Gimmicks and Gas Costs

As ALEC has documented, the Biden Administration is hostile towards American energy, and Americans are paying the price. Research from American Enterprise Institute Economist Mark Perry shows that the cost to drive 12,000 miles per year at the average cost of gas is at its highest point in 7 years, jumping from $1,000 in early 2021 to roughly $2,400 in June 2022. Instead of seeing the error of his ways and ending top-down fuel mandates, President Biden is relying on gimmicks. 

So, what’s causing the rising price of gas?

Recent research from the Federal Reserve Bank of St. Louis finds that “gasoline price increases over the past decade have not been driven by a long-term increase in demand, nor have they led to a significant increase in gasoline expenditures as a proportion of GDP.” The authors note that gas prices have steadily risen over the past year, reaching an all-time high this month. 

These price increases are not due to corporate greed. Data from Barron’s shows that gas stations have not earned a consistently higher profit per gallon since Russia’s invasion of Ukraine. Instead, the rising costs has to do with supply restrictions, which stem from both domestic and international issues. 

In an attempt to lower gas prices, President Biden is promoting a three-month federal gas tax holiday, which The Wall Street Journal called “a gimmick.” Gas tax holidays do not fix supply problems. Consumers will want to travel as much as possible during the gas tax holiday, ultimately increasing demand and further constricting supply. 

With the war in Ukraine limiting the supply of oil from abroad and President Biden’s hostility towards domestic oil production, suppliers will not be able to provide enough oil to drive down costs. Even if they could, American refineries are already operating at 94% capacity, bottlenecking the supply chain. As a result, gasoline prices will continue rising as a reflection of higher demand during the gas tax holiday.

In a new report, The Heritage Foundation also called the gas tax holiday a gimmick. In general, federal gas taxes account for 3% to 5% of the total price of gas. According to ALEC’s own research in our forthcoming second annual Energy Affordability Report, the combined state and federal gas taxes can reach as high as 14% of the price of gas. The authors of the Heritage study also note that the federal government will not reduce infrastructure spending during the holiday, requiring a transfer from the Treasury General Fund to the Highway Trust Fund in the amount equal to the foregone gas tax revenue. Ultimately, this will add to the federal budget deficit, further jeopardizing U.S. fiscal solvency.

Another gimmick President Biden is using to temporarily lower prices is to tap into the United States’ Strategic Petroleum Reserve. Even the White House admits that releasing millions of barrels of oil from the Strategic Petroleum Reserve will not lower the price of gas; it will just slow the growth of gas prices. As gas prices continue to rise, the Strategic Petroleum Reserve, which is intended to supply the U.S. with oil during times of war, gets depleted. This puts the U.S. in a dangerous situation as nations like Russia and China grow increasingly aggressive.

President Biden is also hoping to pressure U.S. oil and gas companies to increase output, even though it was his policies that decreased domestic production in the first place. These companies may be hesitant to increase production because they are faced with what economist Robert Higgs calls “regime uncertainty.” President Biden may be encouraging these companies to increase domestic oil and gas production now, looking to shore up short-term domestic poll numbers, but these companies could reasonably expect him to return to the same punitive policies that have defined his presidency — especially in a second term. Any investment these companies make now that turns profitable could quickly become a loss as soon as taxes and regulations are put back in place.

It’s time for President Biden to cut the gimmicks and end the war on American energy. 

In Depth: Energy

It is difficult – and perhaps even impossible – to overstate the relationship between readily available access to safe, affordable and reliable energy and individual prosperity and economic wellbeing. This is because energy is an input to virtually everything we produce, consume and enjoy in society. Think for a minute…

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