Biden’s Federal Gas Tax Holiday: Would It Help Or Hurt Illinois?

ILLINOIS — With gas prices at an all-time high in Illinois, some relief could be coming if a three-month federal gas tax holiday that President Joe Biden proposed on Wednesday goes into effect and that would dent historically high gas prices in Illinois by 18.4 cents per gallon, providing some immediate relief at the pumps.

After months of drivers across America paying more at the pumps, Americans were paying an average of $4.96 a gallon for gas Wednesday, according to AAA. In Illinois, the average price was $5.49 a gallon on Wednesday. In Chicago, gas prices have soared well above $6 per gallon with the prices of a tank of premium gas pushed higher than $7 per gallon in some spots.

Gas taxes in the Land of Lincoln are the fifth-highest in the country, according to AAA. Only residents in Pennsylvania, California, Washington, and New Jersey paid more at the pump than they do in Illinois, where the gas tax comes in at 39.2 cents per gallon.

Pennsylvania (57.6 cents per gallon) and California (51.1 cents per gallon) are the only two U.S. states where gas taxes top 50 cents per gallon. In Illinois, local gas stations will soon start to display stickers on gas pumps reminding drivers that Gov. J.B. Pritzker is suspending a hike on the state’s gas tax beginning on July 1. Gas stations not displaying the stickers face fines of up to $500 per day, which prompted a lawsuit earlier this spring.

The state's gas tax of was set to increase in July, but under the new state budget, it will remain the same through the end of the year.

The move proposed by the White House could be more psychological than effective in an economy battered by the highest inflation in 40 years, saving motorists a couple of bucks every time they fill up. On average, U.S. drivers use about 600 gallons of gasoline annually; that translates to a savings of about $10 a month.

Put another way, the federal gas tax is only about 3 percent of the nearly $5 Americans are paying for a gallon of gas.

Inflation is a big political problem for Biden and Democrats heading into the midterm elections. Biden on Wednesday reiterated an earlier call on states to suspend state gas taxes, which are typically larger than the federal levy.

Gas taxes vary widely by state, from the highest in Pennsylvania (57.6 cents), California (51.1), Washington (49.4), New Jersey (42.1), and Illinois (39.2), to the lowest in Alaska (8.95) Hawaii (16), New Mexico (17), Mississippi (18) and Arizona (18), according to data from the IGEN tax software company, as reported by Forbes.

So far, four states have approved gas tax holidays, according to Penn Wharton Budget Model analysts at the University of Pennsylvania.

Maryland’s holiday lasted a little more than a month, Connecticut’s three-month holiday was set to expire this month but was extended through Dec. 1, Georgia’s four-month holiday ends July 14, and New York’s seven-month holiday that began June 1 continues through the end of the year.

The Wharton Budget Model found the state gas tax holidays were effective. In Maryland, a 72 percent savings on gas was passed on to consumers. So far in Connecticut, consumers have seen savings of 71 percent to 87 percent. In Georgia, savings of 58 percent to 65 percent have been passed on to consumers.

Some analysts say gas tax holidays drive prices higher by encouraging people to drive more at a time of imbalance between demand and supply. Demand is up as Americans return to pre-pandemic driving levels, yet the supply has tightened, in part because of Russia’s invasion of Ukraine.

Biden again on Wednesday accused oil companies of price gouging and encouraged them to return refineries to full production. In a letter to oil producers last week, Biden said historically high profits for refining oil into fuel are “not acceptable” during a time of war. Oil and gas executives will gather at the White House Thursday for an emergency meeting with Energy Secretary Jennifer Granholm.

“We want to try to start that conversation and get something done … we are willing to help them,” White House press secretary Karine Jean-Pierre said last week. The administration wants to hear solutions from the energy companies themselves, Jean-Pierre said, adding that “maybe there’s a way that we can help them meet that capacity.”

The Committee for a Responsible Federal Budget, a Washington, D.C.-based nonprofit public policy group, said in a February analysis that suspending the federal gas tax would significantly cut Highway Trust Fund revenue. That group also puts the cost of the proposed gas tax holiday at $20 billion.

“While the gas tax holiday may reduce prices at the pump, it will further increase demand for gasoline and other goods and services at a time when the economy has little capacity to absorb it," the analysis said. "The result could be even higher rates of inflation in 2023."

Treasury Secretary Janet Yellen said a gas tax suspension is “not perfect” but could help offset inflation.

Congress would have to approve the federal gas tax holiday. Democratic Congressman Earl Blumenauer of Oregon wrote in a letter to Biden that “while there is undoubtedly a need to provide American consumers relief from spiking costs, there is no guarantee a gas tax suspension would reduce prices at the pump or stem the broader inflation affecting the global economy.”

He added the holiday “may only increase oil companies' bottom lines."

Biden’s old boss, President Barack Obama, bashed a gas tax holiday as a “gimmick” in his 2008 White House campaign.

“We're arguing over a gimmick that would save you half a tank of gas over the course of the entire summer so that everyone in Washington can pat themselves on the back and say they did something,” Obama said at the time. “Well, let me tell you, this isn't an idea designed to get you through the summer, it's designed to get them through an election.”