A gas tax cut won’t do much to fix high prices driven by a supply shock. Experts warn it could actually make inflation worse.
President Joe Biden is considering a gas tax holiday to provide much needed relief for Americans, many who have been struggling to afford rising gas prices. However, suspending the federal gas tax could exacerbate one of Biden’s greatest headaches—America’s surging inflation. Oil prices have skyrocketed in recent months, largely because of Russia’s invasion of Ukraine, sending the White House scrambling to find ways to bring down the cost at the pump. Biden told reporters on Monday that he hoped to have a decision on implementing a gas tax holiday by “the end of the week”, adding that his administration is also considering sending out gas rebate cards. Such a move would still need to make its way through Congress, but it could lower prices at the pump by as much as 18 cents a gallon. The problem with a tax cut, though, is it won’t do much to fix the supply shock that has spurred the high prices. In fact, it could make it worse. David Fiorenza, an economics professor at Villanova University, told Newsweek that decreasing prices will provide people with “more discretionary money to spend on food, vacations, day trips, entertainment and even save money or pay down debt.” He also cautioned that “fueling the economy with excess money will cause inflation” and further exacerbate the current situation.
“This is what happened with stimulus money”, Fiorenza said. “It is a result of both [the Biden and Trump] administrations pouring money into consumers’ pockets.
