticism.

A report from the University of Pennsylvania’s Penn Wharton budget model released in March found that savings from such a break likely wouldn’t be significant for consumers.

Kent Smitters, a professor at the University of Pennsylvania’s Wharton School, told CNBC at the time that the savings per person could only be about $50 if implemented in March through the end of the year.

Moreover, federal tax revenue would be reduced by about $20 billion if a gas tax exemption was implemented through the end of this year, according to a March report.

Gas taxes fund many important road safety programs.

Andrew Gross

AAA spokesperson

The problem, Smitters said, is that most of the savings from these changes — whether they happen at the federal or state level — will not be transferred to the consumer.

It could also mean less money for the Highway Trust, which funds roads and bridges, as well as other transportation costs. The Senate bill proposes replacing tax revenue that normally goes to the Highway Trust Fund with transfers from the general fund.

Federal taxes make up a small portion of what consumers spend on gas, according to AAA spokesperson Andrew Gross.

He noted that the cost of oil is the largest determinant of gas cost at around 56%. The remainder includes about 14% for refining, 15% for distribution and marketing, and the remaining 15% for federal and state taxes.

The AAA opposed the proposed federal legislation along with other organizations including the American Association of Highway and State Transportation Officials and the American Society of Civil Engineers.

“Gas taxes fund a lot of important road safety programs,” Gross said. “And it’s not like our road safety needs are going to take a vacation, too.”

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