On June 22, by popular demand, US president Joe Biden asked Congress to pass a three month “holiday” on collection of the federal gasoline tax. With prices hovering at around $5 per gallon, Americans want something done.
I’m all for it. I hate taxes, and I’m all for tax cuts, in any amount, for any length of time. Yay, Biden!
But before breaking into a collective happy dance over the “holiday” proposal and how great it’s going to be for our wallets, let’s look at some numbers.
According to the US Energy Information Administration, Americans used about 135 billion gallons of gasoline — about 408 gallons per man, woman and child in the country — in 2021. That’s not quite eight gallons per week per person.
Even if Americans aren’t reducing their miles driven due to higher prices, that means a “holiday” on collection of the 18.4 cent per gallon federal gas tax would save each of us a whopping $1.47 per week.
Don’t spend it all in one place.
And don’t expect to not pay for it on the inflationary back end.
The popular/common understanding of inflation is “price inflation” — a general rise in prices that happens when more dollars chase the same goods and services. Everything else equal, if 350 million Americans suddenly have an extra $1.47 their wallets, that will produce at least some small upward blip in prices. A can of corned beef hash will go for a penny more next week than it did last week, or whatever.
Another effect will come in the form of textbook inflation, which is an increase in the supply of money (that is, the Federal Reserve creating new dollars out of thin air) versus total production of goods and services in the economy.
If the feds stop collecting the gas tax, naturally Congress will have to cut government spending by $25 billion per year (about $6 billion over the three-month “holiday”) to make up for reduced revenues, right?
Don’t make me laugh. Government spending will roll right along as usual. Congress will just borrow the money, which means the Fed will magic that money into existence, making every dollar in your pocket worth less in terms of real purchasing power.
The proposed “holiday” is feel-good, “do something, anything” theater, not a serious solution. Gas prices will fall when supply goes up, demand goes down, or both. Anything else is just the equivalent of avoiding ladders and black cats on Friday the 13th.
Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.