Inflation is a tough problem for any president to tackle. Unfortunately, President Biden has thus far proven unwilling to take any meaningful actions that would help alleviate the problem, instead preferring to take up politically-motivated policies that would do next to nothing for taxpayers struggling with rising prices.
Most recently, Biden announced his intention to ask Congress for a three-month suspension of the federal gas tax. But even in the unlikely event that Congress should prove amenable, the policy that former President Barack Obama correctly called a “gimmick” would do very little to solve the underlying problems.
At the most basic level, prices are determined by the interaction between supply and demand. The current spike in gas prices is the result of constricted supply — in part due to the Russian invasion of Ukraine, but gas prices were rising even before then.
During the pandemic, people traveled less, almost wholly abandoning vacation plans and often working from home. As demand cratered, oil-producing countries stopped pumping as much oil, and supply chains adjusted to decreased capacity.
Yet around the time vaccines became widespread, that demand for oil came back all at once. Unfortunately, ramping back up oil production cannot happen overnight, and even if it could, supply chains are not equipped to handle it. The result: demand far exceeds supply, resulting in skyrocketing gas prices.
In that context, a federal gas tax holiday is a ludicrous solution. It would represent an attempt to solve rising prices when prices are not the problem. They are an indicator of the problem, which is that supply cannot keep up with demand. It’s a little like taking a painkiller for the pain from putting your hand on a hot stove — the pain is not the problem, it is an indicator that your hand is burning.
As a result, it’s quite likely that a gas tax holiday would provide you with little price relief at the pump. Even if the gas tax holiday reduced prices in the short term, any reduction in gas prices would increase demand — in turn pushing gas prices back up.
So are taxpayers just at the mercy of supply and demand? Hardly. Fundamentally, there are two problems: insufficient domestic supply and the difficulty of importing foreign oil due to overburdened supply chains.
The obvious first solution is to increase domestic oil supply. Unfortunately, rather than increasing domestic supply, President Biden has taken steps to constrict it. Biden immediately attempted to ban all new oil and gas permits on public land upon taking office, and has since taken large offshore oil leases off the auction block.
Whatever one’s opinion on pushing energy production towards renewable sources, that’s a debate about the future of energy. Right now, the vast majority of Americans rely on gas-powered vehicles, and outsourcing that demand to overseas producers is proving foolhardy.
The other way that the president could positively impact gas prices is by issuing an emergency Jones Act waiver. This archaic, century-old law prevents the transport of goods from one U.S. port to another unless carried on U.S.-flagged, U.S.-built, U.S.-owned, and American-crewed ships — of which there are currently just 93, none of which can carry liquefied natural gas (LNG).
In other words, because of this absurd law, it is impossible to transport LNG by ship from one part of the country to another. And while there exist Jones Act-compliant tankers to carry oil, there are so few that it is usually cheaper for refineries to import it from foreign countries than to rely on domestic supply.
Both of these problems could be solved tomorrow by President Biden, without any need to rely on Congress. It’s unfortunate that he is choosing to rely on a politically-motivated attempt to be able to claim to be doing something ahead of midterm elections — rather than actually taking the less politically grandiose steps that might actually help.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.
