"Shortsighted, Ineffective, Goofy, and Gimmicky": Democrats' Gas Prices Plan

KEY TAKEAWAYS

• As of March 8, the national average price for a gallon of gas was a record high $4.17 – up from $2.77 a year ago.
• Feeling immense political pressure stemming from the left’s failed policies, a group of endangered Senate Democrats recently proposed a “solution” to suspend collection of federal excise taxes on gasoline, which currently account for about 5% of the cost of an average gallon of gas. 
• Instead of pitching short-term gimmicks, Democrats should join Republicans in supporting initiatives that would actually help lower prices by bolstering America’s domestic energy resources.

After months of soaring prices, with inflation raging to a 40-year high, Democrats are finally acknowledging that American families are in dire straits. Consumers are feeling a particular squeeze with high gasoline prices, and Russia’s unprovoked invasion of Ukraine sent prices climbing even faster. Democrats are now pitching sham “solutions” that will do nothing to address the cost of crude oil and provide little, if any, relief for families.

Crude Oil Is Largest Share of Cost for a Gallon of Gasoline

what determines gasoline prices?

While the price at the pump is set by each retailer, there are four main costs that determine the price of gasoline: the cost of crude oil; refining costs and profits; distribution and marketing; and taxes. 

Because gasoline is a refined product of crude oil, their prices are inherently linked. The price of crude oil is the largest driver of the price of a gallon of gasoline and can be volatile – Russia’s unprovoked invasion of Ukraine has spiked global energy prices and driven oil prices to $130 per barrel, a level not seen since 2008.

There is also a federal excise tax on gasoline, which was last raised in 1993 to its current level of 18.3 cents per gallon. The federal government collects an additional 0.1 cents per gallon tax for the Leaking Underground Storage Tank Trust Fund. Revenue from the excise tax goes to the Highway Trust Fund and is the chief funding source for federal surface transportation programs. States and some cities impose their own taxes on gasoline, and some impose extra charges. According to the U.S. Energy Information Administration, as of January, federal and state taxes combined accounted for 15% of the cost of a regular gallon of gasoline, which was $3.41 at the time. Prices have gone even higher following Russia’s invasion of Ukraine – on March 8, AAA reported the national average price for a gallon of gas was a record high $4.17. It was $2.77 a year ago. The federal excise tax accounts for a little more than 4% of that cost, down from an average of 5% in January, and its share will continue to decline as prices go up.

Democrats’ “Solution” to High prices

With prices soaring, the left is frantic for political cover. A group of endangered Senate Democrats introduced legislation in February to stop collecting the federal excise tax on gasoline for the rest of this year, or until just after the midterm elections. As soon as the bill was introduced, observers across the political spectrum began ridiculing it.

The Treasury Department collects this federal excise tax from oil producers and importers, and there is no guarantee that the savings would even be passed on to consumers. In their bill, the Democratic senators simply direct the treasury secretary to “use all applicable authorities” to guarantee consumers benefit from the tax cut. It is unclear how the secretary could enforce this policy. If it costs you $50 to fill your gas tank, this proposal could save you $2.19. Families need meaningful relief from gas prices that have climbed dramatically since President Biden took office.

The bill also threatens funding for infrastructure projects. Last year, Congress passed bipartisan legislation to improve America’s aging infrastructure and significantly increased funding for road and bridge construction. Democrats are now apparently recommending we cut off the main source of federal money for these initiatives. Industry groups have decried the idea.

To make up the shortfall, Democrats are proposing we take a page from their reckless spending playbook – which has fueled inflation – and cover lost revenues by adding more to the national debt. Doing this without making any reforms will only worsen our country’s fiscal situation. The Committee for a Responsible Federal Budget estimates the plan may require a $20 billion offset.

Their proposal is so transparently political that even experts on the left are criticizing it. Larry Summers, President Clinton’s treasury secretary, called the idea “shortsighted, ineffective, goofy, and gimmicky.” In 2008, Barack Obama blasted the idea when some of his opponents, including Hillary Clinton, proposed it: “We’re arguing over a gimmick that would save you half a tank of gas over the course of the entire summer,” he said. He dismissed it as nothing more than a political scheme: “This isn’t an idea designed to get you through the summer, it’s designed to get them through an election.”

This is just the most recent sham solution proposed by Democrats. In the fall, when President Biden finally recognized high gasoline prices as the holiday season neared, he announced the release of 50 million barrels from the Strategic Petroleum Reserve, or about 2.5 days’ worth of U.S. consumption. Instead of reconsidering his anti-American energy crusade and embracing policies to actually help impact gas prices, his stunt resulted in a small temporary price drop before prices ticked back up in January. Last Tuesday, the president announced another release of 30 million barrels.

From the earliest days of the Biden administration, Republicans have pushed back on the left’s radical energy policies. Democrats spent 2021 pushing their reckless spending and radical Green New Deal energy agenda, and now they’re desperate to change the story. Families are anxious for serious relief, not gimmicks. Democrats should join Republicans in supporting initiatives that would actually help lower prices by bolstering America’s domestic energy resources.