How much will Biden's new Gas Tax Suspension affect Road Construction?

[tsmatt13]

Recently, Biden has called for a three-month suspension of the federal gas tax, in hopes of giving families relief as the summer season approaches. However, this would slow down road construction as well, since it is an important source of funding. He proposed for other sources to continue providing funds for road construction to combat this, but how effective will it be?

While it is just for three months it would be interesting to see how much this affects the road network.

Link to article:https://www.cnn.com/2022/06/22/politics/gas-tax-suspension-biden/index.html

[thspfc]

It's not going to happen. Biden's supporters are already angry about the lack of governmental services the US provides compared to other nations. Dropping a major tax, even temporarily, will make that worse.

[mgk920]

It’s not going to happen. Biden’s supporters are already angry about the lack of governmental services the US provides compared to other nations. Dropping a major tax, even temporarily, will make that worse.

This strikes me as 100% gimmickry, just like the 'bug' lockdowns of a year or two ago were.  If you really want fuel tax 'relief', then repeal ALL of the special fuel taxes and put all transport infrastructure spending on the federal and respective state 'feneral fund' budgets.

As for bringing fuel prices back down to more respectable levels, just undo all of the federal executive orders of 2021-01-20 and 2021-01-21.

Mike

[Rothman]

It's not going to happen. Biden's supporters are already angry about the lack of governmental services the US provides compared to other nations. Dropping a major tax, even temporarily, will make that worse.

This strikes me as 100% gimmickry, just like the 'bug' lockdowns of a year or two ago were.  If you really want fuel tax 'relief', then repeal ALL of the special fuel taxes and put all transport infrastructure spending on the federal and respective state 'feneral fund' budgets.

As for bringing fuel prices back down to more respectable levels, just undo all of the federal executive orders of 2021-01-20 and 2021-01-21.

Mike

Although I can agree that this tax relief is minimal, the ideas the COVID lockdowns were just gimmicks and the executive orders mentioned, if repealed, would have a bigger effect on gas prices are more based upon fantasy than reality.

To answer the question in the title, I'd have to say there won't be an effect.  People forget how easily the government borrows...

[SEWIGuy]

Yeah comparing a gas tax holiday to Covid lockdowns has me ROFL.

I would guess that a federal gas tax holiday would probably reduce prices about a dime.  Big deal.

[1995hoo]

Yeah comparing a gas tax holiday to Covid lockdowns has me ROFL.

I would guess that a federal gas tax holiday would probably reduce prices about a dime.  Big deal.

The federal gas tax is 18.4¢ per gallon. On a 15-gallon fillup, that's $2.76. I guess there are people out there who fill up multiple times a week, and who don't make a lot of money, for whom that amount could add up. I suspect, however, that for the overwhelming majority of Americans, the amount is too small to be noticeable.

There is also the interesting point about whether a "gas tax holiday" might cause prices to rise if people who think they're "saving money" start driving more as a result of "lower gas prices." I'm not enough of an economist to have a meaningful opinion on that issue, but it's an interesting question.

[AlexandriaVA]

There is also the interesting point about whether a "gas tax holiday" might cause prices to rise if people who think they're "saving money" start driving more as a result of "lower gas prices." I'm not enough of an economist to have a meaningful opinion on that issue, but it's an interesting question.

You're bringing back memories of my undergraduate economics courses, namely Ricardian Equivalence Theorem (https://en.wikipedia.org/wiki/Ricardian_equivalence)

To the extent that you can study this stuff, economists generally believe that consumers/taxpayers don't change their consumption patterns for short-term changes.

Perhaps the best example that comes to mind is that in 1992, President George H W Bush instituted a moratorium on income tax withholding, with the idea that consumers would see a bigger net paycheck, and hence spend more, instituting consumer-driven growth. What happened, however, was that that taxpayers were wise enough to know that today's tax holiday would be made up for by tomorrow's increased collections. More recently, I think Trump did it at the tail end of his presidency in a similar effort, with similar results.

[SEWIGuy]

Yeah comparing a gas tax holiday to Covid lockdowns has me ROFL.

I would guess that a federal gas tax holiday would probably reduce prices about a dime.  Big deal.

The federal gas tax is 18.4¢ per gallon. On a 15-gallon fillup, that's $2.76. I guess there are people out there who fill up multiple times a week, and who don't make a lot of money, for whom that amount could add up. I suspect, however, that for the overwhelming majority of Americans, the amount is too small to be noticeable.

There is also the interesting point about whether a "gas tax holiday" might cause prices to rise if people who think they're "saving money" start driving more as a result of "lower gas prices." I'm not enough of an economist to have a meaningful opinion on that issue, but it's an interesting question.

I did mean a dime a gallon.

One thing I remember from my undergraduate economic days is that a cut in prices like this will still induce demand enough that prices will not drop the entire 18.4 cents - that both the consumer and the producer (gas company) will split that 18.4 is some way. How much? It depends on the "elasticity of demand" for the product - the more inelastic, the more that will be paid by the consumer.

[kphoger]

And, when people have less tax taken out of their paycheck every week, they wonder why their year-end tax refund is smaller.  D'oh!

[AlexandriaVA]

And, when people have less tax taken out of their paycheck every week, they wonder why their year-end tax refund is smaller.  D'oh!

Pretty much. Anyone who gets excited over a tax refund should realize that you were merely giving the government an interest-free loan, and they're paying you back the balance.

The ideal tax refund is zero (and if the early parts of the tax year are seeing red-hot market growth, you can argue that you'd rather under-withhold in the beginning, invest those extra dollars in the market, and then pay your refund after coming out on top, but that's a super specific strategy).

[US 89]

Yeah comparing a gas tax holiday to Covid lockdowns has me ROFL.

I would guess that a federal gas tax holiday would probably reduce prices about a dime.  Big deal.

The federal gas tax is 18.4¢ per gallon. On a 15-gallon fillup, that's $2.76. I guess there are people out there who fill up multiple times a week, and who don't make a lot of money, for whom that amount could add up. I suspect, however, that for the overwhelming majority of Americans, the amount is too small to be noticeable.

There is also the interesting point about whether a "gas tax holiday" might cause prices to rise if people who think they're "saving money" start driving more as a result of "lower gas prices." I'm not enough of an economist to have a meaningful opinion on that issue, but it's an interesting question.

Seems to me that’d be the case especially in places like here, where an 18 cent drop in prices would make the price of a gallon of regular start with a 4. $5 gas is a major psychological barrier, and I have to think seeing that go away would almost certainly get more people out on the road to “take advantage” given the recent short-term rapid increases.

I agree that it is entirely a political gimmick and there’s almost nothing good about the idea. Even if prices don’t rise due to artificially inflated demand, the average American gets around 25 mpg and drives 1200 miles in a month (that’s 48 gallons of gas). Getting rid of the 18.4¢ federal gas tax would save the average American a whopping $8.83 a month - almost nothing compared to rent or food or other typical expenses. Plus the government loses out on tax revenue. Fortunately, it looks like there is bipartisan opposition in Congress.

[hbelkins]

Not sure where Congress stands on this issue, but the proposal will require 60 votes in the Senate and a simple majority in the House.

Personally, I don't really think that this administration is at all interested in providing any relief to consumers. Kentucky's governor Andy Beshear, a Democrat who presumably supports Biden, requested the federal government to drop the requirement that more expensive reformulated gas be sold in Louisville and surrounding areas. The feds refused the request.

If the current administration in power was really serious, they'd suspend or rescind all regulations that push the cost of fuel upwards. Eliminating the RFG requirement would have been a simple step, but the administration refused to do even that at the request of an ally. That tells me that those in power actually want these high prices.

[zzcarp]

Yeah comparing a gas tax holiday to Covid lockdowns has me ROFL.

I would guess that a federal gas tax holiday would probably reduce prices about a dime.  Big deal.

Both are bad policies, but that's where the comparison ends.

If the tax holiday was to happen, it likely wouldn't be much of a factor in slowing down construction in the short term. The Feds are printing a lot of money and sending it to the states from the "bipartisan infrastructure" bill passed earlier this year. Most of that cash hasn't even been delivered or spent yet. All the tax holiday will do is increase the borrowing and add to the current inflation problem. Now, the inflation has already caused a spike in material costs which means each dollar gets you fewer lane miles built. So long-term the inflation will slow down construction due to costs which the tax holiday will marginally make worse.

[SEWIGuy]

And, when people have less tax taken out of their paycheck every week, they wonder why their year-end tax refund is smaller.  D'oh!

Pretty much. Anyone who gets excited over a tax refund should realize that you were merely giving the government an interest-free loan, and they're paying you back the balance.

The ideal tax refund is zero (and if the early parts of the tax year are seeing red-hot market growth, you can argue that you'd rather under-withhold in the beginning, invest those extra dollars in the market, and then pay your refund after coming out on top, but that's a super specific strategy).

Eh. I know I am giving the government an interest free loan, but I still like getting a tax refund.

[LM117]

Fortunately, it looks like there is bipartisan opposition in Congress.

I suspect this is the true reason for the bipartisanship...

https://abcnews.go.com/Politics/democrat-joe-manchin-signals-support-bidens-call-gas/story?id=85558791

Biden is expected to call on Congress to suspend the federal gas tax, which amounts to roughly 18 cents of gasoline and 24 cents per gallon of diesel through the end of September. Manchin, who chairs the Senate Energy and Natural Resources Committee took issue with the timing ahead of the fall midterm elections.

"My other would be the political ramification. It goes off at the end of September. Which politician up here is going to be voting to put that 18-cent tax back on a month before the November election? So, we just dig the whole deeper and deeper and deeper," Manchin said.

[abefroman329]

More recently, I think Trump did it at the tail end of his presidency in a similar effort, with similar results.

It didn't even get that far, since many companies knew it was an advance and not a gift and just didn't adjust employees' withholdings.  As I recall, not even every federal employee who would have been eligible for it, received it (it only applied to people making less than a certain amount per year).

[1995hoo]

Yeah comparing a gas tax holiday to Covid lockdowns has me ROFL.

I would guess that a federal gas tax holiday would probably reduce prices about a dime.  Big deal.

The federal gas tax is 18.4¢ per gallon. On a 15-gallon fillup, that's $2.76. I guess there are people out there who fill up multiple times a week, and who don't make a lot of money, for whom that amount could add up. I suspect, however, that for the overwhelming majority of Americans, the amount is too small to be noticeable.

There is also the interesting point about whether a "gas tax holiday" might cause prices to rise if people who think they're "saving money" start driving more as a result of "lower gas prices." I'm not enough of an economist to have a meaningful opinion on that issue, but it's an interesting question.

I did mean a dime a gallon.

One thing I remember from my undergraduate economic days is that a cut in prices like this will still induce demand enough that prices will not drop the entire 18.4 cents - that both the consumer and the producer (gas company) will split that 18.4 is some way. How much? It depends on the "elasticity of demand" for the product - the more inelastic, the more that will be paid by the consumer.

I didn't mean to disagree with you on how many cents of price "relief" customers might actually see. I was just noting what the total amount would be if in fact the price dropped to reflect the full federal gas tax amount, which of course is impossible as a practical matter because there's no realistic way for the price to have an exact reflection of the 0.4¢ portion.

More recently, I think Trump did it at the tail end of his presidency in a similar effort, with similar results.

It didn't even get that far, since many companies knew it was an advance and not a gift and just didn't adjust employees' withholdings.  As I recall, not even every federal employee who would have been eligible for it, received it (it only applied to people making less than a certain amount per year).

Some parts of the government refused to implement it at all. His order applied only to the Executive Branch–I believe I read he lacked the legal authority to order the other two branches to do it.

[abefroman329]

Some parts of the government refused to implement it at all. His order applied only to the Executive Branch–I believe I read he lacked the legal authority to order the other two branches to do it.

Yeah, that's what I meant - I don't really think of Congressional staffers as "federal employees," and...jeez, I don't even know how the federal courts work in terms of being funded, or who reports to who.

[FrCorySticha]

I didn't mean to disagree with you on how many cents of price "relief" customers might actually see. I was just noting what the total amount would be if in fact the price dropped to reflect the full federal gas tax amount, which of course is impossible as a practical matter because there's no realistic way for the price to have an exact reflection of the 0.4¢ portion.

They could. After all, we've been paying 0.9¢ per gallon for decades. It just shows up as extra pennies from the 2nd gallon onward.

[kphoger]

They could. After all, we've been paying 0.9¢ per gallon for decades. It just shows up as extra pennies from the 2nd gallon onward.

A lot of gas station signs have the .009 part as a permanent fixture:  that is, it's impossible to display a price of $4.275.

[J N Winkler]

And, when people have less tax taken out of their paycheck every week, they wonder why their year-end tax refund is smaller.  D'oh!

Pretty much. Anyone who gets excited over a tax refund should realize that you were merely giving the government an interest-free loan, and they're paying you back the balance.

The ideal tax refund is zero (and if the early parts of the tax year are seeing red-hot market growth, you can argue that you'd rather under-withhold in the beginning, invest those extra dollars in the market, and then pay your refund after coming out on top, but that's a super specific strategy).

Eh. I know I am giving the government an interest free loan, but I still like getting a tax refund.

I have heard of people who try to adjust their withholding so that their federal tax refund is just barely enough to pay their state taxes.

I have also heard of married couples with unbalanced money-management skills where one spouse pushes for overly high withholding essentially to force saving.  An example might be a husband feeling he has to spend whatever money he has in the bank, but also being willing (for quiet at home if no other reason) to go along with the wife's plan to dedicate the tax refund check to a durable household improvement like replacing the garage door, repairing basement leaks, etc.



As for the gas tax holiday, I don't expect it to do much, for good or ill, if it passes.  It's been a while since I looked at OHPI, but in at least a few recent years before covid we spent more on highways than came in through user fees like the gas tax.  As it's a short-term intervention, I'd expect construction activity to continue as usual, just with a transiently higher level of subsidy.

[FrCorySticha]

A lot of gas station signs have the .009 part as a permanent fixture:  that is, it's impossible to display a price of $4.275.

True, but what matters more is the pumps, and most of them can be updated to support 0.5¢.

[CtrlAltDel]

And, when people have less tax taken out of their paycheck every week, they wonder why their year-end tax refund is smaller.  D'oh!

Pretty much. Anyone who gets excited over a tax refund should realize that you were merely giving the government an interest-free loan, and they're paying you back the balance.

The ideal tax refund is zero (and if the early parts of the tax year are seeing red-hot market growth, you can argue that you'd rather under-withhold in the beginning, invest those extra dollars in the market, and then pay your refund after coming out on top, but that's a super specific strategy).

Eh. I know I am giving the government an interest free loan, but I still like getting a tax refund.

The argument tends to imply that that there are only two things you can do with this money, have it withheld or invested. But if the refund would be $1,000, a lot of people would just spend that extra $19 a week on other things. And so getting that money back all at once is a significant, if somewhat contrived, windfall.

[CtrlAltDel]

A lot of gas station signs have the .009 part as a permanent fixture:  that is, it's impossible to display a price of $4.275.

True, but what matters more is the pumps, and most of them can be updated to support 0.5¢.

Is it legal to advertise a price that isn't actually available?

[CtrlAltDel]

As for the gas tax holiday, I don't expect it to do much, for good or ill, if it passes.  It's been a while since I looked at OHPI, but in at least a few recent years before covid we spent more on highways than came in through user fees like the gas tax.  As it's a short-term intervention, I'd expect construction activity to continue as usual, just with a transiently higher level of subsidy.

I don't think it'll do much either, mostly since as the price of gas increases, the federal gas tax represents a smaller and smaller proportion of the total amount, as seen in the following chart:

Code Select Expand


1.009 18.2%
1.509 12.3%
2.009 9.2%
2.509 7.4%
3.009 6.1%
3.509 5.3%
4.009 4.6%
4.509 4.1%
5.009 3.7%
5.509 3.3%
6.009 3.1%


We're in 3-4% territory now, which isn't going to affect people's choices all that much. Well, it won't affect them at the pump, it might affect them at the ballot box.