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Prices at the pump mean a federal gas tax holiday

Fuel prices at the Chevron Gas Station in San Francisco on June 9, 2022.

Bloomberg | Bloomberg | Getty Images

For months, drivers across the US have been experiencing eye-catching prices when filling their gas tanks.

Now, President Joe Biden is weighing a new solution – the federal gas tax holiday.

According to AAA, a gallon of gas now costs an average of $ 4.97. A little improvement earlier this month when the national average crossed the $ 5 threshold for the first time. But prices are up from $ 4.59 a month ago and $ 3.07 a year ago.

However, in some states – Washington, Oregon and Nevada – average gas prices are over $ 5.50 per gallon. In California, the average is currently $ 6.38 per gallon.

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The federal gas tax is 18.4 cents per gallon, and each state individually charges its own levy.

In February, Democratic Sen. Maggie Hassan of New Hampshire and Mark Kelly of Arizona proposed a bill to suspend the federal gas tax by the end of the year.

The idea is receiving renewed attention from the Biden administration, as Treasury Secretary Janet Yellen called it “definitely an idea to consider” in a Sunday interview with ABC News.

Asked about Yellen’s comments, Biden said he was considering it on Monday.

“By the end of the week, I think I made a decision based on the data I was looking for,” Biden said.

If Washington officials sign a federal gas tax holiday, they will follow the lead of some states, such as Connecticut, Maryland and Georgia – which have already put in place their own temporary measures to suspend their gas levies.

In addition, some states, such as California, are considering giving direct payments to residents to cover record high gas prices.

Gas tax savings for consumers are minimal

The idea of ​​temporarily eliminating the federal gas tax has generated some criticism.

A report from the University of Pennsylvania’s Penn Wharton Budget, released in March, found that savings from such a break were not substantial for consumers.

Kent Smeters, a professor at Wharton School at the University of Pennsylvania, told CNBC at the time that the savings would be $ 50 per person if implemented in March until the end of the year.

In addition, according to a March report, federal tax revenues could fall by nearly $ 20 billion if the gas tax holiday is implemented by the end of this year.

Gas taxes fund a lot of major road safety programs.

Andrew Gross

An AAA spokesman

The problem is that most of the savings from those changes – whether they occur at the federal or state level – cannot be passed on to consumers, Smeters said.

This could mean less money for the Highway Trust Fund, which funds roads and bridges and other transportation costs. The Senate bill generally proposes to replace tax revenues with the transfer of funds from the general fund to the Highway Trust Fund.

According to AAA spokesman Andrew Gross, federal taxes make up a small fraction of what consumers spend on gas.

The cost of oil is the biggest determinant of gas costs, about 56%, he said. The remainder covers about 14% for refineries, 15% for distribution and marketing, and the remaining 15% for federal and state taxes.

AAA has opposed proposed federal legislation with other organizations, including the American Association of State Highway and Transportation Officers and the American Society of Civil Engineers.

“Gas taxes fund a lot of major road safety programs,” Gross said. “And it’s not that our road safety needs take a vacation.”

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