No time for a holiday

Is Biden’s gas tax holiday a serious policy failure, or a brilliant long-term masterplan, asks Paul Jarvis

President Joe Biden has recently suggested a so-called gas tax holiday as the cost of living soars and families are facing increasingly high prices at the pumps and on supermarket shelves.

You can see his reasoning: prices are rising fast, and so to take the pressure off, let’s remove the federal government’s own share so that prices can be dampened until inflation eases off and the price of oil starts to level out.

And yet there are plenty of problems with such an approach. To begin with, Biden’s holiday would last only three months, and, as everyone knows, returning from a holiday to the daily grind is never a happy affair. With no certainty that volatile oil prices would have settled down - and increasingly the war in Ukraine (a major contributing factor) looks set to be a long campaign rather than the short sharp assault many had originally anticipated - there’s no guarantee that the holiday would allow motorists to jump the soaring rises and land on a plateau.

However, the policy flaw goes much deeper than that. Its short termism is in line with all presidents’ approach to the gas tax for the past three decades: the tax itself hasn’t been increased since October 1993 and is not linked to inflation, so while it has remained the same for almost 29 years, inflation has risen by over 90% in that time.

This refusal to raise the tax means that the Highway Trust Fund has remained chronically underfunded for decades and the cash generated by the gas tax is nowhere near what is required to look after the US roads infrastructure - never mind update and renew it.

Notably, Biden’s proposal to introduce a holiday expressly states that this should have “no negative effect on the Highway Trust Fund”, with “other revenues” being cited as enough to make up the shortfall.

For those of a conspiratorial nature, the Biden plan may not be as short termist as it first appears. Could it be that the president is attempting to wean the US off its addiction to the gas tax? 

Such an approach would also play into Biden’s key green agenda. After all, his efforts to boost the use of electric vehicles (not least by promoting P3s to deliver new charging infrastructure across the country) should mean a reduction in cars on the roads that pay any gas tax at all. If there are fewer cars filling up at the gas stations, the gas tax will become even less useful in funding infrastructure.

Notably, Michigan's Mackinac Center for Public Policy has recently published a report into the potential of replacing the gas tax with "mileage-based user fees", and concluded that such an approach could create a "bondable revenue stream to pay for the reconstruction and modernization" of the state's road infrastructure. An idea that has long been in gestation could be coming closer to reality as politicians recognize the fact that a reduction in gas and diesel-powered vehicles will result in dwindling cash from an already depleted gas tax revenue system.

People have long assumed that because they pay the gas tax, their roads are being funded and fixed, when that simply isn’t the case. By taking the tax away, it could be a first step to having a proper discussion about what should replace it. Such a debate is desperately needed in the US, especially as opponents to other forms of funding and financing America’s roads are vocal, without offering much in the way of an alternative.

The recent court decision blocking Pennsylvania’s P3 bridge plans is a case in point: the case may have turned on a procedural point, but those bringing the action were clearly motivated by an objection to using tolls to pay for new bridges in their communities. The state’s Department of Transportation has warned that the money won’t be available from the public purse for 20 years to fund some of these projects, whereas the P3 option would have been underway in a matter of months.

By taking away the gas tax as a crutch, it may be possible for people to recognize that there needs to be a long-term restructuring to deliver appropriate funding to match the need. Whether P3s (with or without physical tolls) form part of that solution can be discussed, but simply assuming that paying 18.4 cents on a gallon of gasoline will fund a new road is simply unsustainable.